How Doctors Are Trapped

Every lawyer, every accountant, every architect, every engineer — indeed, every professional in every other field — is able to do something doctors cannot do. They can repackage and reprice their services. If demand changes or if they discover a way of meeting their clients’ needs more efficiently, they are free to offer a different bundle of services for a different price. Doctors, by contrast, are trapped.

To see how trapped, let’s look at another profession: the practice of law. Suppose you are accused of a crime and suppose your lawyer is paid the way doctors are paid. That is, suppose some third-party payer bureaucracy pays your lawyer a different fee for each separate task she performs in your defense. Just to make up some numbers that reflect the full degree of arbitrariness we find in medicine, let’s suppose your lawyer is paid $50 per hour for jury selection and $500 per hour for making your final case to the jury.

What would happen? At the end of your trial, your lawyer’s summation would be stirring, compelling, logical and persuasive. In fact, it might well get you off scot free if only it were delivered to the right jury. But you don’t have the right jury. Because of the fee schedule, your lawyer skimped on jury selection way back at the beginning of your trial.

This is why you don’t want to pay a lawyer, or any other professional, by task. You want your lawyer to be able to reallocate her time — in this case, from the summation speech to the voir dire proceeding. If each hour of her time is compensated at the same rate, she will feel free to allocate the last hour spent on your case to its highest valued use rather than to the activity that is paid the highest fee.

In a previous Health Alert, I noted that Medicare has a list of some 7,500 separate tasks it pays physicians to perform. For each task there is a price that varies according to location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor is going to perform every task on Medicare’s list.

Yet Medicare is potentially setting about 6 billion prices across the country at any one time.

Is there any chance that Medicare can get all those prices right? Not likely.

What happens when Medicare gets them wrong? One result: doctors will face perverse incentives to provide care that is costlier and less appropriate than the care they should be providing. Another result: the skill set of our nation’s doctors will become misallocated, as medical students and practicing doctors respond to the fact that Medicare is overpaying for some skills and underpaying for others.

The problem in medicine is not merely that all the prices are wrong. A lot of very important things doctors can do for patients are not even on the list of tasks that Medicare pays for. Some readers will remember our Health Alert on Dr. Jeffrey Brennan in Camden, New Jersey. He is saving millions of dollars for Medicare and Medicaid by essentially performing social work services to reduce spending on the most costly patients. Because “social work” is not on Medicare’s list of 7,500 tasks, Brennan gets nothing in return for all the money he is saving the taxpayers.

We have also seen that there are other omissions — including telephone and e-mail consultations and teaching patients how to manage their own care.

In addition, Medicare has strict rules about how tasks can be combined. For example, “special needs” patients typically have five or more comorbidities — a fancy way of saying that a lot of things are going wrong at once. These patients are costing Medicare about $60,000 a year and they consume a large share of Medicare’s entire budget. Ideally, when one of these patients sees a doctor, the doctor will deal with all five problems sequentially. That would economize on the patient’s time and ensure that the treatment regime for each malady is integrated and consistent with all the others.

Under Medicare’s payment system, however, a specialist can only bill Medicare the full fee for treating one of the five conditions during a single visit. If she treats the other four, she can only bill half price for those services. It’s even worse for primary care physicians. They cannot bill anything for treating the additional four conditions.

Since doctors don’t like to work for free or see their income cut in half, most have a one-visit-one-morbidity-treatment policy. Patients with five morbidities are asked to schedule additional visits for the remaining four problems with the same doctor or with other doctors. The type of medicine that would be best for the patient and that would probably save the taxpayers money in the long run is the type of medicine that is penalized under Medicare’s payment system.

Take Dr. Richard Young, a Fort Worth family physician who is an adviser for the federal government’s new medical Innovation Center. As explained by Jim Landers in the Dallas Morning News:

[When Young] sees Medicare or Medicaid patients at Tarrant County’s JPS Physicians Group, he can only deal with one ailment at a time. Even if a patient has several chronic diseases — diabetes, congestive heart failure, high blood pressure — the government’s payment rules allow him to only charge for one.

“You could spend the extra time and deal with everything, but you are completely giving away your services to do that,” he said. Patients are told to schedule another appointment or see a specialist.

Young calls the payment rules “ridiculously complicated.”

That’s an understatement.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

37 replies »

  1. Although I found many of the comments provided very insightful and provocative, in particular, Margalit Gur-Arie hits on the subtext of this entire conversation. Many people are still running on the preconceived notions that all doctors are rich. However, according to recent studies, not all doctors may be doing as well as you think. Be sure to look at this article by the American Action Forum, which discusses the recent financial position of doctors in the U.S


  2. OK back to my question on why doctors open on Saturday. Based on doctor’s response it seems reasonable to conclude that there is no revenue loss by operating on Saturday. Doctors are not competing for business. So the customer- patients have to come based on doctor office convenience. There are’nt too many such business around these days which force customers to shop by as per business convenience.

    The other factor mentioned is overhead involved. I have seen many foreign born doctors have office open on Saturday. Somehow they are able to make it work.

    Now who exactly is trapped?

    I dream of day when doctors will compete for my business.

  3. Second everything you said, Dr. Motew.

    And just to clarify, this post here is about doctors being trapped, so this is about the so called professional component of charges. The hospital racket is quite a different beast, and by the way, while everybody is obsessing about the “rich doctors”, most of the money is quietly spent elsewhere.

  4. These are all great comments, and really to be appropriate, time-based ‘costing’ has to be hammered out before billing can follow.

    All of the issues Barry mentioned can be ‘accounted’ for when determining an hourly cost for physician time-malpractice, training, work etc..which actually are part of the basis for work RVUs under the current CPT methodology.
    Once a true ‘hourly’ rate is defined, it can be applied to surgery time, patient time, on-call time, administrative time etc. It is a lot easier to trace costs and determine appropriate charges. The distinction as to which specialties time is more valuable will be irrelevant, a 4 hour ant-posterior back will pay for 4 hours of work at an orthopedist’s rate, the 10 minute carpal tunnel will be paid for 10 minutes of work, a 30 minute office visit etc. etc.

    Regulating this would rely on identifying outliers and making this information readily available. Payers are likely not interested in paying for the surgeon who regularly takes 45 minutes for a 10 minute procedure, and patients and referring docs would take notice as well.

    Equipment costs, nursing, labor etc. is a whole other costing issue, however most direct costs are known and can be applied to the hourly ‘charge’ or by diagnosis etc….once again sounds a lot like CPT/DRG/RVU system, yet based on time.

    None of this will remove the potential for fraud as Nate comments, however transparency to the underlying costs of care allow for joint-decision making.

  5. Margalit –

    While I can appreciate the conceptual appeal of billing for time across as much of the medical spectrum as possible, the legal profession is a less than perfect model.

    All lawyers, no matter what their specialty, were able to become lawyers after four years of college, three years of law school and passing the Bar exam. By contrast, there is considerable difference in training time to become a PCP vs. a neurosurgeon or an oncologist, etc. Second, there is astronomical variance in the cost of malpractice insurance between PCP’s and surgeons, especially neurosurgeons and OBGYN’s. Third, some physician specialties require expensive equipment to perform procedures but not for a consult. Patients who just want access to the specialist’s time and expertise don’t want to pay for the equipment too. Finally, some physician services require the participation of nurses or techs while others don’t. Lawyers don’t just bill for time either. They also charge for expenses including travel, hiring experts, and copying documents among other things. In addition, the large corporate law firms have a minimum charge for everything they do. If they just touch a file, it can trigger a bill for 10 or 15 minutes of time.

    On the hospital side, some care is far more expensive to provide including ICU and OR related services as well as the use of expensive imaging equipment. When I had my CABG at a NYC AMC in 1999, the operating room time (and support team) was billed at $1,000 per 15 minute time unit or $4,000 per hour if I remember correctly. By contrast, to provide care for a low acuity patient in a standard room might cost $1,500 to $2,000 per day at most even in an expensive MSA.

    So, while time based billing may work well for PCP’s and lawyers, it may not work so well for hospitals and many physician specialties. Also, as Nate noted, there is lots of fraud in home healthcare and services provided in nursing homes. When the service provider is paid by a third party instead of the patient or the patient’s family, there is much more opportunity to commit fraud including the provision of legitimate services that are inappropriate and unlikely to provide any benefit to the patient. Those services are generally billed based on time.

  6. “It is much simpler (and accurate) to validate that the doctor spent half an hour with a patient then it is to ascertain that a 99215 was justified.”

    And you know this how? Not being present at the office visit how do I know if the doctor spent 10 minutes or 30 minutes with the patient? That is the only criteria I have to evaluate. With CPT there is complexity, medical history, time, several factors which can alert me to potential fraud.

    How much have you paid in Legal fees in your life? After working with Dozens of attorneys and 100s of thousands of dollars in my opinion you have no idea what your talking aobut. A piece of paper from an attorney saying he spent from 11:30 to 12:15 working on my case tells me nothing. I have no way to know if they really did that, if they were eating lunch at the same time, were doing work that needed done or just sorting paper.

    Like most of your arguments you seem to lack all real world applicability

  7. The “who’s paying for it” issue, or non-issue, is separate.
    I don’t see how fraud is more likely if you bill for time, as opposed to a bewildering array of CPTs. Contract negotiations should be greatly simplified, and transparency will be built in. Just like attorneys itemize everything, doctors could too, and you can run your fraud algorithms on that one parameter a lot easier.
    It is much simpler (and accurate) to validate that the doctor spent half an hour with a patient then it is to ascertain that a 99215 was justified.

  8. Allow me to share with you why it wont work once you leave paper and go to the real world with the idea;

    When you pay for an attroney the majority of the time the person paying the bill is the one receiving the service. If my Attorney is running up the clock I do something about it since it is my money. With healthcare a majority of the time it will be a third party paying the bill, who is protecting their insterest and watching the doctor to make sure they work efficently?

    “No one is struggling to understand how lawyers are paid.”

    Understanding how they are paid is not the same as agreeing it is right. There are countless disputes regarding billable hours. We are fighting with an attorney we hired for a 50K legal bill where they didn’t actually accomplish anything. They spun their wheels for 2 years, lost the case, then billed us 50K. I see how many hours they claim they should be paid for but I take issue with the fact in all those hours they didn’t even accomplish simple task like disclovery.

    We already have rampant fruad in healthcare for task billed by time. Home nursing for example, when the person receiving service is detached from payment the opportunity for fraud is created. Until you solve that reimbursing for time will never work.

  9. Barry,
    I am not convinced that time & materials is not appropriate for procedures. Some of these surgeries are consistently taking less and less time, but we are still paying as if they took forever.
    Paying for time is simple. No one is struggling to understand how lawyers are paid.
    DRGs did nothing to contain hospital costs, and some argue that the opposite is true. We need to stop making policy based on belief, and start looking at the numbers. There are plenty of of numbers out there.

  10. all you need is a computer cam, monitor, and skype connection to India, staffing wont cost you more then a couple hundred rupe per weekend day

  11. Margalit –

    It’s hard to say about the impact on costs. For surgical procedures, though, bundling is clearly the most appropriate way to price as opposed to billing for each CPT-4 code. At the very least, assuming patients and referring doctors also have information about risk adjusted quality and outcomes metrics, it makes comparison shopping easier for procedures that can be scheduled well in advance though not for those that need to be done on an emergency basis.

    The bigger issue involving surgeries and costs is appropriateness and its impact on healthcare utilization. There are probably lots of unnecessary back surgeries and cardiac stent insertions as well as overly aggressive cancer treatments in areas like early stage prostate and breast cancer. Shared decision making can be useful here. There is also plenty of questionable utilization related to end of life care. More widespread use of living wills and advance directives would be most useful to address that issue.

  12. FYI surgeons are paid on a bundled basis for most procedures which includes a full history and physical within 24 hours prior to the operation, the operation itself and then (in most cases) 90 days of care afterwards.

    Similarly, hospitals are paid in a bundled manner for surgery (based on procedure and DRG), with the exception of added charges due to co-morbidities, complications or ‘new’ episodes of care.

  13. I’ve written numerous times in support of physician billing based on time spent treating the patient instead of by CPT-4 codes. Even in a multi-specialty group practice, they could post a sign in the waiting room listing the hourly billing rate not only for each doctor but for nurses and techs as well. Even within the same practice, the new doc one or two years out of medical school would likely bill at a lower hourly rate than the senior doc with 20 or 30 years of experience. Similarly, law firms have a lower billing rate for first and second year associates than for senior partners. There could also be a minimum charge even for the simplest encounters.

    With respect to Medicare, my cardiologist / PCP told me in conversation that if I come in for an annual wellness visit, and he finds anything wrong, he can not treat me for the problem and get paid unless I schedule a separate visit even if he could easily deal with the issue right then. Primary care seems to lend itself best to hourly rate billing, in my opinion. At the other extreme, surgeons should use bundled or episode pricing including preliminary evaluation and follow-up care.

    Hospitals should be paid on a bundled basis for surgical procedures, whether inpatient or outpatient, and cancer treatment that can be scheduled in advance. When they need to run a lot of tests to figure out what’s wrong with the patient, perhaps a per diem approach would work better with higher rates for the first and second day and much higher rates for ICU based care.

  14. OK, you made your point. I’ll staff my office with animal care techs and hotel maids.

  15. “It’s not a mindset thing.”

    Let’s see, a short list of vocations where employees know there’s weekend/night/holiday work required; airports, EMT, firefighters, police, power company, any animal care vocation, hotels/resorts, etc.

  16. Just to clarify, I’d love to open on weekends. It’s be a win for everyone: doctors, patients, payors.

    But overhead goes up dramatically with holiday/weekend hours, and without surplus pay, I’d lose money.

    I presented all this info to my largest payor, and in the profoundly ignorant, contemptuous manner that they use for dealing with docs and patients, they refused to pay.

  17. Hospitals in my area pay weekend nurses for 40 hours of work when they clock in 20. Nursing homes are notoriously dangerous places to be on weekends.

    It’s not a mindset thing.

  18. “It’s a bear to staff reliably on weekends.”

    Apparently not for nursing or any other hospital staff. Must be a mindset thing.

  19. It’s a bear to staff reliably on weekends. As hospitals know, you have to pay more for fewer hours.

    I “discussed” this with my largest insurer, and they said they would rather pay a $2000 ER bill than my $35 weekend surcharge.

  20. Yes they are trapped. Regardless of how good or poor they are, the number of patient visits will not change. That’s unless they stop maintaining office decor.

    By the way why do so few doctors have visiting hours on Saturday?

  21. “Where is the right to charge what you think your labor is worth? It certainly does not exist in the US.”

    That’s crap. Go concierge.

  22. If you like things the way they are now, wait until obamacare kicks in. Providers will be forced to accept the government “fees” or risk getting paid NOTHING. Where is the right to charge what you think your labor is worth? It certainly does not exist in the US.

  23. “Doctors, by contrast, are trapped.”

    No they’re not. Let them open a practice on a cash basis, sans insurance and government. Bill what you want, how you want.

  24. When physicians present their itemized bills, don’t be shocked to see every phone call, every review of lab test, correspondence, conversations with colleagues about your case, every time he cracks open a book or looks at an radiograph. There are thousands of “billable hours” that are the equivillant of “answering an email” or “taking a phone call” that goes into taking care of your health.

    Oh, pharmacy refills and new prescriptions to keep you on the golf course and out of the waiting room? What should that billable rate be?

    “Rhetoric is to Justice what Cookery is to Medicine”. Appropriate.

  25. I hope nothing prevents a practitioner from taking 30 minutes rather than 15 to see a patient. I hope they do that all the time.

    Don’t you think it would be easier to shop around for one item (hourly rate) rather a gazillion CPTs?

    I don’t know how you would determine specialty rates. Perhaps like they do for attorneys – expertise, reputation of good work, big firm with huge overhead vs. small country guy, etc. Why not let folks name their rates in advance, and let people figure it out.

    As long as we have some type of insurance, public or private, controls are implicit, and are needed precisely because of what Steve brings up below. So maybe there is a ceiling and some rules…
    The problem here is that, unlike lawyers, demand for doctors outpaces supply because supply has been throttled down artificially for decades. That needs to change too.

  26. Wouldn’t this just be a time- rather than a cpt-based RVU? How would one determine the ‘specialty’ rates? What would prevent a practitioner taking lets say 30 rather than 15 minutes to see a patient, and thus bill more (as happens in legal practice). For that matter would one be able to shop for lower hourly physicians or pay more for ‘specialty’ ones?

    That being said, I think some form of time-based reimbursement makes sense with proper (and extensive) controls.

  27. Why salaries? How come lawyers don’t have to be on salaries?
    Fee for service is not a problem if that service is defined in terms of billable hours and specialty, just like the practice of law. You can figure all the tangibles in the hourly rate, including special rates for off hours.

  28. John neglects to mention that we have the same problems with private insurers, only in my state of Pennsylvania, they are worse.

    I like this idea of haggling with patients over prices. I bet I can get a really good deal right before their emergency CABG. Wonder how much I can get a family to pay for their kid’s emergency surgery? The wife’s cancer surgery? That middle of the night emergency care? If they dont pay enough, may I refuse to take care of them?


  29. “it is easy to see why the current system persists”

    Yep. Read some J.D. Kleinke.

    “cost issues such as malpractice coverage”

    Were physicians all salaried, insuring against liability would likely become much cheaper. You know, “purchasing power” and all that.

  30. The only solution I can see is to pay physicians set salaries. No matter how one slices it, Medicare is still fee-for-service, just with a complex net of restrictive rules and regulations meant to stifle the obvious cost overrun problems associated with such systems. Certainly paying for diagnoses and disease states makes sense, but once again the fair determination of what is appropriate reimbursement for work performed is problematic.

    Tangible cost issues such as malpractice coverage, on call time (work hours), office overhead and education debt need to be figured in to any equation as well.

    With such complexity, it is easy to see why the current system persists, and why radical innovative change is unlikely to happen anytime soon.

  31. “Cash only” – works for me. Please pay me with your HSA debit card – you know, the one linked to the account that is funded at least in part by your employer or the government. I’ll tell you my charges up front, even be willing to haggle a little, and all three of us will be better off (you, me, and that third party). I’ll even try and work with you so that you end the year with a surplus in your account and are eligible for that bonus they give out to low utilizers. I’ll even offer email visits and in-office group education visits now that I’ll have the chance to bill for them without all that red-tape. Just make sure you keep your major medical insurance up to date (premiums paid from your HSA of course)

  32. Perfect. I agree. Pay for time spent and let doctors and patients figure out how to best spend that time. $300 – $500 per hour sounds just about right to me. Of course, you would have to itemize the bill, like lawyers do, but that shouldn’t be that bad.

    However, when you hire an attorney, the biggest expense is the attorney’s time. When you hire a doctor, the biggest expense is never the doctor’s time. How do we reconcile that?

  33. Well, John, I will — to use a lawyer’s term — “stipulate” to all of that (ignoring the overbroad gauzy inference that “all” other professions are utterly free to bundle and set prices purely on the basis of estimated market “ROI”). Nonetheless, it’s not clear what you’re advocating as the aggregate solution.

    Are you seriously arguing for a “cash-only” health care system? Are you arguing that the “payment rules” of the for-profit AHIP crowd are not equally “ridiculously complicated”? (My own experience last year with United Healthcare belies that. But, then, that’s just anecdotal.)