Prescription for Cost Containment

A new plan for compensating physicians and surgeons in the Medicare program will almost certainly make a contribution to the effort to control rapidly rising medical costs in the United States. For that it must be welcomed, even as its limitations invite further reforms.

Essentially, medical compensation would be shifted from the present basis of customary, prevailing and reasonable charges to a relative value scale that would reward physicians on a broader basis, including calculations for the total work involved, training and actual costs of practice. The effect would be to reduce payments for surgery and other invasive treatments, and increase compensation for those providing primary care. This almost certainly would encourage a shift away from costly high-technology procedures and toward better preventive and basic-care services.

“Some surgical procedures that have doubtful effects will not be done,” according to Dr. William C. Hsiao, a medical economist at the Harvard School of Public Health, who directed the extensive study. “Americans will benefit because physicians will be willing to spend more time with them, offer advice on preventive medicine and spend more time with families.”

Hsiao acknowledged some shortcomings, however. The proposed relative-value scale does not take account of the severity of an individual’s illness, nor does it reward for variations in the quality of the work of different doctors.


Dr. William L. Roper, administrator of the federal Health Care Finance Administration, which funded the study, had further misgivings: “Movement to a resource-based, relative-value scale will essentially only reallocate physicians’ fees, leaving the longstanding problem of the rapid growth in the volume and intensity of physician services largely unresolved.”

Those reservations in no way justify delay in the next step. Public hearings are planned in the months ahead by the Physician Payment Review Commission under the leadership of Dr. Philip R. Lee of the Institute for Health Policy Studies at UC San Francisco. That will lay an appropriate base for congressional action next year for another step in the painful but important process of cost containment.