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Glossary of Medicare Reimbursement

by Pei-Chih Lee, JD, MPH on November 21st, 2010

Much of the news recently has focused on the significant reductions in Medicare reimbursements for physician services as well as potential changes to health care reform given the outcome of the recent elections. While laws regarding Medicare may change, the following is a brief glossary regarding Medicare reimbursement.

Relative Value Scale Update Committee [RUC]

Formed in 1991 by the American Medical Association and groups representing physician specialties, this committee meets three times a year to determine the relative value of procedures offered by physicians. Although members sign a confidentiality agreement and meetings and votes are secret, the AMA has reported that the Centers for Medicare and Medicaid Services [CMS] accepts and incorporates at least 90% of the RUC’s recommendations into Medicare’s Resource-Based Relative Value Scale [RBRVS], the system that reimburses physicians for medical procedures, imaging studies and tests performed.

RUC members review physician surveys ranking medical procedures based on time, difficulty and skills required, and then vote on a work value to the specific medical procedure at issue (relative to other medical procedures). For example, CMS awards 38 times more work units for surgery to remove a brain tumor versus a detailed office examination on a patient with moderate health issues. This process has garnered increased scrutiny and criticism through the years for its secrecy and for widening the gap in reimbursement for services by primary care physicians versus specialists.

Sustainable Growth Rate [SGR]

The SGR was initiated in the Balanced Budget Act of 1997 and is a formula to determine a target rate of reimbursement for physicians who see Medicare patients. The SGR is tied to the national Gross Domestic Product [GDP] such that the rate of physician reimbursement rises or declines with the GDP. In 2002, as the economy began to falter, Congress reduced physician reimbursements per this formula. Since that time, however, Congress has declined to enforce the SGR, opting instead to continue reimbursing physicians at the former rates and thereby contributing to a budget deficit.

If Congress fails to pass a law declining again to enforce the SGR, physicians face a severe reduction in fees beginning December 1.

Recovery Audit Contractors [RAC]

Created as part of the Tax Relief and Health Care Act of 2006, Congress established a national program to audit claims of health care services provided to Medicare beneficiaries in an effort to reduce fraud and waste. CMS awarded contracts to four RACs in an open bidding process, with each contractor responsible for auditing and processing claims for specific regions of the country. Each RAC is paid on a contingency fee based on the overpayments and underpayments found.

Medicare Payment Advisory Commission [MedPAC]

MedPAC is an independent congressional agency, also established by the Balanced Budget Act of 1997 and which is tasked with advising Congress on issues affecting the Medicare program. It is composed of 17 commissioners who are appointed to serve three-year terms.

Independent Payment Advisory Board [IPAB]

The Patient Protection and Affordable Care Act establishes the IPAB which, beginning in 2013, will have the responsibility of reviewing and recommending changes to limit Medicare spending to a rate based on the consumer price index for the first few years, and then based on the GDP in subsequent years. The President will appoint 15 members to the board, subject to Senate confirmation. Proposals affecting physicians begin in 2015 while proposals affecting hospitals and skilled nursing facilities do not begin until 2020.

The formation of the IPAB has been controversial, as the board’s recommendations would focus primarily on reductions in reimbursement for Medicare services since the board does not have the power to change Medicare eligibility or benefits. Moreover, unless Congress responds timely with alternative proposals that provide similar cost savings, the IPAB’s proposals will take effect automatically. Opponents have already introduced bills to repeal the IPAB.


In 2009 Medicare provided insurance to 46.3 million people with expenditures of $509 billion, 3.5% of the nation’s GDP. Due to concerns regarding the budget deficit, we can expect increased efforts to change Medicare reimbursement in the form of tweaking or eliminating some of the fundamentals discussed above (e.g. accountable care organizations, bundling services and eliminating the SGR).

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