RBRVS's Flawed Economic Basis

Editor's Note: Excellent explanation of RBRVS's flawed economic basis in 3 short paragraphs.

Association of American Physicians and Surgeons

Statement to the Subcommittees on Health Committee on Ways and Means U.S. House of Representives

Re: Physician Payment Review Commission's 1995 Recommendations

Presented by: Jane M. Orient, M.D. Executive Director

April. 1995

Association of American Physicians and Surgeons, Inc. 1601 N. Tucson Blvd. SUITE 9, Tucson, Arizona 85716 Tel. (800)635-1196

Statement of the Association of American Physicians and Surgeons to the Subcommittee on Health of the House Ways and Means Committee

With Reference to: Recommendations of the Physician's Payment Review Commission presented on March 30,1995

The Association of American Physicians and Surgeons was founded in 1943 to preserve and promote private medicine and the sanctity of the patient-physician relationship.

The AAPS recognizes the need to cut back on government subsidies. As predicted, they are bankrupting the nation. We are not requesting preferences for our members.

With respect to physician payment, AAPS takes the position that it is pointless to revise the Resource Based Relative Value Scale because it is fundamentally flawed in concept, practice, and result. Instead, we propose alternate solutions to our dual problems of expenditures combined with restrictions on medical care.

Problems with the Resource-Based Relative Value Scale (RBRVS)

The Concept of the RBRVS is that of the Marxist Labor Theory of Value, i.e. that the value of the service depends only upon the cost of production. This idea has been thoroughly discredited (for example, in its related form of "comparable worth").

Even if, this theory were correct (it is wrong to the point of absurdity), the RBRVS is flawed in practice because it cannot accurately calculate the cost of production. The tables of costs are derived from subjective evaluations by a small panel, data (such as apartment rents) that may be completely inapplicable, and arbitrary extrapolations. The tables disregard variations in cost due to location, type of practice, individual abilities and training of the practitioner, individual complexity of the patient's case, and uncontrollable fluctuations in the marketplace for goods and services. Even if the data could be vastly improved, the tables of values would still give an erroneous price in every single individual instance because they are based on broad averages.

The result of the RBRVS is to restrict the provision of medical services. This is because the RBRVS is not simply a flawed means of calculating government reimbursement for Medicare beneficiaries. Rather, it is combined with restrictions on balance billing and thus imposes price controls on medical services rendered to all Medicare beneficiaries (as well as to retirees under the FEHBP). Like every example of price controls imposed over forty centuries of recorded history, it inevitably leads to market distortions, with shortages, dilution of quality, corruption, and destruction of incentives for excellence and progress.