Telling Doctors How to Practice Medicine
In Redefining Health Care, Michael Porter and Elizabeth Olmsted Teisberg explained that the key to efficient health care is doctors’ repackaging and repricing the services they provide. In The Innovator’s Prescription, Clay Christensen showed that doctors need different payment structures, depending on the types of activities they engage in. In Market-Driven Health Care and in other books Regina Herzlinger argued for delivering health care in specialized, focused factories. In reviewing these publications [here, here and here], I argued that the desired reforms would be natural and normal in an unfettered medical marketplace.
Our system of third-party payment, however, stands in the way of high-quality, low-cost care. To see how health care could be different, we can look to those markets where the third-party payers are absent. Concierge doctors, for example, consult with their patients by phone and e-mail, keep medical records electronically, prescribe electronically and provide other services that insurance normally doesn’t pay for. Walk-in clinics post their prices and strive to lower the time cost as well as the money cost of care. In the medical tourism market, there is not only transparency, but price and quality competition are the norm.
Yet, third-party payment isn’t going away. Given that, how can we get from where we are now to where we need to be? The dominant view is that buyers of care should use the power of the purse to force doctors to do what they probably would have done anyway if the third-party payers had not been there in the first place. In a previous Alert, I called this the “demand-side” approach to changing medical practice and there isn’t a chance in the world that it’s going to succeed.
One way to view the health care system is to see it as a complex phenomenon in which more than 300 million patients and almost 800,000 doctors face very perverse incentives. When they respond to these incentives and pursue their own interests, they make costs higher, quality lower and access to care more difficult than they would otherwise be. The demand-side approach to health reform basically leaves all these perverse incentives in place and relies on third-party-payer bureaucracies to overcome them by coaxing, cajoling, bribing, regulating, etc., the 300 million patients and 800 thousand physicians.
[The alternative to the demand-side approach is supply-side liberation: freeing doctors and, therefore, patients from the perverse incentives of third-party payment and making the pursuit of high-quality, low-cost, easy-access care in their self-interest. More on that in a future Alert.]
Exhibit A for approaches that don’t work comes in the form of a Thomson Reuters (TRI) report, summarized in Business Week, claiming that about one-third of everything we spend in health care is wasted. The solutions include cracking down on fraud and abuse; promoting healthy lifestyles and preventive care; encouraging coordinated care; and other familiar suspects. Of course, before there can be action there must be an actor. Consider that:
- Of 10 changes proposed to eliminate $700 billion in waste, 6 have a third-party payer (employer, insurance company or government) as the principal agent making the change.
- None of the 10 changes involve liberating patients or even changing their incentives (other than wellness bribes).
- The 4 that have providers as the principal actor include reducing hospital infections, apologizing for mistakes (to avoid lawsuits) and encouraging patients to make low-cost choices — things providers are free to do under the current system.
Not only do none of the 10 changes liberate the providers, the report actually sees fee-for-service medicine as “the underlying flaw that drives much of the waste.” Many of the recommendations involve third parties more aggressively telling doctors what to do.
Exhibit B is a Business Roundtable report. It at least pays homage to consumer-driven health care and even has a chart showing how well the market for LASIK surgery works. But it’s all downhill from there. Like the TRI report, this report sees fee-for-service medicine as the cause of our problems. Moreover:
- The report identifies 7 reforms embedded in bills before Congress that could “bend the cost curve.”
- Six of the 7 have a third-party bureaucracy making the improvements.
- None of the 7 liberates patients or doctors.
- The only change in which doctors are significant players is a proposal to push them into Accountable Health Organizations (ACOs).
ACOs, by the way, are described by industry insiders as “HMOs on steroids.” Instead of freeing doctors to repackage and reprice their services, under this approach Medicare would do the repackaging and repricing. If doctors don’t go along, they would not be paid.
Exhibit C is a section of the Senate health reform bill calling for an independent Medicare Advisory Board (IMAB), with the power to make payment change recommendations that would be fast-tracked on Capitol Hill — but with doctors and hospitals completely excluded from the recommendations for the next 10 years.
Exhibit D is a letter from academic economists calling for giving the IMAB more power. Exhibit E is a second letter from (mostly) the same economists urging even more power for the IMAB than the first letter. Exhibit F is hoopla surrounding amendments to imbue the IMAB with these additional powers, including cheers from a host of special interest groups.
More about Exhibits C, D, E and F in a future Alert.
Excellent post. Up to your usual standards.
Persuasive and fun to read. Good job.
The government has been telling doctors how to practice medicine for years through the DEA and teh Controlled Substances Act. Decisions about drugs should be purely made by doctors and state medical boards and patients.
MG: You haven’t seen anything yet. Orszag and his colleagues intend to micromanage every doctor in the country. It’s going to be a nightmare.
I agree with Ken.
It’s not a nightmare if physicians don’t take third party payments.
The demand side is from the patients who desire access to quality care at a reasonable trasparent price. That is why direct practices (fee for care retainer models like Qliance (Garrison Bliss,MD) have been so popular.
The “supply” side has to do with the physician’s side.
We have to stop saying the general term “doctors”.
Not all “doctors” have practices amenable to private (fee for service) pay (Neurosurgeons, trauma surgeons, radiology,etc), although some (Urologists, dermatology, opthalmology, palastic surgery, etc) do.
You need catastrophic insuranc for the catastrophic services.
Primary care is a different beast. It’s a fee for service problem. We don’t need the huge administrative waste for the PCP’s and third parties (40% of the bill for the preventive and acute stuff)… The PCP’s are realizing this as many are having to drop third parties all together and return to working for their patients. But, even transparent fee for service (cash only practices)like walk-in clinics are flawed because if the PCP or nurse practioner doesn’t see the patient, he doesn’t get paid and they are insentivized to see more patients in less time and not to treat over the phone b/c they don’t get paid. Even the blended models like MDVIP have models where they still work with third parties.
It’s a “supply” side problem we have in primary care. PCP’s have to fix the problem in their own marketplace since politicians, insurers, employers, etc have no clue how to run our practices in our communities.
John,
Thanks for the plug for practices where third parties are absent. Particularly your words beflow from your previous alert. That is why it is so important to recognize pre-paid physician fees as “medical care”. Our patients in direct practices should be allowed to legally use their HSA’s for our services much like they can pay for glasses, dental, etc. Your support for this amendment in the Patient’s Choice Act would go a long way in increasing the demand by patients to have unlimited access to their trusted PCP at a cost determined between the patient and physician.
“What we now have with Health Savings Accounts is a cash account completely tied to third party reimbursement formulas. So even though patients are free to buy or not buy and they reap rewards for prudent buying, doctors cannot repackage or reprice their services. The fees they are paid and what they can be paid for doing are already negotiated long before the patient ever gets to the doctor’s office.”
You say, “The alternative to the demand-side approach is supply-side liberation: freeing doctors and, therefore, patients from the perverse incentives of third-party payment and making the pursuit of high-quality, low-cost, easy-access care in their self-interest.”
While I certainly agree with this message, do you NOT agree that the Government is trying to target medical expenditures to a per cent of the GDP, and that tests ordered by unencumbered physicians are a large part of that cost-target, which the Fed can not contain unless it controls physicians?
Joe,
If your patients have no money or use an HSA,
why should you order them an MRI in the hospital next door for $2,000.00 when you can negotiate a $450.00 charge at another facility? Why send them to the lab for a general health screen for ~$300.00 when you can do it in your office for ~$20.00.
Why order meds for $60/month when you can order them generics that are just as effective for $4/month?
John, Are you suggesting we go back to the 18th Century now. This compromise happened a long time ago my friend. Physicians were mostly happy not to secure a chicken for their effort and they became well paid in bargain.
Chris and I are “oldish” conference acquaintances and have been kicking some of this around. Let me share my big picture and outside assessments, speaking as a non-HC expert but as a business and policy analyst who’s been following HC for decades and the reform effort for years. [NB: my collected observations are embodied in this white paper on the state of play,politics and structural dynamics – http://tinyurl.com/ybwuyy6 ]
My last exchange with Chris (set in that context):
O.K. I stand corrected.
“For us outsiders and amateurs though the patient still looks like he’s paying for direct access to care as opposed to much/most/all of the current system which hopes to get care as a symptom (puns intended) of a stream of actions, treatments and itemized bills carefully coded.
It seems to me you offer three huge advantages, and not just for what you’re doing as your direct services.
1. The relationship is direct and there is someone who manages the overall health perspective for the patient.
2. The overhead burden is vastly reduced, even eliminated.
3. The total cost of good care that is responsive and accurate and customized instead of industrialized is reduced.
And a fourth – the interests of the patient and doctor are aligned, which lines them both up with the interests of society.
Those all seem to me like good things and in line with the ultimate intent of the best of the proposed reforms. They also seem like they’re perfectly aligned with the notion of encouraging experimentation and alternative models.
So, if you’ll let me repeat, in the long run this should swing your way. In fact I think the question is can it be scaled and replicated. Is there anything that explains how this all works – it ought to be shared and publicized IMHO.
John… I have recently started following your blog and have made it part of my morning “reader” activity…
I don’t believe, in a 10 year period of time, we are going to appreciably alter the process of actual clinical care. That is to say, going to the doctor 10 years from now is not likely to be a different experience than it is today. If we think back 25 years to our experiences with medical care, there has not been significant change… despite, the trends of patient centered care, HMO’s and a barrage of other well meaning clinical care trends. I think there are a number of characteristics of “medical care” culture that make altering its behavioral and cultural paradigm very difficult. It is ultimately a very fragmented professional body… many individual professionals and numerous practices without a technology to appreciably facilitate a change in clinical practice behavior. The real estate profession was similarly locked into a specific behavioral trend for many decades until the internet forced a change in practical behavior. The clinical lobbies and commercial enterprises invested in clinical practice not changing are considerable. So how can change really be affected?
I believe it lies in the realm of the business operations of medical care. The costs associated with operations, although inexorably attached to the process of clinical care, are not intimately embedded within clinical process. Additionally, while it would not be reasonable to mandate a massive change in the process of clinical care, it would be reasonable to mandate an alteration in operational practice. While there has not been a technology that has fundamentally altered clinical practice (more data can be shared and more experts can consult through better data access but without appreciable alteration to actual clinical process)… there are technologies available that can dramatically alter the process of operational management.
Research is now proving the investment in CPOE and clinical systems while a necessary investment for reasons of data preservation, sharing and utility, are not providing appreciable savings in either operational or clinical process. Rosenblum’s blog on “Hospital Operating System” highlights such a solution. I also work at StatCom with Jim.
The system needs quantum change. At the end of the day, I firmly believe there is a solution to the issues the healthcare debate is chasing. Mandating changes in clinical practice or the cultural expectations for medical care of the US patient population is not the answer. Quantum change is achievable through the operational transformation of the delivery of medical care.
Change the operational processes that surround the clinical activities of our healthcare professionals. They already lead the world in care and innovation… It is unreasonable to expect a quantum change in costs to be achieved through a clinical or cultural revolution in the short term.
Operational transformation… that’s the key.
Somewhat interestingly, the entire notion of pre-paid health care actually started as a means of ensuring that hospitals had a source of funding. In fact, Blue Cross plans, were considered Hospital Service Organizations (and later but to a lesser extent, Blue Shield plans for physicians) in most if not all states, and indeed their boards of directors were all populated with hospital representatives.
But while the reimbursement system is somewhat ineffecient, it is not at the root of our problem. Nor is the system of third party payers. It is a probelm caused by the lack of proper diet and exercise in the population. The lasik example does not stand up to closer observation. Eye sight conditions that are treatable by lasik are very straight forward to diagnose and treat, and indeed so are many, many conditions that aflict us. But it is not the common that drives costs. It is the complex conditions – heart, lung, many cancers, organ failure – the majority of which are lifestyle related that drives our costs.
But we have largely decoupled the cost and availability of coverage from the risks associated with our behavior. Imagine the impact of pricing coverage for the obese relative to the risk that they present. Now that is a market based solution.
Is fee-for-service medicine the new demon? Remember HMO medicine? The conflicts in that system in restricting care was worse than the present ones. Of course, for many all profit is evil. http://www.MDWhistleblower.blogspot.com