On January 7, 2013, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services. The American Medical Association’s (AMA) Relative Value Scale Update Committee (RUC) is, in the court’s view, not subject to the public interest rules that govern other federal advisory groups. Like the district court ruling before it, the decision dismissed the plaintiffs’ claims out of hand and on procedural grounds, with almost no discussion of content or merit.

Thus ends the latest attempt to dislodge what is perhaps the most blatantly corrosive mechanism of US health care finance, a star-chamber of powerful interests that, complicit with federal regulators, spins Medicare reimbursement to the industry’s advantage and facilitates payment levels that are followed by much of health care’s commercial sector. Most important, this new legal opinion affirms that the health industry’s grip on US health care policy and practice is all but unshakable and unaccountable, and it appears to have co-opted the reach of law.

The RUC exerts its influence by rolling up the collective interests of the nation’s most powerful medical specialty societies and, indirectly, the drug and device firms that support and benefit from their activity. The RUC uses questionable “methodologies,” closed to public scrutiny, to value medical services. CMS has historically accepted nearly 90 percent of the RUC’s recommendations without further due diligence. In a damning October 2010 Wall Street Journal expose, former CMS Administrator Tom Scully described the RUC’s processes as “indefensible.”

The RUC’s distortion of America’s health care market, ramping up both care and cost, cannot be overstated. It has consistently over-valued specialty services and undervalued primary care services. Ophthalmologists performing cataract procedures are now paid 12.5 times the hourly rate of PCPs involved in a moderately complex office visit, arguably a more complicated activity.

At the same time, the erosion in primary care reimbursement has reduced office visit durations and undermined primary care’s moderating influence over specialty care. These dynamics are almost certainly responsible for the doubling of specialty referrals over the past decade.

The RUC’s excessive valuations of certain procedures — e.g., cardiac stenting, colonoscopies, back surgeries — have created lucrative incentives for over-utilization. 2008 OECD health data showed that, for every inpatient percutaneous transluminal coronary angioplasty (PTCA) performed on patients in the United Kingdom, New Zealand or Switzerland, we do more than four in the US. Then there are data showing a clinically inexplicable 15-fold increase in complex spinal fusions between 2002 and 2007, with adjusted mean hospital charges of $81,000.

All health care interests except primary care win under this arrangement. Everyone else loses. Unnecessary care puts patients at physical risk. Purchasers — taxpayers, employers and individuals — pay twice the cost of care in other developed countries, an economic burden that now threatens to pull the US economy off a cliff. And the role of PCPs gets short shrift.

The legal objection to the RUC

The core of the Augusta physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.

The RUC adheres to none of these and is an object lesson in how special interests can be insinuated into and capture regulatory processes, displacing the public interest. For example, when the legal challenge was first filed, only 3 of 29 RUC panelists (10 percent) represented primary care, even though some 30 percent of US physicians practice primary care. RUC meetings are closed to the public, unless an invitation is extended by the Chair, and admission is tied to the guest signing a nondisclosure agreement. Determination of a procedure’s value has been based on as few as 30 survey responses by physicians who know that their reimbursement will be linked to how they have answered the questions.

The effects of the RUC’s influence

There are also several cascade effects. One is our crisis-level shortage of PCPs. All but the most idealistic medical students are steered away from primary care and into the specialties by relative low reimbursement. A PCP can expect to earn $3.5 million less over a 30-year career than a typical specialist. When the comparison is against high-earning physicians, like orthopedic surgeons, the difference is $10 million. Just as our boomer population reaches its years of highest health care use and cost, we’ll have a devastating primary care shortage, which in turn will propel traditional primary care cases into far more expensive and often unnecessary specialty care.

And, as lead plaintiff Paul Fischer MD has noted, the policies promoted by the RUC have degraded many areas of specialty medicine, narrowing care patterns as specialists “practice to the codes” that are most lucrative, and straining the collegiality that, until recent years, characterized most medical care.

One difficulty in challenging the RUC is that, to lay observers, it can appear to be a technical issue, accessible only to people who get down in the weeds. But it is foundational, defining the relative value of care services, which in turn drives pricing, profitability and care patterns.

That said, there are true experts who grasp the gravity of the problem. Among the most compelling are four former Administrators of CMS — Gail Wilensky, Bruce Vladeck, Tom Scully and Mark McClellen — who came together in a remarkable round table discussion last March in front of the Senate Finance Committee, co-chaired by Orrin Hatch and Max Baucus, unanimously agreeing that the RUC has been a colossal error and must be replaced (See the video here.) As Dr. Vladeck commented:

I’m hopeful that some combination of the need to address overall deficit reduction strategies more generally and a different kind of political climate in the relatively near future will create the opportunity for people to say, “We made a mistake in 1997. We created a formula that produces irrational and counterintuitive results, and we’re just going to abolish it and start all over again in terms of some kind of cap on Part B payments. It’s the only way we’re going to get out of this morass.”

A laudable effort by six primary care physicians

America’s health care community should also acknowledge the tremendous effort mounted by the six Augusta, GA PCPs: Robert Clark, Becca Tally, Paul Fischer, Edwin Scott, Rob Suykerbuyk and Les Pollard. These physicians financed the legal challenge out of their own pockets and did so for no other reason than they were convinced of the huge wrong CMS’ relationship with the RUC perpetrates on the American people and on primary care. They are great American citizens who, unlike their primary care societies, took a stand on behalf of the public interest, literally putting their money where their mouths are and paying the price of admission to the legal system.

American health care has many problems that contribute to uneven quality and egregious cost, but CMS’ longstanding relationship with the highly conflicted and unaccountable RUC is among the most outrageous and damaging. Now, with legal remedies exhausted, the avenues of redress are limited.

As Dr. Vladeck noted, perhaps America’s looming fiscal crisis, driven primarily by its health care costs, can compel Executive or Congressional action on the RUC. Only if the CMS Administrator changes her agency’s reliance on the RUC in its current form, presumably with pressure from the White House, Congress and the HHS Secretary, can this problem be resolved. Doing so would be a huge step toward regaining our fiscal balance, not just in health care but for the nation as a whole.

Brian Klepper is Chief Development Officer of WeCare TLC and blogs at Care and Cost.