Thursday, August 21, 2008

Fifteen days of blogging for health care reform: Health care reimbursement - a (hopefully) not too boring primer on a (usually) dry as dust topic

Guest post by Skylanda.

Ever wondered how your doctor gets paid? It’s not something that most patients put much thought into, beyond a cursory glance at the vehicles parked in the physician parking lot and the realization that you’ll probably never drive a car quite like those. But it’s a rather germane - and always understated - topic when it comes to understand how your doctor treats you, and how satisfied you’re going to be with that care, and how reimbursement fits with the total health care reform package.

In reimbursement for medical services, individual doctors (and other direct service providers such as nurse practitioners and physician assistants) can be divided into roughly two camps. The first camp gets paid for the stuff they do. This is called the “fee for service” model; in retail, they call this “working on commission.” In a metaphorical sense, the fee-for-service doctors are the rough equivalent of the used car salesman: they gotta move volume in order to take home a paycheck, and their paycheck is predicated on how many patients they see in a day or a week or a month. The advantage of this system is that doctors who work under it are motivated toward efficiency - people need to be seen, they have carrot and stick driving them to see people. The disadvantage is one you’ve probably seen: if you need more time with a doctor than that fifteen minute appointment allows, you’re gonna rub someone the wrong way. Every doctor who runs their own business operates more or less under this model, as do a whole lot of others who work as employees of larger corporations. Doctors like it because they usually have some flexibility to balance their financial goals against the style in which they prefer to practice; they dislike it because they are always under the gun to produce, and there is a direct hit to their wallet if they choose to provide more personable, time-consuming care.

On the opposing side you have salaried providers. The opposite of fee-for-service providers, these are paid the same no matter what they produce. The advantage is that they can take as much time with each patient as they darn well please; the disadvantage is that functionally, they have no real motivation to do anything at all. These then are the post office workers of the medical profession: you know, you go into the post office, there’s a line of fourteen people, and only two of the four employees are working, and only at a snail’s pace…because, ya know, they get paid for their eight hours no matter what customer service they crank out in the interim. Doctors like this because they don’t get punished for caring to spend time with their patients; they dislike it because inevitably there’s a couple of freeloaders around the office who make the same amount of money for doing half the work, seeing half the patients, taking half the call.

In reality, aside from small private practices, most employed physicians are paid on some hybrid system - part used car salesman, part postal worker, with more tweaks and turns and nuances than you can imagine. Many employers pay a reasonable base salary with incremental upgrades for increased billable services. Some will start doctors at a guaranteed salary to help build a client base, then switch them to a fee-for-service model after a given number of years. A large body of work has been produced on the topic of how to best squeeze a balance of efficient, caring work out of doctors, and much of it would find a far better home in the psychological rather than the economic literature.

Now let’s widen out the picture a little bit a how an entire organization - a hospital, an insurance company, an HMO - organizes billing structures. Similar to how we pay doctors, organizations too can bill on a per-service basis: your hospital takes out one gallbladder, you bill BlueCross/BlueShield for one gallbladder removal. (Insurers can muck of the scene by cutting deals with third parties too - for example, an insurer can cut a deal with a pharmaceutical company to place a particular product on their preferred formulary: the insurer tells doctors which drug to prescribe or which surgical instruments to buy, and in return, the insurer gets a bulk rate on the drug or the equipment; the functional result of this twist is that an insured patient - if they can sort out the Babel-esque complications of their bills - may end up with a lower bottom line than an uninsured patient who gets stuck with the whole thing themselves.)

From an America-centric perspective, the simplest fee-for-service model had been the norm since, oh, approximately the beginning of time (one leech applied for one gold sheckel, thank you very much) until, oh, approximately the mid-1980s or so. And then along came capitation.

First, back up a little bit. By the 1980s or so, a crisis was starting to brew in medical financing. Everything was becoming more expensive, and no one knew quite how to pay for it. The source of the expense was multifold. Over-capitalization and technological advance was one cause; imaging technologies like like CT scanners and MRIs were just coming online, advanced surgical equipment was being patented, drugs to revolutionize cancer and chronic disease management were headed down the pipeline at breakneck speed and wallet-breaking prices. The lack of any inherent cost-control measures was another - doctors merely did what they wanted, billed for it, and got paid, without any thought to systemic effects of their practice. Burgeoning malpractice also played a role, as defensive medicine is also expensive medicine. As insurers struggled to cover the ever-expanding bills, a new system stepped in that promised to put an end to the overspending and lack of accountability: the HMO.

Though you may not know it, “capitation” is why you hate HMOs; the bad taste around the name lingers even though the concept has largely gone the way of other large, flightless birds. “Capitation” means “per head,” and under this new system, practices were given lump sums to per person (that is, per head) to take care of its enrolled patients. I’m making up the numbers, but here’s an example: Main Street Clinic contracts with Hometown HMO; for every patient insured by Hometown that signs up with the clinic, the clinic receives $5000 per year to cover all expenses, whether that patient shows up once, never, or twice a week for the duration. The pooled funds should cover no-cost patients (eg. healthy young men who almost never visit the doctor) and high-cost patients (older diabetics with multiple hospitalizations annually) alike, and any leftover cash at the end of the year belongs to the clinic to keep as profit. Should the cost of caring for those patients exceed the lump per-head sum, well, that’s the clinic’s problem.

You can see where the problems begin. The clinic is going to prefer young, healthy clients and may turn away high-risk patients before they even sign up. Providers at the clinic are under pressure to cut corners and provide sub-par service to save money - possibly for profit, but maybe just to stay afloat if their patient mix is not optimal. In the early years, this seemed like such a good idea that many practices did sign up (so much cash! up front! we can finally buy that CT scanner we‘ve been wanting!), and many of those failed when they realized how direly they underestimated the cost of caring for patients as doctors still practiced under the devil-may-care-for-what-this-costs habit. Later on, only providers with rather dubious practices still had any interest in capitated plans at all, so patients limited to cheaper capitated HMOs had little choice but go with less-than-ideal providers. (Please note: the word ‘capitation’ simply means “per head,” and has been used within health care finance to mean other things at other times; in this setting, it refers to paying a provider a flat fee per patient to take total care of that person.)

Capitation is not commonly used anymore - anything that predatory eventually eats its own flesh - but its arrival occasioned some of the worst excesses of the for-profit health care market and set the scene for the ongoing crisis in health coverage today. Concepts like “pre-existing condition” and low lifetime caps on benefits were born during those years and have not quite lived out their life expectancy just yet. Moreover, this was the era when Americans truly - and rightly - came to believe that health care security was a largely ephemeral notion.

So then, what does this all have to do with you? For one, the manner in which a health system reimburses its providers (both individual doctors and institutions) is a salient factor in how satisfied its customers are. If you got the big brush-off the last time you went to see your doctor, it may be that you happened on one jerky guy or gal with an MD (or DO), or it may be that you’re seeing the under-the-gun results of an individual who would love to sit for an hour and chat about your diet and your health maintenance and your life stressors, but can’t because of the circumstance of his or her employment.

Second, the parenthetical manner in which insurers bargain with providers means that it is very difficult to ascertain what sort of cash actually gets paid for what; this is not a surprise if you have ever been hospitalized and actually tried to read the bill afterwards. Moreover, there is an inherent issue of justice at stake here: when insurers can bargain down their payments because of their status as a bulk customer, but uninsured individuals cannot, the poorest and most vulnerable actually end up paying more for the exact same health care services than the wealthier and better insured - giving a sinister new meaning to the concept of the regressive tax.

Third, the lack of transparency in what you (or your insurer, should you be so lucky) is actually paying for contributes to an atmosphere of inevitable mystery and unpleasant surprises, where the provider is in total control of the cost and the patient is obligated to pay whatever is asked of them or billed to them at a later date. Have you ever asked the awkward question of what an appointment is going to cost? Or seen a charge list posted in a medical office like a menu at the deli counter? Or been able to calculate a side-by-side comparison of your costs at this medical office versus that, as you would do before you bought a washing machine or car?

In medical economics, there is a phenomenon called the “moral hazard”: this is what happens when a patient buys more health care goods (medicines, visits to the doctors, what have you) on the recommendation of the provider than the patient would buy on their own if they had all the information the expert had before them. Say you have marginally high cholesterol; your doctor recommends a fancy new drug which works great for your condition, but if you were as expert as he, you might also know that a six-month trial of diet and exercise modification, followed by a cheaper older drug if necessary, would be just as good. But you don’t know that because you didn’t go to medical school: moral hazard.

The “moral hazard” phenomenon is supposed to refer to the quantity of goods purchased (did you take that fancy new cholesterol medication or just go with the diet and exercise), but I believe it also applies to the cost of those goods: when the cost of health care is hidden from the patient until the bill arrives two months later, that patient does not have full rights to accept or refuse a given cost of care, or go elsewhere for care, or exercise their right to a free market approach.

Some innovative strategies have been proposed to increase the transparency of a deliberately opaque system, and interestingly, a return to the two-gold-sheckels-for-one-leech approach has turned out to be popular: cash-only clinics. This doesn’t work for expensive hospital stays, of course, but doctors and patients alike give high marks to clinics where you pay your bill, at the front desk, based on a deli-counter menu of fees for services, and then you’re done with the matter. It’s cheaper (no $30k/year staff in the back to bill insurers), it’s simpler, and it creates an aura of open-ness and honesty between the provider and the patient. Cash-for-service clinics plus catastrophic coverage for unexpected disasters could go a long way toward satisfying some currently unhappy customers. It is limited by the ability of patients to pay up front, but then, every system has it’s limitations.

But this does nothing to address that thorny question of the relative injustice of charging uninsured patients more than insured patients at the hospital or clinic door. This is going to be an unpopular stance with many interested parties, but I’ll just say it: this has got to stop. Period. Legally, at some point, someone has to grow the cojones to step up to the insurers and the hospitals and legislate an end to a dual system in which poorer patients are charged more than wealthier patients for the same services. It’s not that complicated, really: institute a legal mandate that an institution cannot charge an uninsured patient for any admission, drug, procedure, etc more than they are charging for the lowest bargained bulk rate.

So this is my over-simplified, understated, over-generalized prescription for improving health care billing and reimbursement schemes:

1. Design reimbursement systems that combine efficiency with effective patient care. No one is sure of the best way to go about this, but history has definitely given us a few good lessons on how not to. Heed those lessons.

2. End the unfair skew in billing of health services toward uninsured patients.

3. Increase the transparency of medical costs and billing, so that people know - upfront, before they accept services - how much they will be charged and what they will be receiving for their cash. This is a key crossroads where justice and the free market share a common seat at the table; it’s time to give a nod to both.

A few places to start, before the real work of health care reform begins.

Cross-posted at my blog, Loose Chicks Sink Ships. Please note that all references to patients have been altered and/or fictionalized to protect the identity of those individuals.