GAO: CMS Too Reliant on Doctors When Setting Medicare Pay Rates

CMS is too reliant on the American Medical Association when setting provider reimbursement rates, according to a recent Government Accountability Office report, the New York Times reports.
The report focused on CMS’ process to set provider payment rates that account for more than $70 billion in federal spending each year. CMS uses a fee schedule to set the rates, which are determined based on the “relative value” of each provider service. Services determined to be more time-consuming or difficult are reimbursed at higher rates than those that are less demanding. For example, hip replacements are reimbursed at higher rates than cataract surgeries or regular office visits. When setting the rates, CMS takes into account the amount of time it takes to perform the services, the physical and mental efforts required and the technical skills needed.
According to the report, CMS uses a panel of 31 providers formed by AMA and medical specialty societies, called the Relative Value Scale Update Committee, to help inform their payment rate decisions. The group’s meetings are open to the public, but attendees must sign confidentiality agreements prohibiting them from disclosing any information about the meeting’s considerations.

Panel Might Be Biased

The report noted that the panel could be biased when helping CMS to set the rates because the provider group could have conflicts of interest. According to the report, provider groups “donate [more than] $8 million” annually in services to the committee and “hundreds of physicians” volunteer for the panel.
Further, the report found that along with AMA’s influence, flaws in data collected by AMA “could result in inaccurate Medicare payment rates.” According to the Times, medical societies collect information about their physicians’ work through member surveys. The data are intended to help determine the time and intensity required to perform certain services, as well as the costs associated with them, including expenditures related to:

  • Equipment;
  • Malpractice insurance;
  • Office space;
  • Supplies; and
  • Wages.

However, the surveys usually have low participation rates, which spur questions about the data’s accuracy. Further, CMS does not have a means to verify the data, according to GAO. The report noted that such weaknesses “could lead to inflated Medicare payment rates” in some instances.
Overall, the report noted that CMS “does not fully disclose information upon which its decisions were based” and does not use a “standardized process” for determining the relative value of services performed by providers.

Medicare Rates Influence Rest of Health Care Industry

According to the Times, the payment rates set for Medicare often have a ripple effect on the rest of the health care industry and a direct effect on consumers. Medicare beneficiaries usually pay for around 20% of the provider reimbursement fees. Further, many private health insurers use Medicare’s fee schedule to help determine how much they will reimburse providers for specific services. In addition, physicians might be more likely to perform more of services that are overvalued by Medicare.


Barbara Levy, who has chaired the RVSUC for the past six years, said she did not see the conflicts of interest on the panel. She noted that the committee does “not tal[k] about dollars or money,” but “about the time and resources that are necessary to perform a procedure.” She said, “I can’t imagine how anyone other than a group of physicians could provide that kind of expertise.”
However, Rep. Jim McDermott (D-Wash.), a member of the House Ways and Means Committee’s Subcommittee on Health, said that while “Medicare certainly needs clinical expertise to appraise the value of doctors’ services,” CMS “give[s] medical specialty societies an undue influence on their own payments.”
Meanwhile, the American Academy of Family Physicians has long called for including more primary care physicians on the RVSUC, as well as consumer advocates, employers and health economists.
The Obama administration said it is seeking more information on the issue so that it can determine more accurate Medicare payment rates. Under the Affordable Care Act, CMS is required to reassess the value of physician services. Congress in 2014 allocated $2 million for the agency to collect its own data to help inform Medicare reimbursement rates. However, GAO noted that the agency “does not have a specific timeline or plan for using these funds” (Pear, New York Times, 5/31).