Changing the Way Doctors Are Paid and Health Care

Whenever policymakers and policywonks say , “We’ve got to change the way doctors are paid,” I know what’s coming.

1. Do away with fee-for-service.

2. Put doctors on salary.


3. Bundle the payments for procedure or illness episodes.

4. Place doctors on capitation.


5. Herd them in Accountable Care Organizations (ACOs.)

6. Pay them on basis of “value,” whether patients get better, rather on “volume,” how many patients they see.


7. Reduce the amount of payment for each code the doctor must submit for payment.

Each of these approaches has their advocates. Each has their rationale. Each has been tried and is being tried. About 20% of doctors are being paid by one or more of these means, and about 28% are paid partluy on the basis of value (Jason Milliman, “The Obama Administration Wants to Change How Doctors are Paid, “Washington Post, January 26, 2014).

Eighty percent are still paid mostly on the basis of fee-for-service, which is anathema among policymakers and works, because it said to promote greed, i.e. the more you do, the more you get paid. I suppose there’s some truth to this accusation, but I doubt if more 10% of doctors abuse the FFS privilege.
According to CMS, the nation’s largest payer, the nation’s doctors are paid $362 billion a year for patient care. For CMS’s contribution to that number is only going to get larger as 10,000 join the ranks of Medicare each day, and as Medicaid grows 15% or so each year and is now near the 70,000 mark.

To date, evidence is scant that changing how doctors are paid has materially improved the helath of the nation.

Why is this?

Well, to begin, with studies have shown that medical care only accounts for about 15% of a nation’s health (David Satcher, et. Multicultural Medicine and Health Differences, 2006). This is an important reminder as we are in the middle of the muddle over ObamaCare. David Satcher MD, a former surgeon general puts these numbers on the factors contributing to societal health: medical care 15%, life style 20% to 30%, other factors 55% (poverty, inferior education, income differences, and lack of social cohesion (Multicultural Medicine and Health Differences, McGraw Hill, 2006).

Two, patients are only in doctors for 1% or less of their lives. The same is true of hospitals. Most of what patients do after the leave doctors’ offices or hospitals is up to them and whether or not they fill their prescriptions, eat properly, exercise sufficiently, stop smoking, or avoid substance abuse. Much of America’s health bills – from violence, vehicular violence, coronary artery disease, lung cancer, AIDs, type 2 diabetes brought on by obesity – results from personal choices, and behaviors known to be risky.

Society’s level of health does not depend primarily upon medicine, but on personal choices and prudent behavior. Prudence is a virtue and is the greatest preventive health measure available to society. No doubt overall health can be improved marginally by waiting to discharge patients from hospitals only when well, by follow-up care, by coordinating care, and paying more attention to home care, but, for the most part, these steps have little correlation with how doctors are paid,