While Congress slept....

While Congress Slept . . .

WHEN Congress approved a massive overhaul of the $47-billion-a-year Medicare physician payment program in December, no one paid attention. Too bad. For this "reform"--designed to even out pay differences among medical specialities--has in fact turned out to be a giant step forward for those pushing for comparable-worth legislation removing wages from the marketplace.

That's not the way proponents will put it, particularly Dr. William Hsiao, the Harvard economist who hatched the Relative Value System (RVS) of payment. But a number of others disagree, and it's interesting to note that the American Nurses Association claims that the new physician payment system sets a precedent for their own struggle for comparable-worth payment.

As with all such comparable worth plans the RVS appears to be based on the Marxist labor theory of value, which is another way of saying that value is totally arbitrary. True enough, Dr. Hsiao has given his system a scientific gloss by coming up with values for hundreds of physician services based on his research over the last decade. Ultimately his RVS will "rationalize" fees for some seven thousand different services, the general principle being that this is accomplished more readily by a Harvard equation than by the thousands of individual decisions that go into a market price.

This is dubious on the face of it, but RVS is pernicious for another reason, the egalitarianism common to almost all centrally administered pricing mechanisms: the goal of bringing the incomes of higher-paid specialties (surgery, radiology, etc.) in line with those of lower-paid ones (internists, general practitioners, etc.). Here is where the arbitrariness of the plan comes in, for to reach this goal the planners assign more weight to office visits and the like and less weight to medical procedures, almost the exact opposite of the way the current system works. The bottom line is that surgeons and diagnostic specialists will ultimately see their Medicare fees fall by an average 30 per cent while, say, general practitioners will realize a similar increase. Sensing the opportunity, organizations of chiropractors, podiatrists, and optometrists have already asked Congress to include their specialties in the RVS as well so they too can earn "equal pay for equal work."

Not surprisingly the first to push for this system were some of those doctors on the lower rungs of income level, represented by the American Society of Internal Medicine (ASIM), which endorsed RVS back in 1981. At that time few people outside their own ranks thought that pay differences between specialities was a major social problem. But by the mid-1980s Medicare payments to physicians was growing at an annual 15 per cent clip, one of the fastest-expanding areas of the federal budget (in part because of other federal incentives, such as cost controls limiting hospital stays, which in turn boost outpatient service). Congress took note.

The ASIM argued to congress that certain medical specialties were overpaid. Now, this happens to be true, largely due to other incentives (already built into our medical system by prior acts of political meddling) that encourage one kind of service over another. ASIM's argument touched a nerve in Congress because of its frustration over the rising costs it had helped fuel. In its zeal to legislate, however, Congress overlooked the fact that the RVS wouldn't save any money--all it does is redistribute it differently among doctors . Again it is interesting to note that perhaps the biggest proponent of RVS in Congress was a former nurse, Sheila Burke, chief of staff to Senate Minority Leader Robert Dole (Kan.).

There was never really any debate in Congress over whether or not the RVS was a good idea. The physician Payment Review Commission, created in 1987 to advise Congress on payment reform, swiftly endorsed the concept. This itself was foreordained, given the commission's general liberal make-up, including former health policy advisors to the failed Dukakis and Mondale Campaigns. The American Medical Associations aproved it as well, perhaps for the simple reason that more of its members stood to gain than to lose under RVS. And so the "reform" sailed through Congress with hardly any thought, under the vague notion that it could somehow be used to put a damper on physician costs.

The Bush Administration bears some blame as well. Health and Human Services Secretary Louis Sullivan, William Roper, then chief of the White House Office of Policy Development, and Budget Director Richard Darman all went to Capitol Hill to lobby on behalf of RVS. The irony is that, according to Mr. Roper, the White House does not really care for RVS itself; it saw it merely as a means to put government caps on Medicare Physician costs. In other words the White House aimed to add one layer of regulation to try to solve the problems caused by a prior layer of regulation.

The real problem of course, is that the market hasn't been operating in the U.S. health-care system for some time. Between private insurance (usually paid for by the employer and not taxed), Medicare, and Medicaid, no one is paying for his own medical treatment, which means that after meeting one's deductible payment, there's no reason not to consume as many services as possible--and if the visit is free, why not see the doctor at the first sign of trouble? So-called reforms such as RVS leave this foundation of perverse incentives intact, and only create more problems.

That's bad enough, but in this case the distortion of the price system went one step further: toward incomes. As the nurses were quick to realize, the RVS moved us closer toward setting up comparable-worth mechanisms that would, for example, require that secretaries and truck drivers be paid the same; for once you take prices out of the market and give them to the government, almost anything can happen. And you can bet that there will be another Harvard economist to come up with the right theory to justify it.

Miss Mandel is NR's congressional reporter.