To calculate physicians’ fees under Medicare—which in turn influence private payers’ decisions on how they will pay doctors—the Centers for Medicare and Medicaid Services (CMS) relies on the recommendations of a controversial advisory panel known as the RUC (the Relative Value Update Committee), which mainly represents a broad group of national physicians’ organizations. In recent years physicians in primary care have expressed concerns that this committee has too little representation from their ranks and is partly responsible for increasing the pay gap between primary care providers and specialists. Other research has shown that increases in physician service prices brought about by committee recommendations contribute to increased costs of services used by Medicare enrollees.

In the May issue of Health Affairs, a study by Miriam Laugesen, of Columbia University’s Mailman School of Public Health, and colleagues examines these issues. The authors analyzed CMS’ decisions between 1994 and 2010 and found that CMS agreed with 87.4 percent of the committee’s recommendations on how much physician time and effort is associated with various physicians’ services. However, Laugesen and coauthors also found that CMS’ decisions are less likely to lower fees for evaluation and management services, which account for a large percentage of primary care providers’ income, than for work values of medical specialists.

“This is encouraging for providers in primary care and other specialties that bill the greatest proportion of these services,” write the authors. “However, it does not explain why there has been no reduction in the income gap between primary care providers and specialists.” If policy makers or physicians want to change the update process but keep the Medicare fee schedule in its current form, the authors suggest that Congress and CMS strengthen the agency’s ability to analyze issues such as how the effort and time associated with different physician services are determined.

Other articles in the new issue of Health Affairs discuss:

Variations in Medicare and Medicaid spending.  Richard Kronick, HHS’s deputy assistant secretary for health policy, and Todd Gilmer, of the University of California, San Diego, analyzed 2001–04 data from the CMS State Health Expenditure Accounts and found almost no relationship between the level of spending for Medicare and Medicaid at the state level. Using Medicare and Medicaid claims data, they did, however, find a strong correlation between the spending for these two programs within so-called Hospital Referral Regions—in effect, regional health care markets for tertiary medical care.

According to the authors, these results suggest that the level of both Medicare and Medicaid spending within the regions is influenced by such factors as the local supply of hospital beds, the numbers of specialists, and the availability of other health care resources. The lack of correlation at the state level, however, suggests that other factors, such as overall state income, which influence Medicare and Medicaid utilization differently are at work.

Distorted spending patterns on the “dual eligibles.” Nine million people in the United States, many of them elderly or younger disabled individuals, receive both Medicare and Medicaid benefits and are known as “dual eligibles.” Thomas Bubolz, of the Dartmouth Institute for Health Policy and Clinical Practices, and colleagues examined state-level data and found a nearly threefold difference in per-person Medicare and Medicaid spending around the country on dual eligibles younger than sixty-five. Per-person spending, adjusted for differences in health care prices, ranged from $16,309 in Georgia to $43,587 in New York.

The authors say such large variations among people with serious diseases or disabilities could expose some patients to unnecessary risk and drive costs up unnecessarily in other places. They also found evidence that states may be shifting costs of the dual eligibles from Medicaid to Medicare, presumably by moving them from nursing homes to hospitals. These issues highlight the large potential gains that could be realized if the care for dual eligibles were better coordinated.

Home health care and durable medical equipment spending as main drivers of Medicare spending variations.  Most analyses of geographic variation in Medicare spending have focused on total spending, but James Reschovsky of the Center for Studying Health System Change and colleagues looked “under the hood” at differences in spending across categories of medical services, such as diagnostic tests and durable equipment. In sixty communities nationwide, they found considerable variation.

Even among local communities with similar levels of total health care use, very different combinations of services were used in the provision of health care. Two categories exhibiting large variation were home health and durable medical equipment, which the authors posit could be linked to fraud and abuse. They conclude that these areas may be targets for policy interventions directed at increasing efficiency.