1. Running Head: The Control of Payments to Physicians 1
The Management and Control of Payments to Physician
Week # 2 Written Assignment
Ardavan A. Shahroodi
Northeastern University
Professor James J. Ferriter
HMG6110-The Organization, Administration, financing and history of Healthcare in the U.S.
April 19, 2013

2. The Control of PaymentstoPhysicians
Introduction
The question of a moratorium on payments to physicians whether for Medicare related
services or other health insurance matters is an emotionally charged issue. Many physicians
would passionately and sincerely argue that such wage and price controls are an infringement on
their inherent and constitutional right to charge a fee based on what is supported by the market
for the rendering of their services. As Dr. R. M. Sade (1971) stated, “Medical care is neither a
right nor a privilege: it is a service that is provided by doctors and others to people who wish to
purchase it” (as cited by Barr, 2011, p. 15).
On the other hand, those who finance and pay for physicians’ services may contend that
for very legitimate reasons, the U.S. health care market in the contemporary era is unlike a
classical exchange of goods and services were supply and demand forces are in charge of price
fluctuations. These voices would emphasize that the health care market and related prices in this
economy are heavily influenced by government subsidies, the process of political consensus
building among stake holders and as Douglass North (1986) would argue our “institutional
forces” (as cited by Barr, 2011, p. 123). They also add that the cumulative synergic influence of
these forces have led to a creation of an economic environment were price escalation is an
endemic characteristic of the system thereby negating the notion of the free exchange of goods
and services.
In light of the above arguments, how can we produce equitable and sustainable strategies
that would deal competently and effectively with the issue of cost controls in the health care
field? The practice of managing the level or for that matter increase of payments to physicians is
an example of such aforementioned cost controls. Here, we must investigate the factors that

3. The Control of PaymentstoPhysicians
either directly or indirectly influence the price of a physician’s services. These factors are moral,
ethical, political and economic.
The Moral/Ethical Dimension
The Love for Liberty
In order to analyze the moral and ethical factors that affect the price of a physician’s
services it is important to remember that in the U.S., governmental intrusion in commercial
activity is seen as essentially morally undesirable due to the level of dependency that it will
generate in the general public. As much as, in the modern era (approximately from the
beginning of the 20th Century) government has gradually increased her role in American life, the
18th and 19th Centuries were witness to a very limited role for the central authority except for
national security matters. There exists a strong imperative in the American lore that considers
self- sufficiency, entrepreneurship and independence in almost mythical and mystical terms.
This is a land that was created by those fleeing from persecution at the hands of European landed
aristocracies and that very notion and method of acquiring privilege is anathema to the American
character (in spite of the current popular infatuation with royalty). Consequently, the image of
the self-sufficient individual creating destiny through personal effort is one of the pillars of the
American civilization.
We also have to realize that the aforementioned nature of the American psychology is
steeped deeply in the historical legacy of those European skilled tradespeople and artisans who
liberated themselves from the yoke of classes of titled nobility thereby hoping to create a society
where individuals are rewarded on the basis of their innate merit and ability. In such a society
one is allowed to create opportunity based on one’s own effort, determination and zeal. This is

4. The Control of PaymentstoPhysicians
what is referred to as liberty and any effort to curtail and hinder such an expression of an
individual’s right to better oneself through personal effort is generally deemed as immoral. Very
few other expressions of the American identity have left such an indelible effect on what we
aspire to be and create in our institutions as promoting liberty and possessing the unhindered
freedom of exercising our trade. This is precisely why placing outside controls on payments is
understood and interpreted as unnatural, unfair and immoral by a large number of the physician
community in this country. Any solution that is created in order to address the issue of
escalating physician payments must be fully cognizant of the above imperative as what Douglass
North (1986) would refer to as an enduring American “institution” (as cited in Barr, 2011, p. 51).
The Passion for Seeking Fairness/Equity
A second moral and ethical dimension of the issue of controlling payments to physicians
is the question of fairness and equity. As the previous discussion in the moral sphere was
developed, we investigated the historical emergence of the idea of liberty as an institutional force
in the American character, life and society. That is the idea of having the freedom to better our
life and the life of our loved ones through one’s own effort unhindered by restrictions and
encumbrances. This premise is also supported by a further narrative promoting equity and
fairness in human relations. Here the question always reverts back to, “What is fair?” and “What
is equitable?” Indeed, is it fair to subject those who have placed exceptional effort in acquiring a
set of skills (physicians) that are immensely valued by our society to wage and price controls by
restricting payments for their services that were delivered conscientiously and sincerely? Here,
with respect to physicians the more arbitrary and non-integrative the process of payment controls
the more alienated this category of health care providers will become from any solutions that
would be proposed as a cost saving measure.

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The Urge for Volunteerism
The third aspect of the moral and ethical analysis of payment controls to physicians is the
impetus for volunteerism in American society. The concept of volunteerism is also rooted in the
idea of liberty. Whereas in a controlled society one is mandated by the higher authority to
perform an act, in a society organized on the principle of liberty, we are moved singularly by our
conscience and personal standards to engage in all conduct be it steeped in empathy for others or
for that matter parting ways with one’s justly earned income. A reflection of this sentiment is
Dr. Abell’s (1938) statement that “The medical profession by principle and tradition is
committed to the idea that the prime object, the standard of value and the social reason for its
existence are all one thing—the service it can render to humanity” (as cited in Barr, 2011, p. 17).
Dr. Abell (1938) also exhorts his fellow physicians to remember that “the fundamental tenet of
the American Medical association that the poverty of a patient should demand the gratuitous
service of a physician” (as cited in Barr, 2011, p. 17). Here, allow us to take note that the
emphasis in the above statements is on two voluntary concepts rooted in personal and communal
(the medical community) world views namely principle and tradition. Dr. Abell (1938) is
arguing that as doctors, our central mission is to serve human kind and as such that particular
category of patients who are less fortunate than others (as cited in Barr, 2011, p. 17). However,
Dr. Abell (1938) is also contending that we are moved to the aforementioned pattern of behavior
due to our own beliefs, our own traditions and because of whom we are and not in response to
pressures and demands from outside forces and interests.
Consequently, any solution that is meant to address the nature and amount of
compensation to physicians must also take into consideration the affinity towards volunteerism
that is inherent in the American character. That is, as long as we are mandating and

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commanding wage and price controls (payments to physicians) independent of the voice of
physicians in setting these limitations we will be involved in a distributive process where any
measure limiting their justly earned income is viewed as not in line with the much valued spirit
of volunteerism embedded within the parameters of the American personality.
Our discussion on the ethical and moral criteria that may be fulfilled in our path towards
creating enduring and sustainable solutions in controlling payment to physicians propose three
fundamental principles of the American character. These overarching principles are the
indispensable love for liberty, the passion for seeking fairness/equity and the urge for
volunteerism. All three of these principles must be present in one way or the other in the
finalized strategy that will be aimed at controlling payment to physicians.
Liberty, fairness/equity and volunteerism as institutions in American Society
Liberty, fairness/equity and volunteerism as organizing ethical and moral principles are
what North (1986) would call the “institutions” (as cited in Barr, 2011, p. 51) of the American
society. In this regard, Scott (1987) has proposed that the characteristics of institutions are
identified by the “…rules that guide behavior in certain situations…rules can be formal or
informal…over time, those rules come to be taken largely for granted …disobeying the rules will
invoke some sort of sanction, either formal or informal” (as cited in Barr, 2011, p. 53). Here
North (1986) adds that institutions “are not necessarily or even usually created to be socially
efficient” (as cited by Barr, 2011, p. 52). As a result, the organizing institutional identity of the
American society namely the ethical and moral imperatives erring on behalf of liberty,
fairness/equity and volunteerism must be fulfilled in any attempt to come to terms with
addressing the issue of unmanageable escalating compensation to physicians. Here, we may
conclude with the observation of Victor Fuchs (2010) that the rising of health care costs may not

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be controlled through market forces alone rather a combination of “government regulation and
self-regulation [of the medical profession] through professional ethics” (as cited in Barr, 2011, p.
19). The self-regulation and professional ethics that Fuchs (2010) is referring to are part and
parcel of the principles/institutions of liberty, fairness/equity and volunteerism (as cited in Barr,
2011, p. 19) that must be present in any strategy that is to be created in order to manage
physician compensation.
The Political Dimension
On the basis of the ethical and moral principles/institutions of liberty, fairness/equity and
volunteerism we may create politically workable and sustainable solutions in pursuit of our goal
of managing physician compensation. One such instrument may already be in the process of
being developed and lunched since the Affordable Care Act (ACA) will create a vehicle named
the “Independent Payment Advisory Board (IPAB) made up of fifteen members appointed by the
president and confirmed by the Senate” (Barr, 2011, p. 163) whose mandate will be to address
“the broader issue of the rising cost of Medicare over time” (Ibid). Here, “Beginning in 2014, if
it turns out that projected per beneficiary spending will exceed the target amount, IPAB is
charged with the responsibility of coming up with a plan to rein in spending to meet the target
amount” (Barr, 2011, p. 164). Nevertheless, IPAB will not have the authority to raise taxes,
restrict benefits to beneficiaries in any manner or form as a means of controlling the escalating
cost of Medicare or “increase Medicare beneficiary cost sharing” (deductible, co-payments)
(Barr, 2011, p. 164). IPAB’s generated plan for controlling the cost of Medicare will be
implemented by the secretary of human and health services unless Congress creates her own
plan. The rubric for the IPAB is “tied initially to the growth in the consumer price index (a

8. The Control of PaymentstoPhysicians
general measure of price inflation) and subsequently to the overall growth in GDP” (Barr, 2011,
p. 163).
IPAB will be dealing with a cost related, financial and ultimately economic issue of
managing the escalating expense of Medicare, however IPAB is essentially a political vehicle
created in order to address a political matter. Here, allow us to refer once again to the
institutions of liberty, fairness/equity and volunteerism as fundamental organizing principles in
the functioning of the American polity. Precisely because of these aforementioned institutions,
the American system of government is based and rooted on governance on the consent of the
governed. Inherent, in this consent is the political process of consensus building among multiple
actors and stake holder. Furthermore, consensus building is a cumbersome, arduous and at times
mind numbing exercise, nevertheless this is the manner by which our system of government
acquires its very legitimacy to govern and as a matter of fact to govern effectively. Authentic
democracy is a time consuming practice of forging integrative solutions in order to address
concerns of the people.
In this spirit, a well-represented, diversified, inclusive and independent IPAB will be able
to consider the interests of all the stake holders (beneficiaries, physicians, health care oriented
actors, industry, and other tax payers) and generate plans that would represent the concerns of all
the involved parties. In addition, it is most important that IPAB maintain its non- revenue raising
and non- benefits influencing status so that it may singularly focus on the mandate of managing
“Medicare’s per beneficiary spending increases” (Barr, 2011, p. 163) based on the instrument of
the consumer price index. This one characteristic of the IPAB will allow political credibility and
legitimacy to be created for their mission and conduct independent of the intensely partisan and
emotional issues related to taxation and “rationing” (Barr, 2011, p. 164) of health care benefits

9. The Control of PaymentstoPhysicians
for beneficiaries. The question of managing the escalation of payments to physicians is also an
aspect of the “Medicare’s per beneficiary spending increases” (Barr, 2011, p. 163) that will be
addressed by the IPAB utilizing the aforementioned consumer price index and other
financial/economic vehicles such as the “sustainable growth rate” (SGR) (Barr, 2011, p. 158),
“resource based relative value scale” (RBRVS) (p. 142) and the “relative value unit” (RVU)
(Ibid). SGR, RBRVS and RVU are discussed in the following section on the economic factors
that must be present in order to create sustainable solutions for managing escalating payments to
physicians.
The Economic Dimension
The economic/financial factors that must be present in order to create workable and
sustainable solutions to the question of managing escalating payments to physicians are already
available to policy makers. The Medicare related “resource based relative value system”
(RBRVS) (Barr, 2011, p. 142) created by Congress is a method of “measuring the resources that
go into the provision of a medical service and assigning a value reflecting those resources”
(Ibid). This value assigning system is based on attaching “RVUs [relative value units] according
to the resources required to perform the procedure” (Barr, 2011, p. 142). The cumulative effect
of the existence of RBRVS and its associated RVUs is the adoption of the “sustainable growth
rate” (SGR) created by Congress in order to manage payments to physicians. SGR establishes an
“expenditure target based on current year expenditures” (Barr, 2011, p. 158) in order to
determine the level of payments “for physician care under Part B of Medicare” (Ibid). This
target is adjusted yearly based on inflation, number of beneficiaries, growth rate of GDP per
capita and new legislation effecting Medicare Part B (Barr, 2011, p. 159). The earlier mentioned
Independent Payment Advisory Board (IPAB) will be the autonomous political vehicle that

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would be ideal for the adoption and implementation of the SGR in managing the escalation of
payments to physicians.
Conclusion
In order to constructively and effectively manage the level of payments to physicians in
Medicare or other insurance related matters, we need to create solutions that are cognizant of the
moral/ethical, political and economic/financial aspects of the mission at hand. Any generated
outcome in this pursuit must indeed possess all the aforementioned ingredients in order to remain
sustainable over an extended period of time. Nevertheless, it is the contention of this paper that
among all the proposed ingredients, it is the moral/ethical imperative that will act as the central
element in the ultimate success or failure of the goal of controlling the level of payments to
physicians. In the final analysis, all questions are settled in relation to their moral/ethical worth
and all other matters are merely peripheral.

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References
Barr, D. A. (2011). Introduction to U.S. Health Policy: The organization, financing, and
delivery of health care in America (3rd ed.). Baltimore, MD: The Johns Hopkins
University Press.
Fuchs, V. R. (2010). Health care is different—that’s why expenditures matter. JAMA 303:
1859-60.
North, D. C. (1986). Institutions, institutional change and economic performance. New York,
NY: Cambridge University Press.
Sade, R. M. (1971). Medical care as a right: A refutation. New England Journal of Medicine
285:1288-92.
Scott, W. R. (1987). The adolescence of institutional theory. Administrative Science Quarterly
32: 493-511.