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Physician Reimbursement Structure

July 24, 2008

Those fancy policy words essentially mean “how doctors get paid.”  An interesting op-ed in the NY Times today examines how physicians get paid and why the current system isn’t working very well.

Under our current system of payments, doctors are paid for simply seeing a patient as well as each test or procedure they perform.  Generally, doctors receive better payments for doing tests or procedures than they do for the actual time they spend talking to their patients.  Thus, they have an incentive to order more lab tests and x-rays becuase they will get paid better.

Most of us know our physicians are ethical people who would never order a test or procedure that was clearly unnecessary.  The problem lies in the imprecision of medicine.  If a patient comes in after falling off a ladder, the doctor may feel and manipulate the patient’s arm to see if there are any fractures.  However, to be absolutely certain, they will generally order an x-ray (which seems reasonable to most of us).

Continuing with this scenario, let’s say the physician’s practice just bought a brand new MRI machine.  Instead of ordering a simple x-ray, the physician may now be tempted to put their new MRI machine to use.  MRIs, as a health expenditure, are much more expensive than a standard x-ray.  Although the difference in cost in this singular instance may be very small, if multiplied by the millions of patient visits each year throughout our country, we get a healthcare system spending $40 billion on unnecessary imaging studies.

Dr. Bach (in the op-ed piece) suggests paying doctors a flat fee for seeing a patient based on the severity of the patient’s condition and type of illness.  This seems like a logical solution.  If a person comes in with a possible broken wrist, then the doctor is paid $120 to take care of it–regardless of whether they use plain x-rays or an MRI to image the break.

Unfortunately this solution may have a deleterious effect.  Now the doctor may not do an x-ray at all.  They may erroneously determine there is no break and not cast it.  The doctor would still get paid $120, but they would be able to pocket a higher percentage of that because they did not have to cover the costs of an imaging study (machine costs, staff for the machine, power, maintenance, etc).  This result points out the tragic irony of Dr. Bach’s title, “Paying Doctors to Ignore Patients.”

What is the best solution to balancing incentives for how doctors treat patients?  I have no idea.  If I new the answer to that question I would hopefully be working as a high-ranking health policy advisor in Washington.

UpdateHere is the WSJ Health Blog’s take on the NY Times article.

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