At the present time both the government payment programs and the private insurance programs basically pay every doctor the same amount for the same services provided. Doctors generally believe that the current Medicare fee schedule does not adequately take into account their variable overhead costs that depend on the region and locale in which they practice. If a doctor has agreed to participate in the Medicare reimbursement program he cannot accept payment from his patients in excess of the Medicare specified amount for the service provided. As a result patient's have no incentive to distinguish among doctors based on price, even if they wished to do so.

The relatively low value that Medicare and insurance companies assign to office examination, evaluation and consultation is decimating the ranks of primary care physicians and is undermining the critical role of these physicians in the health care system. As a result many older primary care physicians are retiring early because as their patient base grows older they can no longer earn enough income from their practice. Other doctors have responded by not taking any Medicare/Medicaid or other government patients. The committees that approve rates, drugs and devices are caught between the heavy lobbying of hospital associations, specialists groups, pharmaceutical manufacturers and bio-tech companies on one hand and our elected representatives in Congress who share our universal desire to pay less for our medical care.

In order to introduce price competition into the process of selecting doctors while enabling primary care physicians to earn a decent living, it would make sense to permit doctors to charge an unregulated amount for services provided in their offices in conjunction with a single-payer system that paid a fixed amount for the service. This would permit doctors who practice in locations with higher rents, higher local staff costs and higher liability insurance costs to recover their higher costs and to earn more income for their trouble. This is similar to how dental services and dental insurance work today. If the doctor is charging more than the government reimbursement, the patient can decide if he wants to find a less expensive doctor or to stick with the one he has. This would permit doctors to compete on cost and quality like other professionals and would encourage good primary care physicians to remain in practice.

This change would also enable primary care physicians to again play an important role in containing costs within an integrated health care system. Despite those who argue that with enough information each of us could find the best doctor or best hospital at the best price and make an informed decision about our own health care, I'm doubtful. When a person is sick, and even more so when the sickness is life threatening, it is hard for any of us or our families to make rational decisions about something so important and so complicated.

Just as most businesses in the United States have discovered that it is very helpful to have on their side an in-house lawyer to help them select outside counsel and to negotiate their fee arrangements, individual patients need a knowledgeable advocate on their side in selecting specialists and hospitals to deal with many of the patient's significant medical problems. In medical systems like the Veterans Administration and Kaiser Permanente, the primary care physicians serve in this capacity, although they work for an organization that has an interest in limiting the services patients receive. If primary care physicians were properly compensated for their time and effort there is no reason why they could not function in the same way. As has been noted in a series of studies published in the McKinsey Quarterly, “In all likelihood, costs have also gone up because over the past decade there has been a marked shift in the delivery of care, from general practitioners to specialists.”

This contemplates a broadening of the responsibilities of the primary care physician to include counseling patients about cost alternatives as well as about the selection of a specialist or facility, or about the appropriateness of particular care. Patients would not be required to take the advice of their primary care physician, but he or she could be an advocate for the patient in his dealings with the rest of the health care community.

One of the McKinsey studies concluded that “outpatient care is by far the largest and fastest-growing part” of higher-than-expected spending for health care in the United States. While outpatient care has contributed to a decline in the amount of costly hospital care, that decline is more than offset by increased costs of the outpatient visits. “Far more important was a surge in the average cost per visit resulting from factors such as the additional care delivered during visit, a shift toward more expensive procedures … and absolute price increases for equivalent procedures. “[O]utpatient care is highly profitable—U.S. hospitals earn a significant percentage of their profits from elective same-day care—which prompts investments in the facilities and people supporting it. These investments can be recouped only by offering more (and more expensive) services.”

The McKinsey study goes on to say: “The significant degree of discretion that physicians have over the course and extent of outpatient treatment also probably plays a role, as does the fee-for-service reimbursement system, which creates financial incentives to provide more outpatient care. Finally, there is no effective check on it. ... Other countries … use supply-oriented controls to compensate for the lack of demand-side value consciousness.”

The need to constantly rebalance the relative value and thus compensation for various medical services will always be with us. As soon as compensation has tilted in one direction, the costs generated in the area of service will increase as well. It will not be an easy task to maintain a proper balance, and it is probably impossible to accomplish in a political environment. The creation of a federal health board as advocated by former Sen. Tom Daschle in his recent book, “Critical: What Can We Do About the Health-Care Crisis,” is well worth consideration as a less political way to manage our health care system. Its purpose would be to function as an independent Federal Reserve Bank Board for health-related issues including physician compensation. Like it or not, these issues have not been and will not be left to the so-called “Free Market.” I'd rather have a board of independent experts making these decisions than elected politicians.

There is much that can be done and that must be done to slow down the rapid increase in the costs of health care in the United States. Among the actions that should be seriously considered are the creation of a single-payer universal health care system administered by the federal government, the increased focus (with proper incentives) on reducing lifestyle induced health problems, the development of more equitable methods of paying for necessary drug research, the elimination of advertising and direct marketing of prescription drugs and medical devices and the better utilization (and compensation) of primary care physicians.

Michael H. Trotter, Special to the Daily Report