Printer Friendly

Regulating Doctors' Fees: Competition, Benefits and Controls Under Medicare.

Regulating doctors' fees is a crucial component in the federal government's struggle to slow health expenditures that consumed 12.2% of the 1989 GNP [1, ix]. The Omnibus Budget Reconciliation Act of 1989 contained a Congressionally-mandated fee schedule to rein in the $41.2 billion Medicare physician payments [1, 56]. The fees would be based on a national standard adjusted for geographic regions [1, 5]. Regulating Doctors' Fees: Competition, Benefits, and Controls under Medicare is a timely compilation of articles, commentaries and discussions that examine William Hsiao's proposal for Medicare to use his Resource-based Relative Value Scale (RBRVS) as a cornerstone for physician payments. In general, the articles deliberate payment issues, explain the medical marketplace, critique Hsiao's work, project the impact of implementing the RBRVS and offer alternative proposals.

Hsiao's scale is based on measuring three patient care resource inputs from about 1,900 physicians: time involved and intensity of services; practice costs; and physician training opportunity costs. An innovative part of the methodology employed 14 physician advisory committees to oversee the project.

Hsiao found that Medicare physician payments, relative to resources, are too low for evaluative and management services and too high for imaging, invasive and laboratory services [p. 2331. This, not surprisingly, encourages inappropriately high use of surgery and tests by Medicare patients [p. 234].

H. E. Frech III opens the book with a helpful overview of health care payment issues and summary of other authors. He outlines the problems of consumer information, defines monopolistic competition, physician payments under Medicare, policy alternatives, the Resource-based Relative Value System and then neatly summarizes the subsequent essayists. Part One focuses on Physicians Markets and Medicare benefits. Joseph Antos first discusses increasing Medicare payments, growth in physician payments, policy alternatives and policy implementation issues. With this background, other contributors examine different aspects of the medical market with an occasional reference to Hsiao's findings.

In Part 2, Hsiao recaps his research, which is my only complaint. The earlier discussions of Hsiao's methodology by other authors is more detailed compared with Hsiao's own explanation. I would have preferred that Hsiao provided the detailed explanation. This is important because other contributors question parts of the methodology and Hsiao only directly responds during a panel discussion instead of in a more formal manner.

For instance, Hadley raises three concerns with the RBRVS. First, he contends the RBRVS formula is actually an index of physician work not the cost of the effort. Second, he questions the validity of the allocation of non-physician and opportunity costs. Finally, Hadley argues the cost formula strays from the cost function under standard economic theory [p. 116].

Hadley illustrates his view by comparing the non-physician cost allocation between interpreting lab test and a physician office visit. He observes that medical tests may require more non-physician input costs than an office visit. However, Hsiao's formula allocates more non-physician costs to the office visit if it uses more physician effort [p. 117].

Part 3 is entitled the lessons from Research, Theory and Experience. One essay by Robert Berenson, M.D., provides a reasoned physician's response to Hsiao. Berenson argues the values of the scales might differ with an alternative group of physicians (i.e., HMO Medical Directors) as advisory committee members. His review of other essays is also excellent because he understands the conceptual basis of these writings. For instance, he agrees with Dranove and Satterthwaite that physicians have a compensating differential so that some physicians would accept lower incomes. He correctly adds this occurs after physicians pass an income threshold [p. 393].

This is an excellent book for four reasons. First, many articles cogently argue their cases with enough quantitative rigor to satisfy econometricians. Second, most authors apply their findings to the real world. For example, Dranove and Satterthwaite link a kinked demand curve and balanced billing practice to provide a technical explanation of the effect of implementing a RBRVS on demand by Medicare patients. They postulate "an interesting and perverse possibility that a system that is budget neutral from the viewpoint of Medicare may significantly increase costs to Medicare recipients" [pp. 61-62].

Third, the give and take among the writings enlivens a potentially dry subject. One example is Joel Franck's, M.D., semi-hysterical comment that, following Hsiao's proposal, "perhaps we should confiscate all profits from American industries because prices do not match costs" [p. 2381. Four, the contributors' list is a Who's Who in health policy, including Paul Ginsburg, Jack Hadley, Clark Havighurst, William Hsiao, Joseph Newhouse, Mark Pauly, Warren Greenburg, and Robert Helms.

As someone who has used many textbooks, I am delighted this is marketed as one. The volume is well organized, provides clear definitions and shows the real world implications of policies. The point-counterpoint approach offers advanced economic students an excellent structure to evaluate the essays and ponder health policy.


[1.] Universal Health Insurance Coverage Using Medicare's Payment Rates. Congressional Budget Office. December 1991.
COPYRIGHT 1992 Southern Economic Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Chasin, Steven H.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jul 1, 1992
Previous Article:The Economic Legacy of the Reagan Years: Euphoria or Chaos?
Next Article:Economic Theories of Development: An Analysis of Competing Paradigms.

Related Articles
A guide to evaluating managed care companies.
The perpetual health care crisis; there may be no public policy solution to health care.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters