A Medical “Fee-for-All”?

If you’ve ever been hospitalized (other than at a government or HMO facility) and examined your invoice – scary if you were not insured – you can actually see tangible evidence of why U.S. medical costs are the highest on earth. Every service, every drug, every procedure, every test, every piece of special equipment, every doctor’s service (often billed separately, by the way)… well, they are separate line items on the charge slip.

If the hospital/doctors happens to be on your insurance company’s “preferred provider” list (or you are a good negotiator) or if you are covered by government program like Medicare, there is a schedule (a computer program) that sets the rates for every service provided, which completely ignores the hospital’s or doctor’s public rates. And that’s the core of the issue: if insurance companies and government plans pay “per procedure,” and that’s the only way they pay, guess what that policy produces?

Those doctors that pulled up to the hospital in their Mercedes sports cars (a small minority these days) probably charge much higher rates (why? Because they can, based on the quality of their service), but for most doctors, to make more money, they really have to work harder and… er… thus perform more procedures. Doctors are rewarded by volume if not by rate. And over-testing and over-treatment – particularly in the high-tech urban medical centers, discussed in earlier blogs citing the Dartmouth studies – are the American way. Doctors struggle with very high malpractice insurance rates, “managed care” limits imposed by insurance companies, and piles and piles of debt incurred in medical school, which high costs mandate higher tuition. Catch-22.

The law of supply and demand will pretty much establish human behavior. If doctors and hospitals are rewarded (paid more) for more tests and procedures, they are more likely to order more tests and procedures. If they are paid the same, regardless of the number of tests and procedures, then their behavior would undoubtedly change. Pay a good doctor a salary, promote for results in patient recovery and treatment (and not in the number of procedures ordered), and you get behavior that reflects that mandate. Pay a doctor according to the number of patients that can be treated in a day, and watch doctors “treat” more patients without regard to quality.

Look at the behavior in practice groups where physicians create their own testing facilities (or own their own hospitals). Since money is formulaically applied based on a computer program, if a doctor orders a test, the test will generate a fixed payment automatically to the testing facility. More tests, more payments. And if the doctor owns the testing facility too?

Try this example cited in the July 31^st Washington Post: “In August 2005, doctors at Urological Associates, a medical practice on the Iowa-Illinois border, ordered nine CT scans for patients covered by Wellmark Blue Cross and Blue Shield insurance. In September that year, they ordered eight. But then the numbers rose steeply. The urologists ordered 35 scans in October, 41 in November and 55 in December. Within seven months, they were ordering scans at a rate that had climbed more than 700 percent… The increase came in the months after the urologists bought their own CT scanner, according to documents obtained by The Washington Post. Instead of referring patients to radiologists, the doctors started conducting their own imaging -- and drawing insurance reimbursements for each of those patients.” It’s human nature… and a badly designed system.

Superstar specialists will always be able to set a premium, no matter what government or insurance program may apply – if you want them, you will have to reach deep into your pockets (rich folks don’t care) to get “the best.” It works that way in “socialized medicine” venues like England, and the notion of universal healthcare coverage for all Americans is unlikely to change that fact. But to deal with expensive medical care, we have to look at the cost components of the most expensive components, and this blog is focused on doctors.

Start with medical school, a professional school with expensive and highly paid practitioner-professors. We can’t have doctors graduating with six figures of debt from their education, require years of internship and residency at low pay and then smack them with the economic impact of exorbitant malpractice premiums. If we are limiting doctor pay, we also have to reduce the cost of becoming and remaining a doctor.

What happens when doctors are simply paid salaries; does the system provide inferior results? The July 24^th New York Times: “By contrast [to traditional ‘pay per procedure’ hospitals and doctors, Mary Imogene Bassett Hospital, a small facility with 180 beds in Cooperstown, NY, is like a] small number of other health systems in this country — pays salaries to all of its doctors. No matter how many tests or procedures are performed, they take home the same amount of money. Medical costs at Bassett are lower than those at 90 percent of the hospitals in New York, while the quality of care ranks among the top 10 percent in the nation, surveys show.”

Reducing or retiring physician medical school debt and removing the burden of medical malpractice costs may be the trade-off for many doctors to opt for a salaried system. For those practitioners in search of the highest revenue model, there mere possibility of getting more money in a “pay for specific service” format makes the salaried approach less attractive. In restructuring the future of our medical programs, we need to create insurance plans and governmental policies that pay doctors/hospitals to keep patients healthy, not simply to over-test and over-treat.

Further, salaried doctors working in groups tend to communicate with their peers more frequently – there is no hesitation because a consulting fee must be determined or a payment might be lost. The Times: “Such coordinated care is a hallmark of integrated health systems with salaried doctors, like Kaiser Permanente, the Mayo Clinic, the Veterans Administration and the Cleveland Clinic. In each system, medical records are electronic, so doctors have quick access to patients’ entire histories, including X-rays and prescriptions. And doctors often treat patients in interdisciplinary teams where coordination is encouraged since no one loses money by passing a patient to a colleague.”

To effect deep cuts in the cost of the system while increasing effectiveness requires a ground-up rebuilding of the entire spectrum of underlying assumptions. Costs are the product of governmental policies and industry practices, part of the chain of costs that go into each component of healthcare. We must shift those basic policies and address each “cost link” in each chain if we really are going to be able to provide good healthcare for all Americans. You can’t just shove the costs down from the top.

I’m Peter Dekom, and I approve this message.