How Should Your Doctor Be Paid? Part 1: Fee for Service

The question of how physicians, nurses, hospitals and other health care workers should be compensated for health care has been cut-and-dried for most of the history of modern medicine.  Doctors were paid a fee for a service.  Need to get a broken arm set in a cast?  That costs X.  Need to have a mole removed?  That costs Y.  But despite the hallowed glint of tradition and custom, the times have clearly changed.  We can't ignore the unintended negative consequences of fee-for-service in our Monopoly Money health care system, and we’ve been confronted with too many other competing ideas on how to pay for health care.  As we push to overhaul our system, it’s worth taking a second to realize the answer to this question is, “We’re honestly not sure anymore.”

Fee-for-service makes sense on a gut instinct level.  I go to my doctor for something – a physical, an X-Ray, a prescription.  It makes sense to pay for health care like I was purchasing anything else.  But under harsher scrutiny, that analogy breaks down.  After all, when I buy almost anything else, I look for the price first.  Not so with health care.  Instead, I know I'm paying a co-pay which usually has little connection to the cost of my care, and my health insurance company pays for a fraction (hopefully a large one!) of the rest.  In the event that they don't, I either fight with them in a costly battle, pay the difference myself or my doctor eats the expense.  But suffice to say, that's not in my mind before I go to the doctor's (although perhaps it should be.)  In 32 years when I’m on Medicare (and believe you me, I’m getting’ there, baby!), I’ll similarly be shielded from most of the costs of my care.  As a consumer, it turns out I’m not really focused on what my care is.  My main concern is just, “Will this make me better?”

But fee-for-service doesn’t take into account whether it actually makes me better.  Whether the “service” was successful or not, the doctor or the hospital gets the same “fee.”  Ditto whether the “service” is necessary or not – as the Dartmouth College study reminds us we spend $700 billion each year on care that does not improve our health outcomes.  If you and I have the same condition, but my doctor needed to run two additional tests and an MRI on me “just to be sure” before he could diagnose me, my care will cost more than yours and with no better outcome.  If I somehow wheedle my doctor into writing me a prescription for some drugs that he doesn't believe will actually help my outcome, but does it anyway to shut me up, my care still costs more but for no better outcome.  It turns out my main criteria as a “health care consumer” doesn’t actually relate to the compensation that will be made in my name.

Fee-for-service also is no picnic for many doctors – particularly those who practice primary care.  A plastic surgeon is doubtlessly fine with this structure – do a surgery, get paid, but house.  Done and done.  But a primary care doc trying to diagnose me in for the first time only gets reimbursed for my initial 15-minute appointment.  She doesn’t get reimbursed for the time she spends going over my medical files, or if she decides to call my previous doctor for clarification (he wouldn’t get reimbursed for that either).  She doesn’t get reimbursed if she takes extra-long with my exam or with the interview if it's not "usual and customary" to do so.  She doesn’t get reimbursed for bouncing new ideas off a colleague, or following up with me by phone to see how the treatment is going, or to answer a question by email.  She just gets reimbursed for that 15-minute appointment.  As a direct result, doctors and hospitals rely on getting through as many such appointments in a day as possible.  In the worse case scenario, the interviews become rushed.  Your 15-minute interview becomes 5-7 minutes, and the doctor interrupts you 23 seconds in.  There’s a huge incentive to get right to the tests, from the simple blood work to the complicated X-Ray, CAT scan, MRI, or what have you, because each of those services has their own fees – and in some cases, more expensive fees than the simple patient appointment and examination.

Doctors and hospitals don’t do this because they’re trying to fleece the system.  But if you’re a family medicine doctor running a small practice with three other doctors, paying overhead (including health insurance for your own employees) and a staff involving one or more nurses plus people just to deal with the administration and paperwork and interfacing with every insurance company’s unique sequence of hoops, and in many cases fighting for compensation, it’s hard not to see the financial incentives in seeing a lot of patients and running a lot of tests in a short period of time as not so much an incentive as a matter of necessity.  And that not only changes the way our doctors practice – it helps explain why an incentive to maximize the amount of health care dollars spent is, well, doing just that on a system-wide and unsustainable scale.

Next:  If not fee-for-service, then what?  We’ll take a look at some of the proposals on the table – including those mentioned by Tom Daschle, Sen. Max Baucus and President Obama himself.

(Photo credit:  stopnlook on Flickr.)