How Should Doctors Get Paid? Hourly Wage, Piecework or Quality?

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A long time ago, when I worked in Sweden’s Socialized health care system, there were no incentives to see more patients.

In the hospital and in the outpatient offices there were scheduled coffee breaks at 10 and at 3 o’clock, lunch was an hour, and everyone left on the dot at five. On-call work was reimbursed as time off. Any extra income would have been taxed at the prevailing marginal income tax rate of somewhere around 80%.

There was, in my view, a culture of giving less than you were able to, a lack of urgency, and a patient-unfriendly set of barriers. One example: most clinics took phone calls only for an hour or two in the morning.

After that, there was no patient access; no additions were made to providers’ schedules, even if some patients didn’t keep their appointments, not that there was a way to call and make a same-day cancellation.

As my father always said: “There must be a reward for working”.

But, high productivity can sometimes mean churning out patient visits without accomplishing much, or it can mean providing unnecessary care just to increase revenue. For example, some of my patients who spend winters in warmer climates come back with tall tales of excessive testing while away.

A recent Wall Street Journal article offers an interactive display of doctors who collect the highest Medicare payments. The difference between providers in the same specialties across the country makes interesting reading. It is hard to imagine that many individual doctors are billing Medicare more than $10,000,000 per year.

So it might make sense to insure against paying for excessive care by also demanding a certain level of quality.

But defining quality is fraught with scientific and ethical problems, since quality targets really aren’t, or shouldn’t be, the same for all of our patients.

The scientific community, for example, knows that elderly diabetics with “ideal” blood sugars are more likely to suffer harm or die than those with sugars that are a little higher. Even though the American Diabetes Association has embraced higher blood sugar targets for older diabetics, many healthcare organizations’ quality assurance programs treat all diabetics the same and penalize doctors who individualize treatment goals in accordance with the scientific evidence or common sense.

In almost every area of medicine there are individual nuances that must be considered if we are to best serve each of our patients. It is ironic and very sad that, right now, those who pay us are looking for simple (or simplistic), universally applicable quality targets just as the explosion in our understanding of genetics is promising to usher in the era of “personalized medicine”.

Up until now, the gold standard of scientific research has been to prove which standardized interventions work best for large groups of patients, even if there are subgroups that aren’t helped at all by them.

Who should define the “quality” measures of our work?

The central question for how doctors might be paid for quality in the future hinges on the priorities of whoever holds the purse strings. Insurance companies, if we overlook profit motives that also exist, prioritize population management. They pay for what works for most people, knowing full well that some patients will not get the best care for their individual situations, for example when certain medications are not covered.

Politicians also favor the population view of health care.

If patients pay us directly, they expect us to deliver the care that works for them. If the Government or an insurance company pays us, they expect us to deliver care that meets their standards, because they don’t trust the patients – their constituents and customers – to know what is best for them.

And their focus is to have us do what helps most of our patients, even if some are not helped and some, or many, aren’t happy with what they are getting.

With all the political talk about “Patient Centeredness” during the current health care reform, may I suggest that patients need to be given more choice about how their health care dollars are spent. With limited choice and no responsibility, patients tend to feel entitled and deprived at the same time.

This creates a toxic environment for delivering health care. I have never met a patient who felt in partnership with his or her insurance company – ever.

And I don’t expect to.

In order to maintain what partnership is left today between doctors and patients, we need a cost-quality paradigm that is shared by patients and providers. We also need to foster and maintain a sense of stewardship that is elusive if all that is at stake is someone else’s money.

I think there are ways to achieve this.

Hans Duvefelt, MD is a Swedish-born family physician in a small town in rural Maine. He blogs regularly at A Country Doctor Writes where this piece originally appeared.

18 replies »

  1. Michael,

    I don’t believe my preference for more freedom for doctors to set prices and for patients to choose to pay more (or shop for a lower price) is the equivalent of giving up on health insurance. I think the way it would work is that the insurance contract commits the insurer to pay a set amount (akin to usual and customary) per procedure….and the patient pays more if his doc charges more….and the patient gets to keep the difference if he finds a lower cost provider: this is similar to how high deductible plans linked to health savings accounts work….and these plans have worked very well and should be the foundation of future reform (as Ben Carson has argued).

    For catastrophic occurences where the bills are in the tens of thousands patients would need the protection of some kind of stop loss provision where the insurer pays based on negotiated rates…much as it is now.

    Re service providers not encouraging “prudent consumption”…..every seller of services would love to sell you more…..lawyers, architects, accountants….but they are constrained by personal and professional ethics as well as the concern of losing the trust of their customers and destroying their reputations as trustworthy providers….it works pretty well everywhere else, why would it not in medicine ?


  2. Perhaps we need to have an awareness that doctors did originally set their fees, but that did not necessarily mean Medicare used those fees in updating the fee schedules though the smaller subspecialties might have had more influence. Additionally Medicare had some rules that made physicians *increase* their charges even though those increases had no immediate impact on the fee they were paid. If a physician’s charges were below Medicare rates or below an increase in rates then Medicare would not increase payments to them for a year or a year and a half after the physician so called charges were at the increased level. Thus physicians had to stay ahead of the curve pushing them to increase fees. Another example is when Medicare unbundled certain procedures and paid individually for the components. The physicians fee might have been OK in total, but if he was too low on any component the physician lost out financially. Thus he was incentivized to charge higher rates.

    Prudent consumption requires at least two parties (probably more), the physician and the patient. If a patient wants something that the physician believes is not prudent consumption and the patient isn’t satisfied if something goes wrong the physician has opened himself up to malpractice charges.

    To blame physicians for the mess created by Medicare and politicians is foolish. They are not pure, but Medicare was an idea that was contrary to established mechanisms of setting prices and dividing up resources. There were other ways to manage the problem so that those not affluent enough could get the needed care.

  3. Dr. Slobodian, perhaps you never heard of “usual, customary and reasonable,” which allowed doctors (as a group) to raise their fees to Medicare (as a group) without any controls whatsoever for a number of decades?

    You are, of course, making a version of the argument against health insurance — ANY health insurance — that some physicians made for years. “Third-party payment” interferes with the doctor-patient relationship (at least the financial one).

    And it does. Except that given the cost of medical care, if the patient paid you completely out of his own pocket, giving you that economic freedom that lawyers and others enjoy, you might find yourself being paid pennies-on-the-dollar on that fee you so freely set. Or back to being paid with chickens.

    Fortunately, physicians in many medical specialities (alas, not primary care) have found ways to prosper despite the existence of health insurance.

    Your point about more cost-sharing is well-taken. Of course, when doctors had total freedom, “prudent consumption” was not what they encouraged. But that’s a topic for a different time.

  4. 1. Twenty years ago I was sitting in a health insurer board meeting when it dawned on me that physicians are the only professional group that cannot set its own fees or rates. Lawyers, architects, engineers all set an hourly rate and/or bid on jobs…..ending up with negotiated recompense from their client.
    I believe this came about as Medicare evolved with a set fee per procedure…..and then the insurers (in my case we had 65% market share) simply told hospitals and doctor groups we’d pay medicare plus a set percent…..and no provider could afford to reject the deal as we had most of the insured patients.
    I am not sure when balance billing (where docs set rates, insurers paid “usual and customary” and patients paid the difference) ended….but eventually this practice was eliminated.
    So here we are: doctors have lost a fundamental thing….economic freedom…..the ability to establish their own fees. Restoring it (and the patients’ ability share the savings of prudent consumption) should be a critical element of reform.

  5. It’s very frustrating, how we get paid vs getting paid period.
    Since I am in Occupational Medicine, we are paid through MCOs for the Worker’s Compensation cases we see. About 6 weeks ago, I saw an injured worker as a referral from the ER. He had multiple injuries including a mild concussion, cervical strain, nasal fracture, facial laceration and significant ecchymosis and swelling around the eyes. I talked to he and his wife, did a thorough exam, especially neuro, reviewed his scans, Xrays and ER reports,
    set up an ENT consult, and discussed his work status with his employer. The patient and his wife, as well as the employer were happy with the time we spent making sure he got the appropriate care. I billed for a new, complex patient encounter.
    We received a check from the MCO for the amount of $0, saying the documentation (which was extensive) did not support reimbursement.
    Needless to say a rather scathing letter with copy of the notes was sent to the Medical Director of the MCO.
    How can practices deal with this?

  6. One of the problems about evidence based medicine is the definition and understanding of what evidence based means. If Dr. D treats patient A with a drug that has been tested for a disease and found to be useful, is that evidence based? One might immediately say yes, but what if that patient was of a different age than the group studied? What if that patient is on a whole bunch of other medications? What if the patient has multiple diseases? The problem faced by physicians is not the average patient with the average disease that needs one medication. The problem is a specific patient of a specific age, male or female, in a specific location, exposed to specific…, and of a specific race that has multiple other disorders and is on multiple other drugs. That is just a portion of the problem that provides a tremendous number of variables meaning the studies are appropriate for the average patient, but not necessarily for the specific patient doctors deal with. We haven’t even dealt with the patient’s needs or desires or studies that contradict one another. …And always we have to remember that correlation is not causation.

    So tell us more about evidence based medicine.

  7. Tort reform must accompany the future of health care in this country. Period.

  8. Profit is a motive for most “players” in the healthcare game. No argument there. But there are more and more “players”, who want some of that profit. I think the insurance companies, pharmacy benefit managers and the like are not the best and most credible arbiters of quality. Our professional societies may be a better guardian of such things.

  9. I absolutely agree. In my third installment, I will make the same point: it is human nature to be a little less conscious about spending “other people’s money” and we need an insurance system where people feel the money is THEIRS.

  10. If a patient is paying directly, physicians have will have little incentive to bow to conflicts of interest, as opposed to third parties paying. I think that is what Dr. Duvefelt is getting at.
    Obamacare simply continues the process by engaging insurance companies, and now ACOs to continue putting layers between physicians and patients.
    How much different is a conflict that causes overcare vs undercare?

    I’m sure many would disagree here, but I would argue any attempt at using evidence-based medicine should be accompanied by Tort reform to protect the physician. There continue to be serious debates on the need for PSA testing and now Mammography, and most juries I think will have little sympathy for a doctor following guidelines, ostensibly to save money, because that is how it will be portrayed.

  11. Oh, those good old days before the evil insurance companies stopped us from doing what was best for our patients. (And pay no attention to the telephone-book thick number of studies on profit-driven overuse, or the refusal to use any decision tools because it was an insult to professional autonomy, or the lack of evidence-based practice).

    I don’t doubt Dr. Duvefelt’s sincerity, any more than I doubt the sincerity of physicians who believe Obamacare is socialism and communism or the sincerity of physicians who believe this nation’s failure to adopt a single-payer system is immoral and indefensible. Alas, every system has good and bad effects, and there are no panaceas.

    For those interested in an excellent examination of the impact of different payment systems on how doctors practice, I recommend Marc Rodwin’s excellent book, “Medicine, Money and Morals: Physicians’ Conflicts of Interest.” For a link to the review in the NEJM, go here: http://www.nejm.org/doi/full/10.1056/NEJM199309163291224

    For those interested in

  12. Agree…the words patient mangement are never uttered in my hospital employeed practiced, only the term population mangement. we use patient centered, patient satisifaction but never patient manangement.

  13. Fundamentally, so much of patient care revolves around patients actually taking the doctor’s advice, sticking to their prescription schedule, avoiding activities / foods / environments that aggravate their condition, etc… that quality measures would have to be single-dimensional.

    It may be crude, but looking at how people measure quality between auto mechanics would reveal some great indicators for doctors. For example, many people will consider a mechanic excellent if they take the time to explain the ‘treatment’ their car will be receiving (show them the busted part, the new part, let them get in the pit to see the problem at the source).

    – Nate Wright –
    Outreach Guy @BudgetDoc

  14. “who spend winters in warmer climates

    Yes, it is sadly true, but on the other side of the coin the same complaint exists when the patient returns south. What do all these anecdotes prove? There are doctors up north and down south that might not be doing the best job possible.

    A partial solution is for the patient to take charge, ask questions and demand answers. How can one accomplish that goal when much of this type of treatment is *prepaid* by someone else? Those in charge need to consider how many people will go to a restaurant they have never thought of going to if the entire meal is *prepaid*?

  15. The only positive thing I can say about the current changes in the healthcare system is that through higher deductibles patients are gaining control and insight into the costs of care they encounter.

    Too many are choosing to avoid care and spending anything instead of seeking care but negotiating directly just how and what they want things done.

    Sadly costs remain extremely and artificially inflated, and government insurance reimbursement practices inhibit realistic charges and billing that reflect patients’ ability to pay. So the folks that Medicare and Medicaid are supposed to help are suffering because of those systems, not inspire of them.

  16. What is the price of quality of life?

    When the businessmen come up with the equation defining “quality of life”that maximizes profit margins and makes sure it can be quantified for Wall Street stock advisers, then I guess all of us doctors can then apply it at the front desk of our offices, right?

    Or, better yet, maybe the real question is what is the price of shame and humility? Oh yeah, those terms aren’t applicable in the business arena, true?!

    Maybe finally the best question is, what will it cost to end a physician’s strike to finally make this country realize how damn important we really are to health care? But, that requires we take a stand to end the onslaught of intrusions, disruptions, and theft of real income streams the health care system, and not just physicians, really should be receiving and not all these businesses claiming to deserve most of the financial pie.

    Yeah, I know, all those gonads and intestinal fortitude of invested health care providers required to do what is right and just, buried next to those unmarked graves holding shame and humility. Patients of American medicine, you are treated by whores and cowards, and you wonder why health care is plummeting faster than a sky diver without a parachute.

    Brutal analogy there, eh?

  17. “If patients pay us directly, they expect us to deliver the care that works for them. If the Government or an insurance company pays us, they expect us to deliver care that meets their standards, because they don’t trust the patients – their constituents and customers – to know what is best for them. ”

    And therein lies the rub.