There is a tacit “deal” in American medicine. The “deal” was necessary because of how our education system evolved. In addition, the “deal” was created in partnership with the federal government as a method of providing healthcare to our population and our society. Social programs were adjunctive to the “deal,” and the costs for these programs have grown exponentially over time. The foundation of the “deal” was a trust that there was a shared mission-based integrity. However, there is also the gritty reality of economics behind the “deal.” How should a profession respond when trust is eroded and components of a long-standing relationship are parsed in such a way as to create an undue burden that ignores tenets of goodwill? This perspective will attempt to provide a suggestion as to methods that may be at the disposal of physicians to act in accordance with changing circumstances. Unionization as a method of developing powerful advocacy to influence the federal government is a prescient concept that is rooted in the evolution of our historical journey in medicine.
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June 2025Learning from History
Prior to the Flexner report in 1910 (https://archive.org/details/carnegieflexnerreport), medical education was essentially an apprenticeship of varying quality. The Flexner report created a standardized blueprint for medical education that is still recognizable today as the foundation for how we consistently educate doctors. The Flexner report originated the residency system, which created the House Officer who lived in the hospital 24 hours a day, seven days a week, 365 days a year. The resident was in a barter/trade system for food, clothing, and shelter in return for service to and exposure to the most ill patients. The service was under the supervision of experienced private physicians who admitted patients from their practices into the hospital and also served as teaching faculty.
In 1938, legislation was passed to govern the work hours of the labor force in the U.S. The Fair Labor Standards Act of 1938 (https://www.dol.gov/sites/dolgov/files/WHD/publications/WH1318.pdf) set a minimum wage, defined overtime pay, and set the work week to 40 hours. It also addressed child labor. The act did not apply to professionals or administrative, or executive-level people in the workforce. The Act did not apply to volunteers or independent contractors. Are House Officers volunteers? A doctor is not eligible for a license without completing an internship. Are House Officers professionals? They are not eligible to contribute to the medical staff without having a medical license and without completing a residency in a specialized field. Arguably, the federal government has ignored the application of the Fair Labor Standards Act to the physician workforce for nearly 90 years.
In the post-World War II era, the federal government was highly cognizant and appreciative of the labor force that manned industry and the veterans who fought to victory over fascist, authoritarian, and dictatorial governments so that democracy could prevail. There was a newfound effort to codify the social contract with the workforce. There was a societal desire to provide an infrastructure that included healthcare for the population. But there was a conundrum regarding how to pay for this service sustainably. The solution was to create a partnership between industry and the government to provide healthcare to the workforce. The idea was that health insurance would be provided as a benefit to the workforce by the employer. The employer would negotiate with insurance providers to create packages of coverage for the workers. The employer would typically cover part of the cost, and the employee would pay for a portion of the cost, thereby creating a discounted rate. Unions would also be consumers of insurance packages that provided coverage to their members. An employer could therefore jettison the need to directly insure unionized employees and just concentrate on contracting with the union for a compensation package in which they did not have to worry about itemizing the various components of workforce benefits.
This approach covered the majority of the workforce but had some holes. The holes included small businesses, part-time employees, independent contractors, and people who were not employed. It also missed people who used to be employed but were now retired. This approach kept the government out of directly supplying healthcare to the population—socialized medicine. The cost burden was placed on the entities benefiting from the labor force.
By 1965, some of the gaps in the post-World War II deal were becoming more visible. Senior citizens voted, and they were having problems covering healthcare expenses, including very costly end-of-life care. Medical technology was advancing, and new therapies were very expensive and time-consuming. Medical care was more frequent in the costly inpatient setting. American medicine also had the problem of the unpaid House Staff. Forget about work hours for a minute; the House Staff were interned within the hospital in a barter/trade situation for sustenance and shelter. Educational institutions could not afford to pay for the resident workforce, and educational institutions included any hospital with a residency program. House Staff in this scenario were considered to be volunteers in an educational program.
The Start of Medicare
Meanwhile, the federal government needed to control the cost of covering healthcare for people who were aging out of the workforce to provide stability to people who no longer had employer-based insurance. It was part of a social contract or entitlement. The Medicare Act of 1965 was passed by the Johnson administration. This act covered the cost of the House Staff for hospitals and educational institutions in return for covering the cost of healthcare for formerly employed, elderly individuals. The Medicare Act of 1965 provided an income stream for hospitals to pay interns and residents. In return, physicians agreed to accept the assignment of reimbursement from the federal government to the doctor and hospital for the costs associated with patients being cared for under Medicare coverage. Medicare was to provide coverage for at least the break-even cost of care.
In the beginning, Medicare was fairly seamless in that a physician would directly submit a bill to the Medicare program for services rendered, and the government would pay the usual and customary bill for that practice. Likewise, the hospital would submit bills for its portion of the care directly to Medicare. In this system, the federal government could control the number of residency slots that were associated with a pay line. Therefore, the federal government acquired, in essence, control of the physician supply. In addition, the federal government could amass data to determine the usual and customary reimbursement for every component of healthcare for which it was being billed. It is interesting to note that the American Dental Association lobbied the federal government so that dental care would be exempted from Medicare coverage. Dental care was, in fact, largely excluded as a result.
The federal government now had purview over physician supply and a large chunk of reimbursement for healthcare. It did not have a specific approach to organizing the billing data that was being submitted. Robert Barclay Fetter, PhD, and John D. Thompson, MPH, at Yale University were doing work on determining the costs of healthcare and had an idea to organize cost data by groupings based upon disease process. They developed the concept of a diagnosis-related group or DRG. The idea was that you could take a disease process—say, appendicitis—and determine a cost associated with the entire disease from start to finish. This would help to predict and eventually establish parameters for care across many types of variability.
In this example, it would include the visit to the emergency department (ED), imaging, specialty consultation, cost of surgery including anesthesia, pathology, lab work, cost of all medications, post-surgical care, hospital stay, and rehabilitation in one package. Eventually, teams, hospitals, and surgeons could be judged on different factors involved with this package of care. This judgement of performance was termed “quality.” Parameters theoretically could include the time from making the diagnosis to definitive surgery, or the number of perforated appendices in a practice. One could develop a usual and customary hospital length of stay. Or the average cost of the surgeon’s fee. The ability to understand a package of care based on a diagnosis is certainly attractive from the point of view of a payer like the insurance industry or the government. Understandably, this would be a useful data point to deliver to a team of actuaries in an attempt to determine the costs involved with caring for a population. This would, in turn, inform a payer about cost structures useful in determining how to pay hospitals or physicians, and would be extremely useful data to retain while negotiating contracts with healthcare providers.
Ultimately, this type of data would be instrumental for the insurance industry to determine its own profit margins in caring for large patient populations and for bidding on contracts to cover the cost of care for large swaths of employed workers. The concept of the DRG was eventually rolled out for broad use in the early 1980s.
Becoming CMS
The Clinton administration rolled into office in 1993, and with it came Ira Magaziner, the chief healthcare policy advisor. He was in charge, with Hillary Clinton, of the Task Force on National Health Care Reform. The reason healthcare reform became so prominent in the early days of the administration was because of the ballooning cost of healthcare, which was an obvious threat to the economy. The Clinton administration used the Health Care Financing Administration (HCFA) within the Department of Health and Human Services (HHS) to manage the costs involved with the Medicare program.
This government entity concentrated on the cost of care and suspected that fraud in billing was one of the key problems facing the program. HCFA hired forensic accountants laid off from the Federal Bureau of Investigation (FBI) to audit large healthcare organizations. They concentrated on academic institutions because they suspected that the government was being double billed by academic physicians who were charging for care under the auspices of the resident workforce.
The resident workforce was already paid for services rendered through Direct Graduate Medical Education (DGME) payments, a subsection of Medicare. HCFA therefore developed the PATH audit. PATH was an acronym for Physicians at Teaching Hospitals. Nearly every academic institution underwent a PATH audit, but the audits started at the University of Pennsylvania because it was close to one of the federal audit office’s headquarters. In a PATH audit, the government auditor would arrive at the institution and pull 10 charts of patients cared for by a specific physician in the Medicare program. If the auditor found an irregularity in the documentation of care in one of the physician’s 10 charts, then the physician would be fined 10% of the total billing to Medicare for that year.
A flaw in documentation was construed as fraud. For instance, if a surgeon accomplished an appendectomy on a patient and the patient had a record of having anesthesia, a scar on their abdomen, and an appendix in a jar in the pathology department labeled with the patient’s name, but the surgeon’s operative note was missing, then this was considered inappropriate and fraudulent billing. The surgeon would be fined 10% of their total Medicare-based billing for the year, multiplied by three (tripled damages); however, if the surgeon was found to have under-coded for the surgery, there would be no restitution for the surgeon. In other words, the audit was one-way only. The only outcome was neutral or a fine. The audit would not restore earned funds to the surgeon or hospital. PATH audits earned a derogatory reputation.
The HCFA eventually changed its name to the Centers for Medicare and Medicaid Services (CMS). Of course, the HCFA was searching for “upcoding,” or billing for services that were actually not rendered. Certain famous transgressions were duly reported. Some individual academic physicians were identified as having perpetrated fraud. The University of Pennsylvania was allegedly and notoriously fined millions of dollars. And so it was that PATH audits went through every academic institution in subsequent years. An entire compliance industry was born as a reaction to PATH audits.
Part of the government’s need to control costs resulted in the development of the RVU, or relative value unit. The RVU sets what Medicare would pay for “usual, customary, and reasonable” rates for medical services. The RVU was codified in 1989 by the Bush administration but put into use in 1992 during the last year of the George H.W. Bush presidency. The fee schedule contained about 7,000 classifications under a CPT (Current Procedural Terminology) rubric. The American Medical Association (AMA) has purview over the CPT system and has a Relative Value Scale Update Committee (RUC) to constantly review the classification and provide advice on the valuation of various aspects of the work that is codified within the rubric.
The RVU does have some geographic variability because baseline infrastructure-related costs vary with geography. The RVU also has specialty variability. There is a rate per unit for a given specialty. Let’s say that for an otolaryngologist, the rate is set at $10/unit. And let’s say that a tonsillectomy is worth five units. Then the otolaryngologist would be paid $50 for a tonsillectomy, no matter how difficult or time-consuming the tonsillectomy was. The RVU is a government system, but private payers in the insurance industry can also access the RVU scale. Therefore, the insurance industry can set a value for thousands of procedures based on the government standard.
Remember, the government’s Medicare system was a societal system to cover the costs for people who were no longer employed and presumably retired at age 65, and it was designed to cover the break-even cost of healthcare. The insurance industry has no particular societal mandate but rather is answerable to its business and stockholders to earn profit from its operation.
Nevertheless, the government and the insurance industry are now able to negotiate with all of medicine using one number: the RVU. Congress sets payment rates for Medicare as part of its budget process. Medicare Part A pays for hospital-based services, and Medicare Part B pays for physician services. Congress can use the RVU to create a fee schedule for physician services. At one point, CMS included planned and scheduled cuts in the Medicare rate schedule for physician services by using a sustainable growth rate (SGR) plan, which ostensibly limited fee schedule growth.
Essentially, this system gave the government the ability to negotiate in advance with all of medicine via the SGR. Because the SGR constituted a planned limitation in funding to pay for the work of physicians and hospitals, medical professional societies were compelled to deploy their political action committees (PACs) to lobby Congress every year to back off the “cut.” Medical professional societies effectively spent nearly all of their political capital negotiating to get back to zero cuts every year. As part of Obamacare, the AMA negotiated an end to planned scheduled Medicare cuts and agreed to support passage of the Medicare Access and CHIP Reauthorization Act of 2015 (https://www.congress.gov/bill/114th-congress/house-bill/2/text), which ended the SGR.
Lately, planned cuts to rate schedules have been reinstituted. This year, CMS plans an approximately 3% cut to the physician fee schedule. While physician participation in Medicare is theoretically voluntary, all physicians are impacted by the market effects of the government’s rate system if they accept any insurance plans in their practice. It is economically dangerous to negotiate with a payer using one number to cover all of an extremely complex portfolio of work.
What Can Physicians Do?
There is a method for dealing with a powerful employment entity that is constantly trying to minimize its pay to workers or to minimize its budget. The method in our ecosystem is the creation of a union. A union allows workers to organize and to bargain for wages and benefits in a collective manner. If an industry wants the services of a worker, it has to negotiate with all workers. This evens out the power differential. Unionization is available to some workforces but not others.
Professions are not considered eligible to unionize. The specter of price fixing is theoretically one reason for this delineation. Medicine is considered a profession and is theoretically prohibited from unionizing. Yet, more and more doctors are employees of large systems or corporate entities. Even if you are in private practice, your practice is being forced to negotiate for insurance contracts with huge and powerful corporate insurance entities that use actuaries and have reams of data, which helps them to set costs. They do not share this data with the individuals with whom they are negotiating. When one negotiates with an insurance entity, one is flying blind. And with the government, there is no real negotiation at all. There is lobbying via PACs, which requires support from individual physician members, usually through contributions solicited by professional societies.
Why don’t physicians unionize? Some do. To have power as a union, one must be willing to go out on strike. It has been said that doctors will never have an effective union because they would not have a credible strike threat. Physicians in the National Health Service in Great Britain have gone out on strike. Employed physicians are legally permitted, potentially, to unionize. Although non-employed physicians face a major power differential concerning contracting and reimbursement, they may not be permitted to unionize depending on legal interpretation.
In my view, unionization may potentially be an attractive method to more effectively deal directly with the federal government’s processes and with the negotiation tactics of the insurance industry. After all, many health systems that employ physicians are also directly negatively impacted by the federal government’s budget process and by the hardball negotiation methods increasingly used by the insurance industry at the same time that the insurance industry enjoys record profits. The physicians’ direct employer is not the real problem. The payer is the problem.
The government effectively controls the supply of doctors through the funding of medical residencies. It permits constant violation of the Fair Labor Standards Act. It can negotiate with all of medicine with one number. It often reimburses less than the break-even cost of care. It implements funding cut schedules that are automatic, neutering the ability of professional societies to advocate beyond financial and budget matters. The government sets rates, and the insurance industry adopts the government rate schedule as a basis for negotiation. The government will not permit self-employed physicians to unionize and therefore permits an atmosphere that puts non-employed physicians at an extreme disadvantage in competing for reimbursement contracts. The government has weaponized the audit tool.
Today, the government is planning cuts to Medicare and Medicaid reimbursement at the same time that it is unilaterally renegotiating the long-standing funding paradigm of medical research through the National Institutes of Health. This is destabilizing a broad swath of medical systems to the point of a credible threat of insolvency. The deal that has guided medicine over the last century was tenuous but is now at a critical flexion point.
Since the majority of physicians are in employed circumstances, the best defense against this assault on medical practice and societal well-being is to unionize all physicians to allow collective bargaining with the insurance industry and with the federal government.
Dr. Murr is a professor and chairman of the department of otolaryngology-head and neck surgery at the University of California, San Francisco School of Medicine, and current TRIO executive vice president.
Note: The views and opinions expressed in this article are solely those of the author and do not reflect the views or positions of the University of California, San Francisco, the American Board of Otolaryngology–Head and Neck Surgery, or the Triological Society.
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