Anthony DiGiorgio, DO, MHA

Last month’s piece was, perhaps inadvertently, perfectly timed. We introduced Medicare’s prospective payment system (PPS) and discussed its inefficiencies, its stifling effect on innovation, and its fundamental disconnect from market forces. Now, with Robert Kennedy Jr. nominated for Secretary of Health and Human Services (HHS), the debate over PPS has taken on new urgency. Kennedy has proposed removing the American Medical Association (AMA) from its central role in the valuation of physician work, particularly its control over the RUC (Relative Value Scale Update Committee). This begs the question: is cutting the AMA out of the RUC process the right approach?

What Does the RUC Do?

As we discussed last month, the RUC assigns value to the units of work that physicians “sell” to the government under Medicare’s Fee-for-Service (FFS) system. These units of work are defined by Current Procedural Terminology (CPT) codes, which specify the service performed—whether a lumbar fusion, a craniotomy, or a 30-minute consultation. The AMA not only oversees the RUC but also controls the CPT process. Together, these functions allow the AMA to heavily influence how physician services are defined and valued.

While the Centers for Medicare and Medicaid Services (CMS) can theoretically reject the RUC’s recommendations, it rarely does. This has made the AMA, through the RUC, a powerful gatekeeper in how healthcare dollars are distributed.

Criticisms of the RUC Process

The RUC has faced criticism from both sides of the political aisle. One major complaint is its lack of transparency: deliberations occur behind closed doors, with limited public accountability. Critics also point out that the RUC is dominated by specialists, potentially skewing reimbursement in favor of high-cost procedures while undervaluing primary care services.

RFK Jr.’s proposal to remove the AMA from the RUC process is not groundbreaking—it has been discussed before. However, what makes it significant is Kennedy’s potential role as HHS Secretary. If he prioritizes this reform, it could have sweeping implications for Medicare’s payment system and, by extension, the entire U.S. healthcare market.

Why Removing the AMA Isn’t Enough

While the central planning aspect of the RUC rightly draws criticism from free-market advocates like myself, simply removing the AMA from the process does not address the underlying issues. Worse, internalizing the RUC process within CMS would eliminate physicians’ voices altogether, leaving valuation decisions entirely in the hands of government bureaucrats. This approach would likely exacerbate the problems we discussed last month: an inability to respond to real-time market forces and delays in innovation due to bureaucratic rigidity.

The fundamental flaw lies not in who controls the RUC but in the centralized nature of the process itself. Shifting authority from the AMA to CMS or another administrative body does nothing to address the distortions inherent in a centrally planned payment system.

Toward Structural Reform

To truly reform how physicians are paid, we need to look beyond shifting control of the RUC and address the structural issues at the heart of the Fee-for-Service model.

1. Introduce Market-Based Pricing:
   Medicare should experiment with models that allow prices to be set by market forces rather than static schedules. For example, competitive bidding or reference pricing could create a more dynamic system where reimbursement rates reflect actual demand and cost variations.
2. Empower Patients with Choice:
   A more transformative approach would be to move away from Fee-for-Service altogether. Redirecting Medicare funds directly to patients in the form of vouchers or health savings accounts (HSAs) would allow individuals to purchase plans or services that best meet their needs. This would introduce the same dynamism we see in other economic sectors, where competition drives efficiency and innovation.
3. Reposition the RUC as an Advisory Body:
   In a market-driven system, the RUC could serve as an advisory body for private insurers, helping to standardize service definitions and provide guidance on valuation. This would reduce its outsized influence on Medicare payments while preserving its technical expertise.
4. Refocus CMS’s Role:
   Instead of acting as both regulator and operator of the payment system, CMS could shift to a purely regulatory role, ensuring fairness and accountability in a competitive market.

Conclusion

RFK Jr.’s proposal to remove the AMA from the RUC process highlights a genuine problem: the undue influence of a single organization over physician payment policies. However, addressing this issue requires more than transferring control to another bureaucratic entity. The real solution lies in reducing central planning altogether and introducing market-based mechanisms that align incentives, encourage innovation, and respond to patient needs.

Medicare’s prospective payment system, and the RUC process that supports it, has distorted healthcare markets for decades. Reforming the system requires bold thinking that puts patients, not bureaucrats, at the center of healthcare decisions. By empowering individuals and unleashing the power of market forces, we can build a healthcare system that delivers better outcomes, fosters innovation, and finally moves beyond the inefficiencies of central planning.