Paying doctors on a fee-for-service basis affects their work performance, the number of (often superfluous) procedures they order, lowers their job satisfaction, and makes the health care system all-around awful for the patients.

Healthcare not wealthcare sign.

As seen in Zuccotti Park: Occupy Wall St 1st Anniversary.
Image credits Waywuwei / Flickr.

There has been a lot of debate over the issue of conflict of interest in medicine. Not surprisingly, this is one sector of our capitalist economies where everyone hopes the patient, not profits, come first. A lot of the talks and a majority of the research is centered around the interplay between physicians and the pharmaceutical or medical device companies that supply the health care industry. But that’s only part of the story.

More is more

A paper published by George Loewenstein of Carnegie Mellon University and Ian Larkin from the University of California, Los Angeles approaches the issue from another angle: how the dynamic between physicians and patients changes depending on how the former are paid. The team outlines the inherent issues in using a fee-for-service system for doctors, arguing that it incentivizes them to order more, and often different, services than the patient needs.

All things considered, this payment system has “adverse consequences that dwarf those of the payments from pharmaceutical companies and device manufacturers,” according to Loewenstein, the Herbert A. Simon University Professor of Economics and Psychology at CMU and a leading expert on conflicts of interest. How come? Glad you asked.

“These payments and the method or formula that determines them — the “business model” of the practice in which a physician operates — create unavoidable conflicts of interest because the services physicians select for a patient can and do directly affect a physician’s income,” the team writes.

They estimate that an average primary care physician sees roughly 2000 patients per year who are billed on average US$5000. This puts the physician at the center of “a web of payments estimated to account for an estimated approximately $10 million annually.” At the same time, only a minority of physicians receive direct payments from industry.

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The extra bulk of needless procedures also ‘clogs up’ the available resources, such as MRI machines, making certain procedures more expensive or time-consuming. While patients may not necessarily have to carry the costs of these procedures if there’s an efficient, inclusive health insurance system in place (as opposed to say, the AHCA), this conflict of interests will still negatively impact the quality of the care they receive and their quality of life while receiving treatment, as many of these “tests and procedures cause pain and discomfort, especially when they go wrong,” Loewenstein explains.

“[…] Patients […] often incur larger co-payments or coinsurance, as well as the effect on insurance premiums and government spending on programs such as Medicare and Medicaid,” they explain.

“But even these large sums significantly understate the true financial and nonfinancial implications of these conflicts. Patients also experience nonmonetary costs from unneeded testing and procedures because nearly every medical procedure carries medical risks, has adverse effects, generates opportunity costs of patient time, and can carry psychological costs in the form of worry as well as anguish, depending on the results of the tests or procedures. These nonfinancial ancillary costs are likely several orders of magnitude greater than financial costs, yet are difficult to quantify.”

What can be done about it

The vanilla way of dealing with conflict of interests is to have the party under question (in this case, the doctors) disclose their financial interests for the procedures in question. Disclosure of the conflicts has been shown to have limited — or even negative — effect on the patients. So the duo proposes that instead of going this route and hoping for the best, we simply switch physicians’ payment systems to a straight-up salary basis.

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They argue that several of the most high-quality health care systems out there, such as the Mayo Clinic, the Cleveland Clinic, or the Kaiser group in California, pay their physicians flat salaries without offering any incentives for the volume of services performed. Even better, these centers are also known for their comparatively low cost of a wide range of services.

And it’s good for the doctors themselves, too — the team writes that physicians’ reported “high levels of job dissatisfaction” stem in part from the need to work within the fee-for-service systems. Instead of focusing on how to best care for their patients, they’re forced to factor in how their decisions affect the number on the paycheck.

Nobody’s saying that doctors will throw their patients to the curb for a wad of cash — generally speaking “physicians care first and foremost about their patients,” the team notes, but “incentives can and do influence decisions in ways not recognized by decision makers.” In other words, their brains factor in the economic side of the issue and influence their decisions even without physicians being consciously aware of it.

A salary-based system would allow health care specialists to focus on their patients’ needs while knowing that they themselves will be financially cared for at the end of the month — regardless of how many procedures they order, or how many pills they sell. And I think that’s something we can all agree on is a good thing.

It’s also worth noting that what this paper is describing is, to a large extent, a state medical system, as is the case in most of Europe. In that case, doctors in the state system receive a fixed salary and pretty much everyone is ensured — quite opposite of what the US is doing, and with much better results.

The full paper “Business Model–Related Conflict of Interests in Medicine: Problems and Potential Solutions” has been published in the journal JAMA.

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