July 28, 2009--Fee-For-Service
As the debate about healthcare reform drags on, the 800-pound gorilla in the room is why we in fact spend so much money for the system we currently have. It’s the one thing no one wants to talk about, starting with President Obama.
Forget for the moment whether or not we spend more per capita than other countries and get less for it; put aside disagreement about overcharging by pharmaceutical companies, let’s not argue about insurers who only want to cover healthy people so they can maximize profits, temporarily ignore how much providing a public option may or may not save, and set aside for now disagreement about the cost of medical malpractice insurance. Though all of these things have cost implications—big ones—they are not why we pay so much and are on a healthcare spending trajectory that will not only bankrupt the country but make the current federal deficit look like petty cash.
The real reason we spend more than any other country is because of the way we and our insurance companies and Medicare and Medicaid pay for the care we receive. It’s our unique fee-for-service system that’s at fault. Here’s how it works:
Pretty much everyone pays their bills (or their insurance companies or the government does) service by service. We get billed separately for every visit, for every test. If we are hospitalized we get an itemized bill when we are discharged that not only includes the cost of our room and the medications we received but also every in-room doctor visit, every dressing that is changed, every conversation with the social worker, and even every tongue depressor used.
Now this may seem fair because isn’t that the way we pay for every other service we receive? If we bring our car in for repairs we pay for the oil by the quart that is put in the crankcase, we pay separately to have our tires rotated, we pay for the grease that is squirted into our ball joints, we . . . You get the point.
Though this may make sense when it comes to servicing an automobile, does it when it involves medical care? Some would claim that even in regard to how mechanics charge there are opportunities for abuse. If he tells you that you need to repair your alternator and that that will cost $450, without the expertise to challenge this you never will know if the repair was really necessary. And if it isn’t and you agree to have the work done, you are being ripped off. But it’s “only” for $450.
If, on the other hand, your doctor says that she or he needs to do a string of tests on you digestive system, since among things these will be paid for by your insurer or the government, you lie down and let them stick things in you. Again, you do not have the expertise to question the diagnosis, you are left to trust the integrity of your physician. But unlike the auto mechanic, among other reason, because of the reimbursement system for payment it doesn’t feel as if you are being cheated. Someone else is picking up the bill.
But there are credible studies that show that if doctors have their own testing facilities they are up to ten times more likely to order tests than doctors who have to send you to labs in which they do not have financial interests. If the insurance company will pay for the endoscoping, open wide because a tube is heading your way.
According to experts it is this fee-for-service approach to ordering and paying for medical treatment that is at the heart of the matter. Most physicians of course are honorable people but this way of charging for services offers overt and subtle motivation for them not only to do everything they can to treat and cure you but also to over-test and treat you because of the financial incentives for them. To put it directly—the more they see you, the more tests they order, the more money they make.
An argument in favor of this approach is that doctors are not just physicians but they are also businessmen and they operate (pun intended) within a capitalist system. Therefore, what’s wrong with them making a lot of money? Aren’t the fees they charge ultimately controlled by both the market and so-called third parties--the insurance companies and the government?
Yes and no. The fees may be negotiated and set but for the most part this does not inhibit or restrain doctors from essentially being in charge of the treatments and tests they provide. They may have at times to persuade insurers to authorize this or that test, but for the most part they get their way. They are in charge.
It is largely because doctors act so autonomously and get paid for every service they provide that we wind up paying so much for the care we receive.
If true, why have the president and other advocates for reform ignored this issue? Because, according to recent polls, three quarters of the public are either “very satisfied” or “somewhat satisfied” with the care they receive and thus for him to take on the way doctors are paid would be politically daunting. Since almost all people with health insurance pay in indirect ways, many thinking that they don’t pay at all (either employers provide coverage or Medicare does), anything that looks like tampering with the system as it exists would be political suicide.
The president, though, while not confronting the major cost issue, has attempted to do so indirectly. By citing the good, cost-effective care provided by the Mayo and Cleveland Clinics, where doctors get paid salaries and not by the individual services they provide, he is suggesting that these are good models that should be emulated. (See linked New York Times article for more details.)
We know what the AMA thinks about this. When internists can make upwards of $400,000 a year practicing in a fee-for-service medical environment, how many are eager to get just a salary? Well, at Mayo and in Cleveland the salaries they receive are competitive; and since there is no financial incentive to order up unnecessary tests or those that have significant side effects, fewer are administered and their patients are on average healthier.
Perhaps, then, it’s time to take note of that 800-pound gorilla because soon he’s going to weigh 1,000 pounds and he’ll have us even more intimidated.
Forget for the moment whether or not we spend more per capita than other countries and get less for it; put aside disagreement about overcharging by pharmaceutical companies, let’s not argue about insurers who only want to cover healthy people so they can maximize profits, temporarily ignore how much providing a public option may or may not save, and set aside for now disagreement about the cost of medical malpractice insurance. Though all of these things have cost implications—big ones—they are not why we pay so much and are on a healthcare spending trajectory that will not only bankrupt the country but make the current federal deficit look like petty cash.
The real reason we spend more than any other country is because of the way we and our insurance companies and Medicare and Medicaid pay for the care we receive. It’s our unique fee-for-service system that’s at fault. Here’s how it works:
Pretty much everyone pays their bills (or their insurance companies or the government does) service by service. We get billed separately for every visit, for every test. If we are hospitalized we get an itemized bill when we are discharged that not only includes the cost of our room and the medications we received but also every in-room doctor visit, every dressing that is changed, every conversation with the social worker, and even every tongue depressor used.
Now this may seem fair because isn’t that the way we pay for every other service we receive? If we bring our car in for repairs we pay for the oil by the quart that is put in the crankcase, we pay separately to have our tires rotated, we pay for the grease that is squirted into our ball joints, we . . . You get the point.
Though this may make sense when it comes to servicing an automobile, does it when it involves medical care? Some would claim that even in regard to how mechanics charge there are opportunities for abuse. If he tells you that you need to repair your alternator and that that will cost $450, without the expertise to challenge this you never will know if the repair was really necessary. And if it isn’t and you agree to have the work done, you are being ripped off. But it’s “only” for $450.
If, on the other hand, your doctor says that she or he needs to do a string of tests on you digestive system, since among things these will be paid for by your insurer or the government, you lie down and let them stick things in you. Again, you do not have the expertise to question the diagnosis, you are left to trust the integrity of your physician. But unlike the auto mechanic, among other reason, because of the reimbursement system for payment it doesn’t feel as if you are being cheated. Someone else is picking up the bill.
But there are credible studies that show that if doctors have their own testing facilities they are up to ten times more likely to order tests than doctors who have to send you to labs in which they do not have financial interests. If the insurance company will pay for the endoscoping, open wide because a tube is heading your way.
According to experts it is this fee-for-service approach to ordering and paying for medical treatment that is at the heart of the matter. Most physicians of course are honorable people but this way of charging for services offers overt and subtle motivation for them not only to do everything they can to treat and cure you but also to over-test and treat you because of the financial incentives for them. To put it directly—the more they see you, the more tests they order, the more money they make.
An argument in favor of this approach is that doctors are not just physicians but they are also businessmen and they operate (pun intended) within a capitalist system. Therefore, what’s wrong with them making a lot of money? Aren’t the fees they charge ultimately controlled by both the market and so-called third parties--the insurance companies and the government?
Yes and no. The fees may be negotiated and set but for the most part this does not inhibit or restrain doctors from essentially being in charge of the treatments and tests they provide. They may have at times to persuade insurers to authorize this or that test, but for the most part they get their way. They are in charge.
It is largely because doctors act so autonomously and get paid for every service they provide that we wind up paying so much for the care we receive.
If true, why have the president and other advocates for reform ignored this issue? Because, according to recent polls, three quarters of the public are either “very satisfied” or “somewhat satisfied” with the care they receive and thus for him to take on the way doctors are paid would be politically daunting. Since almost all people with health insurance pay in indirect ways, many thinking that they don’t pay at all (either employers provide coverage or Medicare does), anything that looks like tampering with the system as it exists would be political suicide.
The president, though, while not confronting the major cost issue, has attempted to do so indirectly. By citing the good, cost-effective care provided by the Mayo and Cleveland Clinics, where doctors get paid salaries and not by the individual services they provide, he is suggesting that these are good models that should be emulated. (See linked New York Times article for more details.)
We know what the AMA thinks about this. When internists can make upwards of $400,000 a year practicing in a fee-for-service medical environment, how many are eager to get just a salary? Well, at Mayo and in Cleveland the salaries they receive are competitive; and since there is no financial incentive to order up unnecessary tests or those that have significant side effects, fewer are administered and their patients are on average healthier.
Perhaps, then, it’s time to take note of that 800-pound gorilla because soon he’s going to weigh 1,000 pounds and he’ll have us even more intimidated.
posted by Steven Zwerling at
6:09 AM
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