INTRODUCTION It would be possible to view the impact of Medicare on physicians from many per- spectives: the impact on individual physi- cians, on a particular specialty, on aca- demic physicians, on graduate medical education and physician specialization, on quality of care, on physician incomes, on physician autonomy, or on a variety of other aspects of medical practice. We have chosen to focus on physician autonomy, a topic that has gained prominence recently as a result of its perceived erosion. One of the critical questions that has been raised about physician autonomy and Medicare is whether or not physicians have traded reduction of clinical autonomy or discretion for preservation of economic autonomy.
Although often couched in terms of quality of care and access to care, physicians, particularly through organiza- tions such as the American Medical Asso- ciation (AMA), have in fact focused on the economic autonomy of physicians. Yet con- cern about loss of clinical autonomy is a major morale issue within the medical pro- fession (Lee and Culbertson, 1990). Lewis et al.
(1991) reported "growing dissatisfac- tion with the practice of internal medicine, primarily related to concerns over loss of clinical autonomy ...." Medicare and Physician Autonomy Richard A. Culbertson, Ph.D., ... more. less.
and Philip R. Lee, M.D.<br><br> Richard Culbertson is Director, Program in Health Administra- tion, and Associate Professor with the School of Public and En- vironmental Affairs and Bowen Research Center at Indiana Uni- versity and the Medical School of the University of Wisconsin- Madison. Philip R. Lee is Assistant Secretary for Health, Office of Public Health and Science, U.S.<br><br> Department of Health and Human Services (DHHS). The opinions expressed are those of the authors and do not necessarily reflect those of Indiana Uni- versity, the University of Wisconsin-Madison, DHHS, or the Health Care Financing Administration (HCFA). Freidson has been identified for the last two decades as the leading theorist on pro- fessional autonomy.<br><br> He has recently defined autonomy in the following manner: Taken as an ideal type, complete au- tonomy is sustained by an occupa- tional monopoly embracing several di- mensions. It is first of all an economic monopoly: the profession controls re- cruitment, training, and credentialing so it can regulate directly the number of practitioners available to meet de- mand. This has obvious implications for income.<br><br> Economic monopoly is vi- able, however, because professional autonomy also includes a political mo- nopoly over an area of expertise; the profession is accepted as the authori- tative spokesman on affairs related to its body of knowledge and skill, and so its representatives serve as expert guides for legislation and administra- tive rules bearing on its work. Fur- thermore, the profession has an ad- ministrative or supervisorial monopoly over the practical affairs connected with its work; its members fill the or- ganizational ranks which are con- cerned with establishing work stan- dards, directing and evaluating work. "Peer review" rather than hierarchical directive is the norm.<br><br> Clearly as I have defined it, professional autonomy rep- resents a privileged position of some significance (Freidson, 1994). Freidson's emphasis in this recent defini- tion on economic dimensions of autonomy is a departure from the thought of earlier theorists who stressed the clinical aspect of HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 115 autonomy. The prominent American soci- ologist Talcott Parsons emphasized the su- perior position by virtue of technical exper- tise of the physician as essential to the public good.<br><br> Parsons held that in order to maintain regulation of their patients, physi- cians must have the right as a profession to control the conditions of their clinical work and the patients they accept (Parsons, 1964). CONTEXT In viewing the relationship of Medicare to physician autonomy, it is useful to recall the historic opposition of the medical pro- fession, particularly organized medicine, to any role of the Federal Government in health care financing, except for a limited role in relation to indigent care. The historic opposition by organized medicine, particularly the AMA, to a sig- nificant Federal role in the financing of na- tional health insurance or the more limited proposals related to the elderly have been documented in detail by others (Starr, 1982) and will not be repeated.<br><br> The context and the flavor of the times were elegantly described by Ball (1995) in his article, "What Medicare's Architects Had in Mind." Although President Truman first pro- posed a program of national health insur- ance in 1945, it was not until after his elec- tion in 1948 that AMA leadership became alarmed about the possibility that Con- gress might do something. The AMA cam- paign was well organized and well financed and included pamphlets in physicians' of- fices, press attacks, public speakers, and vigorous lobbying against the proposal supported by President Truman. The at- tack was bitter and ultimately successful.<br><br> The idea of hospital insurance for the eld- erly was first floated by Oscar Ewing, head of the Federal Security Administration in 1952. President Eisenhower was elected for his first term later that year, Oscar 11 6 Ewing departed, and there was little sup- port for such proposals in the political lev- els of the executive branch for the next 8 years (Ball, 1995). In 1957, Representative Aime Ferand (D-RI) introduced the first of a series of bills to provide hospital insur- ance for the elderly (Litman and Robins, 1984).<br><br> In 1961, after President Kennedy's election, it was re-introduced in the House and Senate as the King-Anderson Bill. It is important to recall the context of the mid-1960s when Medicare was enacted and implemented. The Civil Rights Act was passed less than 2 years before Medicare's passage in 1965, without any serious con- sideration of its later impact on the practice of medicine through the desegregation of hospitals, particularly in the South, and the resultant enhanced patient access to care-a laudable but unforeseen conse- quence.<br><br> Finally, the impact of the rising costs of health care on Medicare policy was not fully appreciated in the beginning. In ti me, rising costs far in excess of increases in gross domestic product became the overriding force driving the Medicare policies affecting physicians. After President Johnson's landslide vic- tory in 1964, the likelihood that Medicare would be enacted was substantially in- creased, but Congress included a number of provisions to mute physician opposition.<br><br> Medicare was to build on the existing sys- tem, not reform it. Claims processing and payment were to be administered by pri- vate organizations under contract as Medi- care carriers to provide a buffer between physicians and government. The Blue Shield plans and commercial health insur- ance plans that became carriers were al- lowed wide discretion in interpreting Medi- care policy.<br><br> Congress also adopted a payment method designed to attract physicians, per- mitting them to bill what they normally charged their privately insured patients, HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 the "customary, prevailing, and reason- able" (CPR) charge. Medicare payment was based on this "reasonable" charge, de- fined as being the lower of the physician's actual charge, the physician's customary charge (the physician's median charge for service from the previous year), or the pre- vailing charge in the locality (set at the 75th percentile of the distribution of cus- tomary charges in a locality). In addition, physicians were allowed to bill their pa- tients directly through the practice of bal- ance billing, which allowed them to collect more than Medicare's reasonable charge.<br><br> This was the context in which Medicare was enacted and signed into law on July 30, 1965. At the time, Congress mandated in section 1801 of title XVIII that "nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the prac- tice of medicine or the manner in which medical services are provided " (Blumenthal, 1988). This initial intent showed the desire of the Federal Govern- ment to avoid conflict with the perceived sphere of influence of medicine, thus guar- anteeing wide protection of both clinical and economic autonomy.<br><br> Within 3 months, it became apparent that the Civil Rights Act (title VI) would have to apply to hospitals if they were to re- ceive payment from Medicare. The U.S. Public Health Service, under the leader- ship of Dr.<br><br> William Stewart, Surgeon Gen- eral, was enlisted to assist the Social Secu- rity Administration in a broad-based, intensive effort to ensure hospital compli- ance with the Civil Rights Act. In sum, the hospitals that had practiced segregation agreed to desegregate-everything from separate drinking fountains to inpatient and outpatient care. This action by the Fed- eral Government had a profound impact on physician autonomy.<br><br> In the definition pre- sented earlier, clinical autonomy was HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18. Number z defined in part as the ability of practitioners to select or reject patients/clients from their practices. Now, physicians were no longer free to segregate their patients when they were hospitalized.<br><br> CONCEPT OF PHYSICIAN AUTONOMY Let us turn to a more detailed review of Medicare and physician autonomy, as the Medicare program has become the domi- nant force in setting physician payment policy. We will consider the concept of phy- sician autonomy, specifically its economic and clinical dimensions, and the embodi- ment in public policy of these dimensions of autonomy in the Medicare program and corresponding influences upon the medi- cal profession. Autonomy has been cited by Freidson as the key defining characteristic in the orga- nization of professions.<br><br> Freidson (1970) suggests that "functional autonomy" is de- fined in medical occupations by "the de- gree to which work can be carried on inde- pendently of organizational or medical supervision, and the degree to which it can be sustained by attracting its own clientele independently of organization or referral by other occupations, including physi- cians." The key point here is that medicine as a profession is at the pinnacle of this oc- cupational hierarchy, and in much of the 20th century has been able to control, in cooperation with the Federal and State gov- ernments, the basic terms of medical work. Self-governance of the profession is key to a definition of autonomy. Perhaps Starr (1982) portrayed this concept most effec- tively when he referred to medicine as a "sovereign" profession.<br><br> Schulz and Harrison (1986) have at- tempted to define specific elements of au- tonomy based on an empirical survey of physicians. Five elements of their definition 11 7 can be described as "clinical" in nature and include control over: (1) the nature and volume of tasks; (2) the acceptance of pa- tients; (3) diagnosis and treatment; (4) the evaluation of care; and (5) other profes- sionals. Three elements of their definition might be considered economic in charac- ter and include freedom of choice of spe- cialty and practice location and control over earnings (Schulz and Harrison, 1986).<br><br> Freidson contends that the clinical and economic interests of the profession have become mixed, and in the process, cor- rupted. Freidson makes autonomy and its preservation the foundation of the eco- nomic and consequent political strategies of the medical profession. He notes the re- sistance of medicine to involvement of ex- ternal entities in its affairs as defined by the profession itself.<br><br> He then notes the es- tablished monopoly position of the profes- sion over the use of select scarce resources and services and suggests that "freedom to set the terms of compensation is, without some form of professional self-regulation in the public interest, obviously subject to abuse" (Freidson, 1970). Freidson argues that the profession has made no effort at self-regulation of fee practices on the part of its members. Rather, it has left any attempt at redressing patient grievances to the courts.<br><br> He sug- gests that in the United States, the profes- sion has made little effort "to insure that its members do not abuse their privileged eco- nomic position by seeking more than a just price"' (Freidson, 1970). He states that so- ciety in the United States has had a difficult ti me establishing a concept of a "just price," but he is certain that a free market model of competition will not achieve this because physicians enjoy a regulated ad- vantage in the division of labor as a result of preferential licensing acts. Freidson concludes that a "flaw" exists in the autonomy of physicians, in which the 11 8 economic and clinical interests of the pro- fession become intertwined, and in which economic interests may at any point in time prevail.<br><br> In this regard, his critique antici- pates the professional concerns voiced most forcibly by Relman (1986) in his ob- servations of the fiduciary responsibility of the physician and the debasement of this responsibility that he sees occurring in profit oriented medicine. Freidson refuses to fall prey to the notion that autonomy is a purely economic device, choosing to see its development from a variety of social forces. In refuting a purely economic causal theory, he states that, "Consulting professions are not baldly self-interested unions struggling for their resources at the expense of others and of the public interest" (Freidson, 1970).<br><br> Rather, it is a perception of an en- titlement to a superior level of resource as a result of the insularity of the profession from the public that creates this "flaw." Reinhardt (1988) is particularly persua- sive in calling attention to the connection of clinical issues of autonomy and economic conditions, especially as viewed from within the profession of medicine. He cites a physician colleague who summarizes this theme as "the serious damage society in- flicts upon patients when limits are placed on physicians' clinical freedom to compose medical treatments as they see fit and on their economic freedom to charge what- ever honoraria they deem honorable" (Reinhardt, 1988). As an economist, he is especially sensitive to the potential drift of Evans' (1984) "not only for profit" medical- economic ethic to one that is distinctly for- profit, first and foremost.<br><br> He adds that the economic imperative of joint ventures in which physicians become economic part- ners of hospitals and investors or of direct ownership of imaging and laboratory de- vices to which the physician refers patients will further erode the trust basis of au- tonomy (Reinhardt, 1988). As Gray (1983) HEALTH CARE FINANCING REVIEW/Winter 1996/volume 18, Number2 notes in the introduction to his study of for- profit health care, trust as a basis for pro- fessional autonomy is under attack as a myth of the profession to enhance status while at the same time preserving mo- nopoly privilege and power in the eco- nomic sphere. This is a significant criti- cism, for Freidson has defined on several occasions a service orientation of trust as a social contract of the profession with soci- ety that necessitates and legitimizes au- tonomy for the profession (Freidson, 1970).<br><br> If this contract is violated, how can autonomy for the profession legitimately be sustained? It is Reinhardt's assertion that the ab- sence in the United States of an overall pro- gram of budgetary control over medical expenditures, as is characteristic of the prominent European systems, results in unparalleled micro-management at the clinical level to achieve cost control unat- tainable on a larger scale. He writes that "...if the bureaucrats cannot somehow im- pose upon the healers an overall budget constraint ex ante, then they will sooner or later be driven to control their outlays on an ongoing basis, by monitoring each and every transaction for which they pay-that is, by second guessing both the providers' clinical and pricing decisions" (Reinhardt, 1988).<br><br> This appropriation of the clinical di- mension of autonomy would be regarded as intolerable by physicians in other medi- cal care systems. He suggests that "Euro- pean and Canadian physicians would be ap- palled at the numerous intrusions into clinical decisions now routinely made by these external monitors in the United States. They probably would rise up in arms over that loss in clinical autonomy" (Reinhardt, 1988).<br><br> It seems problematic that physicians in the United States would willingly and knowingly sacrifice the clinical element of autonomy that Freidson considered to be HEALTH CARE FINANCING REVIEW/Winter 1996/Volume 18, Number2 the more consequential element of his two- part definition of autonomy. Clinical au- tonomy, after all, constitutes the primacy of the physician in the health care division of labor and is the basis on which arguments for political and economic autonomy are formed. Reinhardt's answer to this seeming para- dox is that physicians in the United States have traded off clinical autonomy "in their tenacious fight to preserve the individual physician's right to price his or her serv- ices as they see fit" (Reinhardt, 1988).<br><br> This observation has been distilled into a for- mula referred to as Reinhardt's "Law" or "Irony." Reinhardt has summarized his law as follows: "In modern health care sys- tems, the preservation of the healers' eco- nomic freedom appears to come at the price of their clinical freedom" (Reinhardt, 1988). The application of Reinhardt's Law to the late-20th-century United States scene would appear to indicate a priority on the part of physicians to pursue economic betterment at the expense of clinical au- tonomy. If so, this would be critical in refor- mulating a definition of autonomy for the future, for this observation implies the will- ingness of physicians to sacrifice control of the division of labor.<br><br> This strategy may also ultimately undermine the ability of physi- cians to continue their dominance of the political economy of health services. MEDICARE'S IMPACT ON PHYSICIAN AUTONOMY At the time of the establishment of Medi- care, the Federal Government deferred to the medical profession's definition of au- tonomy in both clinical and economic realms by accepting the principle of usual, customary, and reasonable fees. This was based on the convention that it was the physician's prerogative to establish prices for services (Starr, 1982).<br><br> Physicians were 11 9 to be left alone by public policy design to structure their clinical work and exercise relative freedom in the economic arena. As Starr has observed, however, the ten- sion "between a medical care system geared toward expansion and a society and state requiring some means of control over medical expenditures" led to modifications in Medicare, which were first observed in the area of economic autonomy and subse- quently in the clinical dimension (Starr, 1982). Medicare expenditures for physi- cian services grew rapidly from the outset of the program, and both the price and vol- ume of services rose rapidly.<br><br> Part B of Medicare (primarily physician visits) grew from 18.1 million visits in 1967 to 43.8 mil- lion in 1970 and 155 million in 1980. Expen- ditures rose from $900 million in 1967 to $10.1 billion in 1980 (Health Care Financing Administration, 1996). Initially, the impact of these program modifications was observed in the eco- nomic realm.<br><br> However, as Reinhardt pre- dicted, the perceived reduction in eco- nomic benefit to the profession has also resulted in programmatic compromises that have limited clinical autonomy. These latter changes have been more subtle than the economic changes but are nonetheless real elements of the historical development of the Medicare program. These alterations in the program are summarized in Table 1.<br><br> Wage and Price Controls (1971-74) The first intrusion into the economic au- tonomy of physicians occurred in 1971, with the introduction by the Nixon admin- istration of wage and price controls. Al- though this program was part of a general approach to deal with inflation throughout the economy, the health industry was singled out for specific attention. Fee in- creases were limited according to stringent 12 0 Federal price guidelines, constituting a di- rect attack on the premise of economic au- tonomy.<br><br> This program remained in effect through 1974 for the health sector, the last segment of the economy to be relieved of such controls (Litman and Robins, 1984). Professional Standards Review Organizations (1972-Present) In 1972, the first foray into clinical au- tonomy through economic sanctions was instituted in the passage of Public Law 92- 603. This program, established in the face of significant but unsuccessful opposition by organized medicine, established a re- view program to ascertain the appropriate- ness and quality of care delivered in hospi- tals to beneficiaries of Federal programs.<br><br> Certainly in retrospect, it may be argued that this program was a benign one with respect to its impact on clinical autonomy. It functioned on the basis of peer review committees within the structure of the hos- pital organization, which were in turn com- prised primarily of physician members. It may be argued that this approach was not in conflict with the key characteristic of professional autonomy identified by Freidson of judgment of practice by one's own professional colleagues.<br><br> Furthermore, the economic impact upon physicians of the Professional Standards Review programs was quite muted as well. Sanctions, when applied, were limited to reduction of hospital payment for inappro- priate stays or lengths of stay and were ap- plied concurrently or retrospectively (Gray, 1991). It may be argued that a pat- tern of indirection in matters that might im- pact upon clinical autonomy was deliber- ately built into the Professional Standards Review Organizations and was to be a con- tinuing feature of Medicare policy throughout the next 15 years.<br><br> HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 Revision Title XVIII (1965) Wage and Price Controls (1971) Professional Standards Review Organizations (1972) Medicare Economic Index (1975) Prospective Payment System for Hospitals (Diagnosis-Related Groups) (1983) Deficit Reduction Act of 1984 Omnibus Budget Reduction Act of 1986 Omnibus Budget Reduction Act of 1987 Consolidated Omnibus Budget Reconciliation Act of 1985 (Physician Payment Review Commission Established) Omnibus Budget Reconciliation Act of 1989 The Future: Managed Care Through At- Risk Prospective Payment Reinforced and legitimized economic autonomy in public policy Federal Government reinforced clinical autonomy-cannot interfere in practice of medicine Direct effect; fee freeze No direct effect I ndirect effect Negligible direct impact on physicians; sanctions expressed through hospital denials Direct effect None I ndirect effect on most physicians, but direct effect on hospital- I ndirect effect through hospitals based specialists Direct effect; incentives created to limit full fee recovery through I ndirect effect voluntary Physician Participation Program Direct limitation through establishment of price maximums I ndirect effect limited to specific specialties through "maximum allowable actual charge" limits on non- participants; reduction in prevailing charge for overvalued procedures Reduction in prevailing charge for overvalued procedures I ndirect effect limited to specific specialities Congress mandated direct limitation through schedule for service I ndirect effect; slight clinical intervention through based on relative values for clinical work of physicians volume monitoring Direct limitation through 5-year implementation of fee schedule; I ndirect effect at practitioner level, but possible balance billing limits, volume performance standard i mpact on physicians May restore some economic autonomy to physicians through Unclear at present: Utilization controls that limit "delegation" of resource control clinical autonomy may or may not result from new delivery structures SOURCE: Culbertson, R., Indiana University, and Lee, P.R., U.S. Department of Health and Human Services, 1996. Table 1 Effects of Medicare Policy Revisions on Physician Autonomy Economic Autonomy Clinical Autonomy Medicare Economic Index In 1975, the Medicare Economic Index ( MEI) was established to address con- cerns regarding medical price inflation fol- lowing the discontinuation of price con- trols.<br><br> Under this program, the MEI was used to adjust prevailing charges. The sig- nificance of this program in relation to the economic autonomy of physicians was the break in the linkage of actual charges to Medicare payment rates. Following the en- actment of the MEI, physicians might raise their rates for fee-for-service patients but observed significantly lesser increases in Medicare-allowed payments for comparable services through the generally lower allow- able percentage adjustments of the MEI.<br><br> Diagnosis-Related Groups (1983) A revolutionary change in the payment of hospitals under Part A of the Medicare program occurred in 1983 with the enact- ment of a system of prospective payment for hospitals. This system dramatically re- structured financial incentives by defining specific diagnosis-related groups (DRGs) to represent conditions for which patients are hospitalized and setting specific payment amounts for each group. This program placed hospital organiza- tions at risk for formula-based payments under Medicare, whereas previously, pay- ment of "costs" to the hospital had been as- sured.<br><br> The DRG system was geared to equate levels of care with resources neces- sary to produce that care and to penalize "inefficient" hospitals. Hospital-based physicians, such as radi- ologists, anesthesiologists, and patholo- gists, were brought directly into these dis- cussions of economic issues and their consequences for hospitals. Practice ar- rangements of these physicians in many cases were restructured into contractual or 12 2 private-practice arrangements to remove these expenditures from overall hospital costs.<br><br> Although attending physicians were not placed directly at risk for hospital per- formance under this program, policy changes in hospital payment clearly af- fected physician behavior. Shorter lengths of stay and fewer hospital admissions at- tained through this program led to a change in practice and movement of physi- cian services away from the inpatient setting to ambulatory environments. The enactment of the DRG program, al- though not directly infringing upon the clinical autonomy of physicians, was none- theless a cause of concern for the medical community.<br><br> Colombotos and Kirchner (1986) published a study based upon a sur- vey of physician attitudes in which physi- cians linked the DRG concept for treat- ment and the direct control of physician fees by the government as the two most distasteful proposals for the future practice of medicine. They suggested that DRGs would result in explicit protocols and stan- dards for care, which would in turn limit the clinical autonomy of physicians. Direct government control of fees would obvi- ously limit their economic autonomy (Colombotos and Kirchner, 1986).<br><br> Their prediction was that physicians would expe- rience both forms of infringement on their historic autonomy in the 1990s. They pro- jected that "during the next decade clinical protocols and standards, spearheaded by the DRG concept, will probably exercise an increasing influence on the clinical deci- sion-making of physicians. In addition, the fees of physicians will probably be fixed, first under Medicare, and then under other government-financed programs, such as NHI" (Colombotos and Kirchner, 1986).<br><br> They then proceed to construct a specific scenario for the future of clinical autonomy and its economic counterpart and state that "the clinical autonomy of physicians-and HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 their pocketbooks-are likely to fare better if clinical protocols and physicians' fees are negotiated between government and orga- nized medicine than if they are left to the whim of market forces, a market in which the for-profit chains would have the upper hand over individual physicians competing with each other. Collective autonomy would replace individual autonomy in both clini- cal decisionmaking and in physician reim- bursement" (Colombotos and Kirchner, 1986). This statement, of course, refutes the conservative ideology for a classical eco- nomic model of physician competition at the level of multiple small providers and purchasers.<br><br> Instead, the authors make the ironic proposition that physicians will find greater remnants of their autonomy pre- served by cooperation with government than with less benign powerful large pay- ers who concentrate economic power against the profession. Deficit Reduction Act of 1984 With hospital payment reform under its belt, Congress again turned its attention to physician payment. Developing a strategy for reform of physician payment, however, would prove to be far more difficult and would be years in the making.<br><br> In 1984 Medicare defrayed only 49 per- cent of the medical care costs incurred by the average beneficiary. This left substan- tial out-of-pocket expenses for premiums, coinsurance, charges by physicians in ex- cess of Medicare payments, and uncovered services (drugs, long-term care). In the Deficit Reduction Act of 1984, Congress imposed a freeze on physician fees and established the Participating Phy- sician and Supplies Program (PAR), under which physicians could agree to accept as- signment (the Medicare-approved charge as payment in full) on all claims.<br><br> In return, HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 they would be listed in a directory available to beneficiaries and would receive expe- dited claims processing. Moreover, they were permitted to raise their submitted charges during the freeze, which affected their charge profile in determining future payments but not those during the freeze. In voluntarily accepting assignment, physicians gave up the ability under Part B to "balance bill" the patient for the full fee.<br><br> This feature of the program conflicted di- rectly with deeply held values of the medi- cal profession regarding economic au- tonomy. The 1987 Report to Congress of the Physician Payment Review Commission (PPRC) notes that 80 percent of all physi- cians surveyed who initially refused to par- ticipate believe that physicians should have the right to set their own fees (Physician Payment Review Commission, 1987). The establishment of the PAR represents the first effort to move away, albeit by incen- tives, from physician control of their price or fee-a key element of economic au- tonomy.<br><br> In deference to the historic au- tonomy claims of the profession, however, participation was strictly voluntary. As the program developed, participation rates in- creased steadily over the decade of the PAR program's existence. Whereas 30.6 percent of practitioners had signed partici- pation agreements on January 1, 1987, this percentage had increased to 52.2 percent as of January 1, 1992 (Physician Payment Review Commission, 1992).<br><br> Despite restraints, Medicare outlays for physician services continued to outpace growth in the gross national product (GNP), national health expenditures, and Medicare Part A expenditures. Spending in Part B increased from $10.1 billion in 1980 to $21.3 billion by 1985 and $41.3 bil- lion by 1990. Spending for physician serv- ices increased at a rate of 16.4 percent per year from 1980 to 1985 and 13.8 percent per year for 1985-90.<br><br> Medicare physician 12 3 costs per enrollee nearly doubled (in con- stant 1991 dollars) from $658 to $1,205 (Physician Payment Review Commission, 1992). The importance of the clinical autonomy of the physician is evident in analysis of the factors responsible for the continuing rise in Medicare expenditures for physician services. During the 1980s, the change in the number and average age of Medicare beneficiaries accounted for only about 2 percent of annual Part B growth.<br><br> From 1981 to 1986, increases in fees represented about 6 percent of total growth in expendi- tures per enrollee, and rising volume accounted for about 7 percent. Clearly these policies preserving the clinical autonomy of practitioners had di- rect economic ramifications. Medicare spending on physician services from 1983 to 1986, the period during which fees were frozen, increased nearly 30 percent.<br><br> Al- most three-quarters of this growth was at- tributable to more services per beneficiary and changes in the mix of services (Physi- cian Payment Review Commission, 1987). It was increasingly evident that Medi- care payment policies were contributing to the cost increases. The reliance on histori- cal fee patterns resulted in a payment sys- tem of pricing that came to be considered irrational, confusing, and unfair.<br><br> Over the years, wide payment differentials were per- petuated among types of procedures, spe- cialties, geographic areas, and practice sites that could not be explained by differ- ences in the costs of physicians' practices. Two distortions were particularly note- worthy. First, because payments were based on past charges, two physicians pro- viding identical services could receive markedly different payments.<br><br> Second, the value of surgical and technical procedures became increasingly distorted relative to visits and consultations. 12 4 Consolidated Omnibus Budget Reconciliation Act of 1985 In the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, Con- gress began to take steps to realign the pat- tern of payments to physicians. Applying this concept of "inherent reasonableness," it authorized the Secretary of Health and Human Services (HHS) to identify serv- ices for which Medicare-allowed charges were out of line with relative costs and to depart from the CPR methodology in ad- justing payments for those services.<br><br> In ad- dition to providing a mechanism to change payments for selective services, COBRA created a framework for more comprehen- sive reform. The legislation directed the HHS Secretary to develop a resource- based relative value scale (RBRVS). Congress also created the PPRC to ad- vise on changes in the methods of paying physicians under Medicare.<br><br> The creation of the PPRC signaled both the intention of Congress to reshape physician payment policy and the need for independent ana- lytic support and policy advice. The com- mission began its work in the fall of 1986 and issued its first Report to Congress in the spring of 1987 (Physician Payment Review Commission, 1987). Omnibus Budget Reconciliation Acts of 1986 and 1987 In the years after the establishment of the PPRC, Congress continued to squeeze physicians, particularly in the area of their economic autonomy.<br><br> In the Omnibus Bud- get Reconciliation Act (OBRA) of 1986, Congress placed maximum allowable actual charge (MAAC) limits on the amounts non- participating physicians could bill above the Medicare-approved charge. The MAACs were only intended to be a transitional HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 solution to controlling balance bills (bills in excess of Medicare-allowed amounts), but the establishment of charge limits set an i mportant precedent for payment reform. Beginning with OBRA 1986, Congress began to take steps to both realign the pat- tern of relative payment and achieve bud- get savings by reducing prevailing charges for cataract surgery and anesthesia during cataract surgery.<br><br> The PPRC agreed with this approach and argued that Congress should move policy in the direction of longer term re- form by reducing payments for overvalued procedures. It followed the principle of in- herent reasonableness to identify 12 fami- lies of procedures it considered to be over- valued in relation to Medicare payments for other services. In OBRA 1987, Con- gress continued this pattern by reducing prevailing charges and imposing special limits on these services.<br><br> By 1988, the PPRC had endorsed the concept of replacing the CPR system with a fee schedule for Medicare. The study of an RBRVS, commissioned by HCFA and con- ducted under the direction of Professor William Hsaio of Harvard, was well under way, and Congress had begun to incremen- tally adjust relative payments and to streng- then beneficiary protection from balance billing (Hsaio et al., 1988). In 1989, the PPRC submitted a set of pro- posals to Congress to rationalize the pat- tern of payments of physicians, to improve beneficiary financial protection, and to con- trol program spending without diminishing access and quality of care.<br><br> The corner- stone of the payment reform proposal was replacement of the system of payment of fees based upon usual, customary, and pre- vailing fee structures with a Medicare fee schedule based primarily on resource costs. The commission recommended that the RBRVS be resource-based and composed of three elements: (1) physician work, HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 reflecting the time and intensity of physician effort in providing a service; (2) practice expenses, including costs such as office rent, salaries, equipment, and supplies; and (3) a separate malpractice-expense compo- nent that reflects professional liability in- surance premium expenses (Physician Payment Review Commission, 1989). The RBRVS is translated into a fee schedule when multiplied by a dollar con- version factor.<br><br> The PPRC recommended that the initial conversion factor be budget neutral so that outlays for physician serv- ices projected under the fee schedule would be the same as those under the current system. The second element of the PPRC pro- posal was a limit on charges for unassigned claims at a fixed percentage of the fee schedule amount. The charge limits would replace the physician-specific MAAC limits with a single limit applied to all physician services.<br><br> This element of the package di- rectly impinged on the economic au- tonomy of physicians by creating for the first time a fee limit for all physicians. The third and most controversial piece of the PPRC package was its recommenda- tion to base annual updates in the conver- sion factor on a comparison of actual in- creases in expenditures with a target rate of increase. The expenditure target (ET) would reflect projected increases resulting from inflation and growth and aging of the beneficiary population along with deci- sions concerning how much expenditure growth could exceed these factors to allow for increases in volume of services.<br><br> The ET proposal became the major ob- stacle to agreement. Not surprisingly, the AMA was strongly opposed to ETs. The American College of Surgeons, in contrast, supported this approach.<br><br> It may be argued that this opposition was based on the possi- bility of infringement of Medicare into the clinical realm. In the face of this opposition 12 5 from significant elements of the profession, Congress compromised and established a more complicated approach, called the volume performance standard (VPS). Omnibus Budget Reconciliation Act of 1989 OBRA 1989 included the four compo- nents of the PPRC proposal: the Medicare Fee Schedule, charge limits, the VPS to de- termine updates in the conversion factor, and increased Federal support for clinical effectiveness research.<br><br> The previously mentioned VPS implemented in 1990 "sets an annual volume target through Congres- sional action, or if the Congress does not act, through a default formula. The differ- ence between this target and actual volume partly determines future physician rate up- dates, with low volume growth rewarded by higher updates" (Physician Payment Review Commission, 1994). Beginning in 1991, the newly established charge limits including limits on balance billing began to replace the MAACs, with full implementa- tion in 1993.<br><br> The Medicare Fee Schedule was fully implemented in 1996. 1996 AND BEYOND Thirty years after the implementation of Medicare, physicians have found dramatic changes in their level of economic au- tonomy and, to a lesser extent, in their clinical autonomy. As noted in the discus- sion of the chronology of the program (and in Table 1), much of the activity of the Medicare program can be seen as reflect- ing a policy of observing the original con- gressional mandate of non-interference in the private practice of medicine with re- spect to its clinical dimension.<br><br> Economic adjustments to the program have been quite subtle in their influence on clinical ac- tivity, and it may be argued that Medicare's 12 6 processes of control of clinical utilization at the level of the individual practitioner have been quite limited-especially in contrast to the more heavy-handed utilization con- trol methods of private insurers. In the realm of economic autonomy, the picture is different. Following the initial at- tempts in the 1970s by policymakers to limit fee increases, Medicare has moved more directly to limit physician discretion in economic matters.<br><br> The creation of the PAR Program in 1984 has led to the cur- rent limitation on balance billing that has effectively curtailed the potential for even non-participating physicians to exceed a mandated payment level in billing of Medi- care beneficiaries. Although this may not appear as a major intrusion upon economic autonomy, the issue of balance billing has been an explosive one when viewed in other industrialized nations. The Ontario physicians' strike of 1986 provides a spe- cific example of the volatility of this issue as perceived by physicians (Iglehart, 1986).<br><br> Glaser (1989), whose cross-national work on physician payment policies has been widely recognized since the early 1970s, has boldly asserted that the decision to bal- ance or extra-bill the patient beyond in- sured levels is "in every country ... the most explosive issue between public authorities and medical profession." Culbertson (1991) has suggested that "bal- ance billing offers an `escape valve' for the government and climate in which expendi- ture control is a consuming governmental objective." With increased pressure on Medicare Part B to contain increases in ex- penditures for physician services, balance billing will emerge as a public policy de- bate between beneficiary advocates and the medical profession in the congressional consideration of medical savings accounts. The move to the congressionally man- dated Medicare Fee Schedule based on relative value units has effectively removed HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 control of Medicare fees or prices from the hands of the medical profession.<br><br> This fac- tor, of course, violates Schulz and Harrison's (1986) definition of autonomy as inclusive of economic control by the profes- sion. The remaining policy debate, encom- passed in the heated controversy over ex- penditure targets and subsequent volume performance standards, centers on control of numbers of procedures performed. Economists have long debated whether physicians attempt to achieve a target in- come through performance of additional procedures when revenue is contained through price controls (Evans, 1984).<br><br> As Evans explains this theory, "When average workloads and incomes fall, due to exog- enous increases in supply, physicians change their practice patterns to increase utilization" (Evans, 1984). It is this that has made the notion of volume performance standards controversial for, on a macro level, it is suggested that physicians will lose clinical autonomy through overall pro- grammatic budgetary limitations, which will have a detrimental effect on the clinical judgment of individual physicians. What is debatable in this assertion is whether the economic consequences for an individual physician are sufficiently great to cause him or her to either inappro- priately withhold service for fear of nega- tively impacting global budgets or to pre- scribe excessive services to make up for loss of marginal income.<br><br> The experience of large physician groups such as the Permanente Group does not appear to sup- port either of these assertions when risk is placed at the level of a larger entity such as the medical group rather than at the level of the individual physician. In its present form, it may be argued that the Medicare program and Medicare trust funds con- tinue to be the ultimate holders of risk and therefore insulate individual physicians to some extent from their own decisions. What of the future?<br><br> It appears that much in the same way that financing and pay- ment for health care services for individu- als under 65 years of age is moving away from fee-for-service payment toward capitated managed care plans, Medicare may follow the same pattern. Indeed, some have argued that Medicare is the last bas- tion of fee-for-service medicine in the United States-a remarkable concession to its founders' commitment to the autonomy of physicians. If Medicare moves in this di- rection on a wider scale, it will in effect transfer risk from its general funds to the management of its contracting providers, as private insurers have done in the 1990s.<br><br> At the outset, Medicare permitted cer- tain prepaid organizations to receive pay- ment on a cost reimbursement basis for their Medicare enrollees. In April 1985, be- fore the advent of risk contracting, there were 916,000 Medicare enrollees in 109 plans receiving cost reimbursement (Health Care Financing Administration, 1996). A risk-sharing contract option for health maintenance organizations (HMOs) was instituted in 1972, 1 year before the Federal HMO act was passed.<br><br> Progress was very slow at the outset. Greenlick has noted that this program began in 1978 as a demonstration at five original sites. It re- quired 5 years, from 1982 to 1987, to enroll 1 million beneficiaries under Medicare risk contracts.<br><br> In 1985 HCFA implemented changes enacted in 1982 to provide for a managed-care capitated payment option based on a prospective payment methodol- ogy. In the original risk-sharing contracts, growth continued to be slow. The second 1 million beneficiaries were enrolled from 1987 to 1991, and by 1995, the third million had entered into this arrangement (Greenlick, 1996).<br><br> Medicare HMO enrollment has in- creased steadily since risk contracting be- gan in 1985. The number of beneficiaries in HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2 12 7 cost-reimbursement plans remained rela- tively steady from 1985 until 1996, when there was a significant decline (Health Care Financing Administration, 1996). In 1996, nearly 9 percent of Medicare beneficiaries were enrolled in risk-con- tracting HMOs, and an additional 2 percent were enrolled in cost reimbursed HMOs.<br><br> In recent years, Medicare risk enrollment has grown rapidly (41 percent from December 1994 through January 1996). Enrollment in Medicare risk-contracting HMOs is particularly significant in Califor- nia (36 percent), Oregon (34 percent), Arizona (31 percent), and Hawaii (31 per- cent) (Health Care Financing Administration, 1996). It is not clear that managed care and at risk payment for physician services will ei- ther limit or enhance physician autonomy.<br><br> Certainly at this time, capitation is being widely touted as a means of preserving and, in some instances, expanding physi- cian autonomy in both the clinical and eco- nomic arenas. Economically, physicians are presumed to gain autonomy under capitated arrangements through control and management of professional dollars. This control is further enhanced when physicians also control the distribution of hospital funds and are placed at risk for their expenditure as well (Sokolov, 1995).<br><br> David DeValk encourages physicians to un- dertake capitation as it "engages the pro- vider fully in the modification of `American medicine'; physicians are empowered to make decisions and changes (rather than dealing with bureaucratic hassles and 1-800-nurse-authorization lines)" (Medical Group Management Association, 1995). This is clearly a challenge to physicians to reassume clinical discretion that has argu- ably been lost to other organizations and indeed other professions. The depth of emotion surrounding the clinical autonomy issue in the private sector is a result of the widely held percep- tion in the medical community that insur- ers have dramatically eroded autonomy in pursuit of economic advantage.<br><br> This has been accomplished through intrusive utili- zation controls and requirements for pro- spective authorization of procedures that exceed those traditionally associated with the Medicare program (Gray, 1991). These review activities, often involving other pro- fessionals in the review of physician judg- ments, have not been well received by the profession as having any significant impact on quality of care. Rather, the prevailing as- sumption among physicians is that motiva- tion of these private organizations is purely economically driven.<br><br> Will physicians, given the opportunity to manage capitated premiums on behalf of beneficiaries, behave in a different man- ner? This is certainly the position of the leadership of much of the medical profes- sion. It has been argued "that physician-led organizations delivering health care would avoid the stockholder-satisfying mentality of many for-profit insurance companies and, therefore, that physician-directed en- terprises would direct more resources to- ward patient care and fewer to providing a return on stockholders' investments" (Goldfarb, 1995).<br><br> However, findings from a study undertaken by Kerr et al. (1995) sug- gest that physicians may adopt behaviors that are equally detrimental to the exercise of clinical autonomy. The authors of the study conclude that "physicians are re- sponding to capitation by using utilization management techniques, some at early stages of development, that were previ- ously used only by insurers.<br><br> This physi- cian-initiated management approach repre- sents a fundamental transformation in the practice of medicine" (Kerr et al., 1995). If economic judgments concerning the allo- cation of Medicare dollars currently exer- cised at a global level are placed at the level 12 8 HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 of smaller organizations, Freidson's prin- REFERENCES ciple of the primacy of peer review may or may not be distorted. The collegial profes- sional group, which is the backbone of peer judgment in Freidson's typology of clinical autonomy, will then be forced to balance its clinical judgments with eco- nomic judgments when the use of limited resources is at stake.<br><br> Can clinical autonomy and economic au- tonomy be balanced and maintained in the future? Jones and Ethridge (1996) have ar- gued that "operating in a rapidly changing insurance marketplace, Medicare is shift- ing from a social insurance model toward a private insurance model-expanding the number and type of alternative health plans it offers-and growing numbers of benefi- ciaries are enrolling in these plans." If this is so, perhaps the historic commitment of the Medicare program envisioned by its founders to respect and reinforce the clini- cal autonomy of physicians will no longer be a relevant policy issue. Medicare was established in a political and economic cli- mate in which the attainment of both clini- cal and economic autonomy for the medical profession was an economically realizable and socially supported policy objective.<br><br> The test of the future will be to attain, as Reinhardt has suggested, the clinical ob- jectives of the best in scientific achieve- ments and traditions of the medical profes- sion, while providing this care at an economic level that society as a whole can sustain. 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