ORIENT: How are we going to pay the doctors?

40 years on and still no answer

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Congress has been working on the medical cost problem since 1965. It still has not found the right way to pay doctors.

Medical expenses started exploding soon after Medicare was enacted in 1965, and Congress has used various methods to try to put a lid on them.

In the 1970s, the HMO Act promoted capitation or payment by the head.

The 1980s brought the maximum allowable charges (MAACS). A doctor, I spent a whole day struggling to compute, from a complicated formula, how much I would be allowed to charge. I needn’t have bothered — Medicare sent me different numbers.

Next came the Resource-Based Relative Value Scale (RB-RVS). A Harvard expert and the AMA calculated how many ingrown toenails or sore throats equaled one gallbladder operation. About the same time, in the early 1990s, Congress passed the law requiring physicians to submit claims, and to certify that coding, based on impossibly ambiguous rules, was correct.

After the Clinton reform effort failed, large chunks of it were enacted into law through the Health Insurance Portability and Accountability Act (HIPAA). The first part criminalized the practice of medicine. Hundreds of millions of dollars were given to law enforcement agencies, and there were draconian fines and penalties for miscoding.

Approximately 20 years later, Medicare is apparently still hemorrhaging billions of dollars, perhaps 10 percent of all its revenues, to fraud. Some providers located in a post office box manage to file millions of dollars in fake claims without getting caught. Any credit card company as inept as Medicare would have been bankrupt long ago. Meanwhile, physicians who thought they were doing everything right are in prison for fraud.

Now Congress intends to change the “payment methodology.” Many policy wonks say that fee-for-service payment is the root of all evil. This is the method of paying people more for doing more work. If doctors do more work, it is a problem not just because you have to pay them for that work, but because they order expensive laboratory tests, procedures or hospitalizations, which absorb about 80 percent of medical spending. The alternative is to pay less for more work.

The other inspiration is collective payment to the “team.” Some giant “accountable care organization” gets the money and decides how to divide it up. The total amount may depend on “savings” achieved, or on “meaningful” results (such as the number of patients who were nagged about smoking or overeating).

Collective payment is like collective punishment of prisoners. My pen pals in federal prison tell me that if, for example, two inmates fight, the whole unit loses television privileges.

The government does not want to be seen as the bad guy by denying medical care. Collective payment allows it to pass the responsibility down to the physician. If a doctor orders too many tests, the whole group gets a pay cut.

One of the better ideas is an innovation to keep patients out of the hospital: house calls. Back in the 1980s, Medicare cut the amount that doctors were allowed to charge for a house call by 50 percent. The pay is so small that few house calls are made now. So, wonks propose paying a whole team to go to the house, and probably to have meetings.

In all of its contortions over how much to pay doctors and for what, Congress has overlooked a very basic question: Who should pay the doctor? The root of all evil is not fee-for-service payment, but third-party payment.

The only meaningful experiment, the RAND Health Insurance Experiment, done decades ago, confirmed the obvious expectation that people spend their own money more frugally than other people’s money.

The person receiving the service should pay for it, and should be the judge of its worth. Insurers should be demoted to their rightful role of reimbursing their subscribers for large financial losses, according to the terms of an actuarially honest contract.

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