When Dr. John B. DeHoff began practicing medicine in 1947 in Baltimore, doctors set their own fees and patients paid them directly. The average charge for an office visit was $2 to $4, a rate that would rise sharply over the years as physicians became one of the highest-paid groups in America.
But doctors' freedom to determine prices is going the way of the house call. These days most patients' bills are paid by insurance companies and the government, which increasingly are using their clout to dictate fees. Many doctors, particularly specialists, are being forced to swallow reductions.
In one of the latest and biggest examples of the trend, Blue Cross and Blue Shield of Maryland is proposing to slash the fees of thousands of specialists by as much as 25 percent, which company officials say would save Blue Cross and its customers $39 million. Angry doctors will challenge the proposal at a public hearing scheduled tomorrow by state Insurance Commissioner Dwight K. Bartlett III. It's "unjust, unfair and inequitable," charged Dr. Howard Siegel, a pathologist who is helping prepare the state medical society's response to the proposal.
In deciding whether to approve the proposal, the commissioner must weigh a key question: How will it affect consumers? The state's largest health insurer and doctors clash over the answer.
Officials of Blue Cross say the fee cuts are part of a broad cost-reduction program intended to keep down rates of so-called indemnity insurance, policies that give patients freedom to choose doctors and hospitals. About one million of the company's 1.4 million subscribers have some form of indemnity plan; the remainder are in health maintenance organizations.
Lower rates would benefit consumers and employers, while bringing the company's insurance prices down to the level competitors charge, Blue Cross says. "In order for us to compete, we must reduce our costs and ultimately bring our prices more in line with customer expectation and the competition," Blue Cross President and Chief Executive William L. Jews said in a Dec. 23 letter to physicians.
Company officials say the fee reductions are needed to help pay for a rate decrease of 7 percent to 15 percent announced in October. A $40 million cut in administrative expenses, which the company has completed in the past few months by eliminating 350 positions, also is paying for the rate decrease, Blue Cross says.
Despite the October decrease, the company's rates remain higher than some competitors for some insurance products. For small groups, for example, the company's price for indemnity family coverage averaged $518 a month as of September, according to a state price list. That was higher than the rates of five competitors, but lower than 12 others.
But even if insurance premiums are lower, doctors warn that patients could face higher out-of-pocket charges for medical care or be forced to change physicians if their physicians cancel their Blue Cross contracts rather than accept lower fees.
Doctors say fee cuts also could undermine their ability and incentive to keep up investments in new technology. Some physicians say their colleagues may react by increasing the number of patients they see, generating income to offset the lower fees but reducing the amount of time spent with each patient.
The fee proposal would affect many of the state's 15,000 physicians. Blue Cross officials say they have indemnity contracts with about 11,000 medical and mental health professionals, most of them doctors. But that number also includes psychologists, psychiatric social workers and others.
The fee proposal does not apply to the separate payment system used to compensate doctors who treat patients at Blue Cross' five health maintenance organizations. HMO fees to doctors have already been reduced, or have remained the same for some time, company officials say. Nor would the proposal affect dentists.
Not all fees would be cut. In contrast with cardiologists, surgeons and other specialists, many primary care doctors, such as family practitioners, pediatricians and internists, would see at least some rise in income, Blue Cross officials say.
"I think the increase in fees for the person who is the primary care person is a good thing," said Dr. DeHoff, who at 81 no longer practices medicine but is on the state Board of Physician Quality Assurance, a regulatory agency.
But many primary care doctors remain suspicious. Based on his calculations, Dr. Joseph Zebley, a family physician in Baltimore, said the supposed gains are "nowhere near what's promised."
For some services he provides, rates could be as much as 10 percent to 12 percent higher, he says, but they'd be offset by decreases for other procedures he performs.
But most doctors say they don't have enough information from Blue Cross to compare what they're currently paid with what they would be paid if the fee proposal is approved.
The state medical society, the Medical and Chirurgical Faculty of Maryland, has angrily complained not only about the fee proposal but the way company officials have informed its members. Doctors remain upset, even though Mr. Jews admitted mistakes in the December letter he sent to them.
"Unfortunately, we did not handle the communication/education very effectively, for which we apologize," he said.
Dr. Donald H. Dembo, president of the society, won't mince his words when he testifies tomorrow. "It's not only unfair but it's unrealistic" to cut fees and expect to tame medical inflation that way, he asserted. Like many doctors, he believes that the company is trying to make them pay the lingering costs of mismanagement before Mr. Jews became president in 1993.
Doctors' charges represent roughly 20 percent of medical costs, studies show. Dr. Dembo, a cardiologist whose specialty faces the steepest proposed reduction -- 25 percent -- said the volume of services used by patients and technology-driven spending increases are more important factors.
Company officials agree. "We're also looking at the other costs of medical care, not just the physicians' reimbursement," said David D. Wolf, chief financial officer and vice president of managed care. Blue Cross expects to reduce patients' use of hospital services by more closely managing their treatment, he said.
Although Dr. Dembo predicted a "surge in early retirements" by a variety of specialists, there's no evidence yet of that, nor of large numbers of physicians canceling their Blue Cross contracts in protest.
A company official said a month ago that 10 to 12 percent of doctors might cancel their contracts, but top Blue Cross executives now say they don't expect mass defections. The experiences of other insurers that have taken similar steps "indicates the impact has not been very high at all," said John A. Picciotto, general counsel and senior vice president.
Other issues remain in question, such as the amount of savings that fee cuts would generate. The insurance commissioner's office, using information supplied by the company, initially believed the total was $52 million. But a company spokesman says a more recent analysis by experts determined the amount would be $39 million.
Of that, company officials say Blue Cross would retain $14 million, while employers that self-insure -- and that hire Blue Cross only to administer their employee health programs -- would pocket the rest, $25 million.
It's also unclear whether Blue Cross pays doctors more than other insurers, as the company insists, or pays them less, as the state medical society contends. A company official does say that there has not been an across-the-board fee increase to doctors since December 1991, when they received a 3.9 percent increase.
One reason the question is so hard to answer is that commercial insurers aren't required to disclose what they pay doctors. Blue Cross, as a nonprofit company, is subject to more public scrutiny and greater regulation.
Another obstacle to making comparisons is that insurers use different payment systems, resulting in widely varying fees for services. A doctor who deals with 10 insurers might be paid 10 different amounts for the same service.
But Blue Cross officials say their fee proposal is a step in the direction of clarifying what physicians receive, and should receive. The proposal would replace the existing system, which is based in part on doctors' historical billing patterns, with a system similar to one used by the federal Medicare program and one-third of Blue Cross and Blue Shield plans nationwide.
Called a resource-based relative value unit system, it is intended to "measure more specifically what it is a doctor does in providing a particular service," Mr. Picciotto said.
But even if this system is consistent in what it pays physicians, it is highly suspect in the eyes of many doctors who believe that the value of their services is being dictated not by what they're worth but simply what an insurer can impose.
"What a service is worth is really what the market will pay for it," Mr. Picciotto said, insisting that Blue Cross is only trying to pay doctors what competitors do.