The woeful state of physician reimbursement deserves careful study. Just how did we get here and how can we fix it?

It all started with the development of the relative value scale (RVS). At the time in the mid-1950s, it seemed logical and efficient to apportion a doctor's daily tasks by difficulty and time consumption so that he could more reasonably and correctly bill for his work. In addition, a personalized multiplication factor added to the RVS could reflect overhead costs and that factor could change as overhead costs changed.

Further, others could use the RVS and modify their work product with their own personal multiplication factor. The final result would be a universal formula--a usual, customary and reasonable rate to charge--and all would be happy.

With this incentive, the California Medical Association went to work. In 1956, the CMA launched a project titled "California Relative Value Studies." First, every possible procedure and diagnosis was listed as a code number-the Current Procedural Terminology, or CPT code, as it was later named by the American Medical Association. Then a relative value unit (RVU) reflected the physician's time, resources and work intensity necessary to accomplish each CPT code.

Next, an individual physician assigned a "conversion" factor to the formula based on individual office overhead expenses and local area of practice. When a physician multiplied the conversion factor by the RVU, the "uniform" fee was revealed.

At the time, just about every physician's office had a RVU rate schedule. The booklet was an essential first purchase for any doctor starting a medical practice. In 1969, the CMA published its "California Relative Value Studies." It was revised and published again in 1974. The CMA finally published the "California Standard Nomenclature" in 1979. The final CMA publication is still referred to as the "RVS book."

The recommended use of conversion factors to reflect differences meant that physician fees varied greatly. Eventually, insurers became reluctant to pay at different rates. A cry of injustice was heard throughout the land. The media warned that doctors were operating outside the law and demanded that the sinful RVS be eliminated.

In 1979, the Federal Trade Commission charged that the RVS system placed private-practice physicians in violation of federal provisions against price fixing. Payers were exempt from the ruling. Why were payers allowed to act like businesses when solo and small-group physicians were not?

Physicians secretly hid their RVS books deep in office file drawers and developed individual billing schedules that looked remarkably like the RVS. Young physicians just starting their medical practices bought gray market RVS books and kept them under lock and key.

However, when it came time for the government to pay for Medicare and Medicaid, standardized billing was suddenly recognized as an essential component. The shoe was on the other foot. The government established national standard rates and fees based on a defined and limited total pool of money, which they defined as a "resource." In 1989, the Health Care Financing Administration developed a Resource-Based Relative Value Scale (RBRVS) to redistribute a fixed budget of Medicare funds to physicians. Healthcare rationing, disguised as cost containment, rapidly won legislative approval.

In 1970, projected Medicare spending for 1990 was $16.3 billion. In 1990, the actual cost of Medicare was $109 billion. A few extra billion here and there, and pretty soon the healthcare delivery system added up to major government debt. The RBRVS did not do what the RBRVS was supposed to do.

Then because no good deed goes unpunished, the government came up with an even more confusing dynamic for payment. From the 1991 proposed rule in the Federal Register:

Payment =
[{RVUws x GPCIwa} +
{RVUpes x GPCIpea} + {RVUms x GPCIma}] x CF.

RVUws=Physician work relative value units for the service; GPCIwa=Geographic practice cost index value reflecting one fourth of the geographic variation in physician work applicable in the fee schedule area;

RVUpes=Practice expense relative value units for the service; GPCIpea=Geographic practice cost index value for the practice expense applicable in the fee schedule area;

RVUms=Malpractice relative value units for the service; GPCIma=Geographic practice cost index value for malpractice expense applicable in the fee schedule area;

CF=Uniform national conversion factor.

All of the above only served as more subterfuge. The resource for Medicare funding was based on Americans having an average life expectancy of 65 years in 1964. By 2000, that life expectancy was 78 years and today it is 80 years. The fastest growing segment of our society is older people. The resource is grossly inadequate. In an era of expanding technologies, the amount of funding available for physician fees from a fixed-dollar resource mathematically decreased. The logical next step was to increase the resource base, but neither side of the political aisle appears to be interested in confronting this painfully obvious solution.

So now, more and more physicians are considering their alternatives--opting out of Medicare, opening concierge practices, limiting their practices or refusing to contract. All of these actions are becoming more common, but they do not solve the problem of patient access to physicians in medical emergencies.

There is a great void in our American healthcare delivery system. Many emergency rooms are closing their doors because physician specialists naturally avoid the significant financial risk in the offering of emergency care. Perhaps part of the homeland defense budget should be diverted to healthcare for emergency services. Perhaps our government officials should get their act together and properly fund programs so that those who actually deliver healthcare are adequately reimbursed.

Just how do you feel about this? What do you want LACMA to do? E-mail me at president@lacmanet.org or call 213/683-9900.