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Make Medical Providers Compete on Price as Well as Quality

By Roger Stark, MD, FACS

The method doctors and hospitals are paid for their work is undergoing gradual but relentless change. Providers traditionally have been compensated on a fee-for-service basis, where they receive a specific amount of money for a specific visit or medical procedure. This is how other highly trained professionals, like lawyers, dentists, auto mechanics, and architects are paid—they receive a fee for service rendered.

The main argument offered against allowing doctors to charge for their services is that it leads to overutilization and increases healthcare costs. Doctors are accused of ordering more visits, extra tests, and unnecessary operations simply to pad their incomes.

From an economic standpoint, the fundamental difference with health care is the third-party payer system in the United States. The overwhelming majority of health care in this country is paid for by employers or the government, with money channeled through heavily regulated insurance companies. In other economic activities, consumers pay directly for a product or service and consequently become savvy shoppers who can take advantage of marketplace competition. In health care, patients are largely barred from shopping and have become isolated from true costs they incur.

Third-party payers were disinterested until healthcare costs and utilization exploded. Now, the payers, and not patients or providers, are attempting to change the payment model by imposing wage and price controls on doctors and hospitals. Patients are not seeking these caps, they are cost-control efforts by the entities that have to pay the bills.

A second argument against doctor fees is it discourages the use of “integrated care,” by which patients are placed in some type of provider-group that controls all aspects of their care. These integrated groups have many different names, including medical homes and accountable care organizations (coordinated care organizations in Oregon). In reality, they are simply various forms of the health maintenance organizations (HMOs).

HMOs may or may not provide integrated care but, through force, they can hold down healthcare costs. HMOs decrease healthcare costs by using a gatekeeper system where clinical decisions are weighed against budgets. Various types of HMOs are strongly encouraged or outright mandated in the Affordable Care Act.

The idea of pay-for-performance is becoming popular with payers, regulators, and policymakers. The reason is that they, not patients or doctors, decide what “performance” means and how much the “pay” will be. Providers get paid a higher amount if they meet certain quality measures that are determined, in many cases, by non-clinician policymakers or other regulators.

Results with the pay-for-performance model over the past 15 years have been varied. There is no clear evidence its defined quality measures decrease patient complications, improve care, or predictably lower costs. It does increase the regulatory and compliance burden on providers, however. In reality, most hospitals have been improving quality measures and the patient experience without pay for performance.

What is a real and meaningful solution to the provider reimbursement problem?

First, solve the third-party payer problem by removing employers and the government as payers of most health care. Allow patients, working with their providers, to make their own medical decisions and control their own healthcare dollars. Change the tax code and allow individuals to take the same health insurance deduction employers now receive. Use government programs such as Medicare and Medicaid as safety-net plans for low-income people. Reform or repeal the vast new system of government controls imposed by the Affordable Care Act.

Second, allow more competition in the health insurance industry by eliminating many of the government benefit mandates. Let patients decide what insurance plans are best for them and allow them to purchase plans across state lines. Encourage the use of health-savings accounts and low-cost, high-deductible insurance plans.

Third, increase the use of high-risk pools for high-use and high-cost patients.

Fourth, pass meaningful tort reform so providers don’t feel the need to order extra tests out of fear of lawsuits.

Finally, encourage more price transparency in the system and allow providers to compete on price as well as quality, just as professionals do in other parts of our economy.

The most important person in the healthcare system is the patient, not cost-conscious employers or distant government bureaucrats. The patient, as a consumer of health care, should determine the value and quality of services received and how much doctors should be paid to provide them.


 

Dr. Roger Stark is a health care policy analyst at Washington Policy Center in Seattle, Washington and a retired physician. He is a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research center. A version of this article originally appeared in The Seattle Times.


 

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