What Is a Doctors Relative Worth?


Jane Orient, M.D., is in the private practice of medicine in Tucson, Arizona. She is also an associate in internal medicine at the University of Arizona College of Medicine.

Congress has decided that some doctors aren’t worth nearly as much as they get paid. Their “inflated” fees are one of the primary targets of the Medicare budget-cutters. Prostate surgery, cataract surgery, coronary artery bypass, and total hip replacement are often given as examples of “overvalued” procedures.

On the other hand, some doctors think they don’t get paid enough. Among these are internists, family practitioners, and pediatricians, who spend most of their time talking to patients and examining them. Insurance companies don’t pay as much for an hour of conversation as for a few minutes of cutting or of manipulating a catheter or an endoscope. As a rule, patients are not willing to pay very much for a mere consultation either. Our society tends to place a higher value on technical skills than on “cognitive” ones. Patients seem to think that a new lens in their eye, an injection, or a sophisticated laboratory test is worth more than a clinical diagnosis or a piece of good advice (e.g., to stop smoking).

As an internist, I also think that I deserve to be paid more. And I suspect that some of those others deserve to be paid less. Unfortunately, none of the “proceduralists” have offered to share the wealth with me (and if they did, they might be accused of fee-splitting and sent off to jail). If I raise my fees too much, patients might decide to find another doctor. (In any event, physicians can’t raise fees to Medicare patients above the government- imposed ceilings called MAACs or Maximum Allowable Actual Charges.)

A voluntary solution to this perceived maldistribution of income does not seem possible. So what is to be done? Enter the government and its helpers, who promise to devise a “fair,” if coercive, solution.

How Many Blood Pressure Prescriptions Are There in One Hernia Operation?

For a mere two million dollars, the Health Care Financing Administration (HCFA) and several foundations have funded a study that could revolutionize the way that physicians are paid. Researchers have developed the re-source-based relative value scale (RBRVS), which assigns a “value” to each medical service in terms of its cost in “resources,” relative to other services. For example, an “office visit, limited service, established patient” to an allergist is worth 62 RBRV units, whereas a “repair of an inguinal hernia, age 5 years or over” is worth 476 and an “initial history and physical examination related to the healthy individual, including anticipatory guidance; adult,” if done by an internist, is worth 114.[1]

Researchers at the Harvard School of Public Health, under the leadership of health economist William Hsiao, arrived at these figures by a complex process that started with calling a number of doctors on the telephone. The researchers wanted to determine the amount of time required to perform various services, and also the intensity of the effort required. How much skill was needed, and how much stress was involved? The doctors were asked to consider a “reference” procedure, such as a follow-up visit with a 55-year-old man on two types of blood pressure pills, and compare it with other services that they might provide. For example, the doctor might say that an intermediate telephone consultation with a patient who has a rash takes one-fifth as much physical effort but 10 times as much diagnostic acumen as seeing the man with high blood-pressure. Refining the information, researchers accounted for “intraservice,” “preservice,” and “postservice” work. Also entered into the final equations were overhead costs, including malpractice insurance and the cost of the required training.

Weighting the Scales

Some physicians (usually “proceduralists” by specialty) argue that the study was biased from the beginning. HCFA wanted the outcome to favor “cognitive” instead of “procedural” work, so they chose a study group that had previously reported the desired findings. Apparently, HCFA got what it was paying for.

The Harvard group also has been accused of violating one of the fundamental rules of scientific research. The researchers failed to specify in advance the method to be used for normalizing the rankings across various specialties ranging from allergy to psychiatry to plastic surgery. Ophthalmologist Robert Reinecke, MD, of Thomas Jefferson University Hospital, thought that Hsiao’s group might have withheld the details in order to prevent some specialists from jury-rigging the rankings to beat the system. However, in response to queries at an informational meeting in Dallas, the project directory for the Hsiao study stated that the methodology had not been worked out, and that the researchers planned to try different formulae until the data looked right. In other words, the researchers could manipulate the methodology until the calculations supported their predetermined conclusions.[2] The results could then confirm the Statistician’s Law: “If you torture the data long enough, it will confess.”

Although the rankings passed statistical tests for reliability, many of them failed the test of common sense. For example, ear, nose, and throat specialists noted that the removal of one lobe of the parotid (salivary) gland, a fairly simple procedure, had the same relative value as an extensive and difficult cancer operation. Obstetricians noted that a simple diagnostic D&C was assigned a higher value of intensity per unit time than performing a hysterectomy or attending a patient during a difficult labor.[3]

Some specialists agree that certain procedures may be overvalued, but they argue that the resulting payments enable them to continue to perform services that are undervalued. For example, the fees for cataract surgery subsidize medical treatment of glaucoma, a time-consuming service. Lowering the fees for cataracts might make it impossible for individual practitioners to survive, while high-volume “mills” take over the field. Similarly, reducing fees for D&C’s might drive physicians to drop their obstetrical practice, because fees for delivering babies are inadequate to cover the malpractice insurance premiums. Price ceilings would also destroy doctors’ ability to adjust their fees according to patients’ ability to pay. Furthermore, they may become less willing to accept difficult cases.

A “Bait and Switch”?

Two strong boosters of the RBRVS, the American Society of Internal Medicine (ASIM) and the American Academy of Family Practice (AAFP), believe that the government has finally recognized the value of the “cognitive” services provided by their members. They have joined forces with a powerful lobby, the American Association of Retired Persons (AARP), to push for its acceptance.

The agenda of the AARP is clear, except perhaps to ASIM and AAFP. AARP leaders want to force physicians to work for the government for a fixed fee (“take assignment”). A ban on “balance billing” is the next step after the RBRVS. One impediment to this agenda is the perception that there are inequities in the current system of paying physicians. Once physicians agree to accept a system that is “fair,” their case against a fixed-fee schedule is greatly weakened.

The government also might look favorably on the RBRVS, but not out of sympathy for beleaguered internists and family doctors. HCFA needs a cost-containment tool. At first, it may appear to physicians that many will increase their incomes substantially, even if at the expense of their colleagues. However, this pay increase might be a temporary effect. The dollar value of the payment is determined by multiplying the RBRV units by a conversion factor. The conversion factor could be lowered at will. Alternately, new measures to “control the inappropriate volume of care” (i.e. rationing) could be introduced. Increases in fees could be offset by disallowing claims on the basis that the service was medically unnecessary. In fact, such denials already occur. (For example, HCFA denied payment for an “unnecessary” electrocardiogram on a patient who had a cardiac arrest in the intensive care unit.)

Descriptions of the RBRVS appear overwhelming in their erudition and their complex algebra. In one’s struggle to understand what is included in the calculations, it is easy to overlook that which is left out: the value of a medical service to the patient.

Are all “office visits, limited service, established patient” of equal importance to the patient? The Harvard researchers never interviewed a single patient. If they had, a patient might have told them that some visits result in a lifesaving diagnosis or in relief of pain and anxiety. But some visits are for an expensive but purely optional diagnostic test, or for an opinion about a trivial problem. A hernia repair might allow a laborer to continue working. But the same hernia might not pose any inconvenience to a bedridden patient. A cataract operation might restore a patient’s ability to live independently. But he might choose to have the second cataract removed only “because Medicare is paying for it,” as one patient confided in me.

The Objective Versus the Subjective Theory of Value

The RBRVS considers only one side of the transaction. It equates the value of a service solely with the cost of its production. Thus, it is based on an old idea: the objective theory of value, one of the fundamental tenets of Marxist economics. (Of course, the objectivity of some of the costs—such as the estimate of “stress”—is purely a pretense.)

The objective theory of value is often taken as axiomatic. In fact, the critique of this theory in the 19th century by Austrian economists such as Eugen von Böhm-Bawerk represented a revolution in economic thinking—a revolution that has yet to affect the Harvard School of Public Health.

The subjective theory of economic value, proposed by the Austrian economists, recognizes that “the value of all goods is bound up with man and his purposes . . .” (i.e., not solely with the impersonal operation of market forces). “In its subjective sense, value denotes the significance which a good . . . possesses for the well-being of a certain subject.”[4]

While goods do have an objective value, Böhm-Bawerk noted that this is not necessarily proportional to their subjective value:

Two cords of beechwood, for instance, possess equal objective fuel value. And yet one of them may be the only fuel supply of a poor family in a hard winter and absolutely irreplaceable because of their lack of money. It will possess a far greater subjective value for the satisfaction of that family’s wants than will the other cord which is owned by a millionaire. And again, where wood is to be had in such abundance that it constitutes a “free good,” it may very well have no subjective value for anyone’s well-being at all, despite the fact that its “objective fuel value” remains entirely unchanged.[5]

In the subjective theory of value, the individual actor, the purchaser of goods and services, is the unit with which economics is concerned. In private medicine, the individual patient with his own needs and values is the unit of practice. The ranking of values varies with each individual, depending on personal circumstances and expectations. A person may be willing to make great sacrifices to obtain certain services, but will purchase others only if they are very cheap. For example, to one person cancer chemotherapy or surgery may seem a burden so great that the expectation of benefit may not be worth the price (either in money or suffering). To another, a small chance of cure may be worth any amount of pain and all of his worldly possessions. No third person can make a determination of the value of the service, even though its cost to the persons providing it may be exactly the same in the two instances.

According to the subjective theory of value, costs are basically opportunity costs incurred by a decision- maker, i.e., the value of the other goods or services he is willing to forgo in order to obtain the goods or services under consideration. Such costs must be borne exclusively by the person making the decision; they cannot be shifted to others. Nor can they be measured by others, since subjective mental experience cannot be directly observed. (However, the subjective value is reflected in the price that an individual is willing to pay.) Furthermore, costs are dated at the moment of final decision or choice.[6] Recalibration of a relative value scale, say every year, is far too slow to account for changes in the personal circumstances of the actors in any economic transaction.

The objective theory of value reduces both producer and consumer to interchangeable units in a collective. It is the stock in trade of the would-be central planners, who wish to control the practice of medicine, to standardize and depersonalize both medical services and patients. Hsiao sees the RBRVS as a mechanism by which (presumably omniscient) planners can redistribute physicians to areas of need and encourage or discourage certain types of practice or behavior.[7]

Some persons who support the RBRVS do so because they think the alternative proposals for paying physicians would be worse. The method favored by HCFA administrator William Roper is capitation: fixed payment by the head regardless of the number of services that a patient requires or demands. (This method the Kopfausschale was introduced in Germany about 1931).[8] Others propose to pay physicians a fixed amount according to the diagnosis, as hospitals are now paid, regardless of what treatment is provided.

Forgotten in the debates in the corridors of power are two individuals who might be able to arrive at a price for services without the need for a $2 million study: one doctor and onepatient, making a voluntary agreement. The doctor knows what it costs to keep his office open and the opportunity costs of providing certain services. The patient knows the value of a service in his individual circumstances and how much he is willing and able to pay. But the ability of individuals to make voluntary agreements is becoming ever more circumscribed in our welfare state, as the planners gain control of the resources.

Like the leaders of the AARP and other lobbying groups, many persons today believe that the relative worth of an individual doctor is not one cent more than Harvard researchers calculate and the government pays.

In the past, similar methods of central planning and wage and price controls inevitably have led to distortions in the market, especially shortages.[9] After Hsiao and his colleagues figure out how many blood pressure prescriptions there are in a hernia operation, American health planners, like their Canadian counterparts, may be learning the calculus of rationing. The next questions will be like those featured in recent Canadian television specials: How many deaths on the waiting list for heart surgery equal a year of hemodialysis? How many clinic visits for preventive medicine equal a cataract operation? And at what age does the cost-benefit ratio for a pacemaker exceed what “society” is willing to pay?

1.   W.C. Hsiao, F. Braun, N.L. Kelly, and E.R. Becker, “Results, Potential Effects and Implementation Issues of the Re-source-Based Relative Value Scale,” JAMA 1988, pp. 24292438.

2.   R.D. Reinecke, “A Better Mousetrap.? Flawed Research Should Not Be the Basis of Public Policy,” AAPS News 1988 (4), p. 1.

3.   M. Kirchner, “Will This Formula Change the Way You Get Paid?” Medical Economies, April 4,1988, pp. 138-159-.

4.   E. von Böhm-Bawerk, Value and Price: An Extract, 2nd ed. (South Holland, Ill.: Libertarian Press, 1973).

5.   Ibid.

6.   R. Nash, Poverty and Wealth (Westehaster, Ill.: Crossway Books, 1986).

7.   W.C. Hsiao, P. Braun, E.R. Becker, and S.R. Thomas, “The Resource-Bared Relative Value Scala: Toward the Development of an Alternative Physician Payment System,” JAMA 1987, pp. 799-802.

8.   M.J. Lynch and S.S. Raphael, Medicine and the State (Oak Brook, Ill.: Association of American Physicians and Surgeons, 1973).

9.   R. Schuettinger and E. Butler, Forty Centuries of Wage and Price ContrOls: How Not to Fight Inflation (Washington, D.C.: The Heritage Foundation, 1979).


September 1989

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November 2014

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