Pediatricians’ pay took a tumble. Hospital nurses questioned why we took on so much responsibility and worked such long hours for paychecks significantly smaller than theirs. Insurance companies kept ratcheting back both on our reimbursements and on the level of patient care until there was little left.Patients naturally became disgruntled. They got angry about the insurance denials and took out their frustration on our office staff. We needed to see more patients to make ends meet, so the waiting room became more crowded and waiting times increased. I had nightmares about running hours behind, patients yelling at us to “hurry up!” There were days when we would skip basic necessities like eating lunch or going to the bathroom; we didn’t want patients to wait. Days “off” were often spent seeing patients, catching up on paperwork, and calling back families who had questions too lengthy for regular office hours. Lunch was typically spent tackling the accumulated stacks of charts and callbacks to patients from the morning, in addition to holding office staff meetings or attending meetings at the hospital. A typical call night would entail the beeper going off every five to 10 minutes throughout dinner, and my often spending a good part of the night at the hospital. In the morning we’d arrive at the office and try to smile through another full day of patients.

Sounds like a dream job. Yep, and a great investment: spending 7 years of medical training to make less than what an RN makes with 2 years of training (kudos to the happy RNs who figured this out before it was too late).

Dr. Li encountered the paradox of traditional high volume primary care. Insurance reimbursement rates fall so the provider sees more patients but higher volume means higher overhead costs and more non-reimbursable obligations (phone calls, medication refills, paperwork) and therefore less take home pay. Too bad Dr. Li didn’t consider changing to a concierge medical practice model.

From 1999 to 2007,  35 medical facilities of Kaiser Permanente in Northern California, were given financial incentives  for ensuring that their patients got regular screening for diabetic retinopathy and screening for cervical cancer – eye exams and PAP smears*.

The results were less than stellar. In eligible patients (i.e. diabetics and sexually active women without hysterectomies) over 4 years, the rate of screening for diabetic retinopathy increased a little over 3 percentage points from 84.9 to 88.1% and over one year the rate for screening for cervical cancer increased by a paltry 0.6 percentage points. And then it got worse.

After these financial incentives were stopped, the screening rates for these tests fell dramatically to levels that were significantly lower than they were before the bonuses were started. After the incentives were stopped, screening rates for diabetic retinopathy dropped to 80.5% over 4 years and the screening rates for cervical cancer dropped to 74.3% over 5 years. What is going on?

This is yet another example of how economic motivation theory can be very counter-intuitive. One would assume that performance would increase linearly with increased rewards but in many contexts researchers have found the opposite effect. The mechanism is thought to work this way; an external reward or punishment (apart from base compensation) has the effect of decreasing  internal motivators (based on autonomy, mastery, and purpose) so much so that this negates or even reverses the positive effects of a person’s external motivators (the drive to earn more) such that their total motivational drive and hence, their work performance, is decreased. Economists say that the internal motivators are “crowded out” in these cases.

The financial incentives in this study were given to be distributed throughout each facility rather than to each physician and as part of this program regular reminders for screening exams were sent out to staff. The modest but statistically significant increases in the rates for these two screening tests were likely as a results of the regular reminders rather than any financial incentives (unfortunately there was no control group without incentives to test this).

But the negative effects of monetary incentives on performance can clearly be seen after the incentives are discontinued. This is what economists call “motivational spillover.” This is what happens when you start giving someone an external or financial motivation to do something that they were already doing as part of the internal motivators of their job (mastery and purpose). Take, for example, the economic parable of the man and his lawn.

The story goes that a man was upset that his neighbor kids would always play on his lawn and damage it. So he decided to pay each child to play on his lawn. The surprised kids gladly accepted. After a few days the man told them that he could only afford to  pay them half of the initial rate. The kids accepted this reduced rate but were less then enthusiastic. After a few more days the man cut his pay to almost nothing and the children were so upset that they left, vowing never to play on his lawn again unless he increased their pay. Problem solved.

In this case, the man’s pay “crowded out” the kid’s internal motivators (autonomy, and fun as the purpose) for playing on his lawn and the dominance of the external motivator spilled over into further activity. In the case of the medical incentives, regular screening exams are supposed to be part of what the staff at the clinic does and involves internal motivators as part of their autonomy, mastery, and purpose (taking care of patients) and it is these internal motivators that were impaired by the incentives. Clearly the clinic lost far more than they gained by instituting incentives and then discontinuing them. Interestingly the screening rates increased slightly after incentives were reinstated but did not get back to the original levels. Thus there was a net loss in performance even after restarting the incentives.

This is likely the reason why small monetary or other incentives for performance rarely work in socialized medical systems.

This study is consistent with a growing body of evidence that pay-for-performance does not work and can reduce overall care, continuity of care, and impair further efforts to improve care. So what is to be done?

The first thing is to try and get policy makers to understand that efforts to increase overall compensation by relatively small incremental increases tied to performance are very unlikely to work and as in the case above, will lead to minimal gain for money spent and may lead to a net loss in performance.

To properly compensate primary care practitioner’s level of education, effort, and time, a significant net increase in base pay should be provided and performance should be enhanced or maintained by efforts that maintain or improve the staff’s perceptions of autonomy, mastery, and purpose. For example, money is probably much better spent on regular educational activities for the staff that enhances their intrinsic motivators. I.e. education for staff members about the importance of and new methods of preventative care is much more likely to be effective than rewarding and/or punishing them for specific outcome indicators.

*The BMJ study did find that diabetic control and blood pressure control did improve significantly over the time span of the study however, there were no internal or external controls for these measures nor any way to differentiate them from other variables such as notifications and increased staff awareness of these measures that may had significant influence and so these measures were not included in the results of this study.

The socioeconomic study of what motivates people is a fascinating field of study, not the least of which is because of how counter-intuitive it is. For example, it seems normal to assume that the more someone is rewarded for their efforts, the more effort they will put forth toward those rewards. These rewards (increasing salary, bonuses, benefits, status, etc) are known as “extrinsic” motivators and for  menial and/or repetitive jobs that have little need for regular complex planning, evaluation, or creative problem solving like unskilled manufacturing, manual labor, or GOP membership, the system works as expected with bigger monetary rewards leading to bigger efforts.

However, this simple linear model of economic motivation begins to break down as “intrinsic” motivators start to dominate the picture. Intrinsic motivators are such psychological variables as the perception of autonomy, mastery of the task or role, and purpose. It turns out that not only do extrinsic variables not work as predicted for motivating a worker tasked with performing complex work that requires thought and problem solving skills but this kind of motivation actually reduces job performance (particularly time spent per task).

This counter-intuitive result is what economists refer to as “crowding out” of the intrinsic values with the extrinsic values. The offer of an extrinsic reward tends to cheapen or dampen the intrinsic rewards and the negative effect on your intrinsic motivations is enough to negate and even reverse any positive extrinsic motivators. External motivators tend to come with conditions that hamper autonomy, mastery, and purpose. A job that was once “fun” has now become burdened with the demands of higher expectations even though a reward is bundled in there somewhere. Extrinsic rewards also impair creativity and thinking by narrowing down the focus of the task (i.e. getting it done faster or more efficiently).

The key to having a happy employee who’s job involves cognitive skills, creative thinking, and problem solving is to 1.) ensure that they are paid enough to close the gap between what they are paid and what they think they should be paid based on their education, training, and experience so that base pay is no longer an issue and 2.) allow the intrinsic motivators of autonomy, mastery and learning, and purpose to flourish. There is a great “whiteboard” animation of a presentation on this by Daniel Pink for those who think I’m crazy. This is not neo-hippy, socialistic, Montessori style, feel-good new management methods. This is real world and is already yielding benefits for companies like Google.

This got me thinking about physicians and motivation. We like to say that what motivates us is the chance and desire to save lives and improve lives. That’s purpose. We like to be our own boss and work on our own schedule. That’s autonomy. And we like what we do. We find it interesting and strive to learn more and improve our skills. That’s mastery.

With so many intrinsic motivators for doctors, why then, do many appear to defy the evidence for the establishment of motivations stated above and simply increase their work loads to obtain the higher salary or bonus or base income? I have seen physicians who round on 15-20 complex hospitalized patients in an hour and others who see a complex medical patient in the span of a 3 minute office visit. Then there are those who push the boundaries of the vast gray area of test and procedure indications (like ordering expensive nerve studies on every diabetic patient regareless of symptoms) and then there are those who commit outright fraud.

Many doctors are employees but the type of excessive extrinsic motivated behavior I’ve seen comes from physicians who are self-employed, while the studies for the effects of extrinsic and intrinsic motivators were done mostly in the context of employee-management relationships. Is this the reason for the discrepancy? I don’t think so. Self-employed doctors function as employee-owners, doing the brunt of the work for their practices while being beholden to insurance companies and the government for their compensation. It’s still very much of an employee-like relationship with the promises of increased compensation for increased work. The same basic motivator mechanisms should still apply.

I believe that the problem starts with insufficient compensation which in of itself is an extrinsic motivator that compels the worker/doctor to try and close the gap between effort and proper compensation. This seem to help explain why higher paid specialists, though they work hard, tend not to follow a pure profit motive pattern. Surveys have found that specialists are more satisfied with their jobs than their lower paid colleges in primary care. Specialists are also more likely to be self-employed (autonomy) and in my experience, they tend to express more interest in and a desire for mastery of their field and skills than many primary care docs.

I believe that the second culprit is the per-patient or per-procedure way that doctors are compensated. This a system that already has multiple levels of bonus and reward built into it just like the unskilled laborer who gets paid more to move more rocks, so to do physicians get paid more to see more patients. So how does a physician with a high level of intrinsic motivators convert to a profit driven machine with the extrinsic motivation profile that is on par with an unskilled rock mover?

The key concept is that they convert the essence of their job from creative problem solving of multiple complex tasks to following more linear basic rule sets. In short, they go from practicing medicine to practicing “cookie-cutter” medicine. You would think that this would apply more for specialists who often deal with more linear decision making for their many technical skills and procedures they perform but I’ve seen profit driven “cookie-cutter” medical practice behavior more often in primary care docs and I think that it is their lower compensation that is to blame.

“Cookie-cutter” physicians try to minimize risk while maximizing profits. One way to do this is to minimize the time spent with the patient and on complex problem solving. It is more efficient and profitable to perform a very basic linear diagnostic and treatment evaluation. If knee pain then –> MRI. If nervousness then –> prescribe sedatives. If fever –> antibiotics. If chest pain then –> cardiologist referral. If vomiting then –> gastroenterologist referral. Most of the complexities and nuances of medical care are tossed aside in favor of a rote if-then decision tree that can be done by any couch potato who’s watched too many episodes of “er”.

Usually, this type of medical care increases overall utilization of resources. Expensive tests and procedures are more likely to be ordered both because the physician believes that they reduce their liability risk  which they have acquired from spending too little time with too many patients and/or because they  increase profit. Medications are more likely to be ordered for each and every symptom because it takes less time to explain to and convince a patient – who is usually expecting some type of medication – why they need the medication than why they don’t.

Needless to say, this type of medical practice does NOT improve overall care quality or patient satisfaction and may very well  decrease  care quality in many circumstances. This apparent paradox in decreasing health care quality in areas of high health care resource utilization has been extensively studied using natural  geographic variations in Medicare spending.  These physicians tend to prescribe too many referrals, tests, procedures, and medications and they all come with risks. Physicians who practice this way are likely to be too aggressive with diagnostic modalities and treatments for certain subsets of patients. For example,  in patients with mild conditions in whom the side effects may outweigh the benefits or those with advanced disease for whom aggressive treatment is more likely to hasten death than to prolong life.

The study of economic motivation models may help to explain and predict that inadequate compensation is more likely to change physician motivation and practice patterns from an intrinsic system to an extrinsic profit driven system which increased health care utilization and ultimately higher costs for no quality benefits. This is particularly true for primary care practitioners and does not bode well for Obama’s new-American health care mecca.

There are some obvious solutions. First, pay primary care physicians an increased amount so that they are adequately compensated for their time, effort, and level of training and that this issue is “taken off the table.” Next, change the per-patient, per-procedure scheme to an annual fixed amount based on a set panel of patients.

Greed is “good” in that it leads to capital investment in macroeconomic systems but in the microeconomic context of skilled health care worker, greed – external profit motives – suppress intrinsic motivators and invariably leads to sub-par performance, increased costs, and decreased care quality and decreased satisfaction values among patients and physicians.

I’ve been encountering more of this lately. A patient who has not been seen in the office for months to years (well beyond when they were supposed to come back for a follow up visit) walks in and requests a “referral” for a specialist visit but they can’t be bothered with actually being seen and evaluated in the office or to be compliant with their return appointments. Or they do show up years after their last visit for no purpose other then that the specialist they recently saw after developing a serious illness and being hospitalized, told them that they needed to “go see their PCP to get a referral.”

My message to these patients is, “take your referral request and SHOVE IT!”

Seriously? This entire concept of the “referral” system required by insurance companies was designed to contain health care costs by making the primary care provider a so-called “gatekeeper” who controls utilization by deciding who needs a referral and who does not. In very few circumstances were the “gatekeepers” given incentives to avoid “unnecessary” referrals and more commonly, they were penalized financially for what the insurance company considered to be excessive utilization. Even worse, at least one study found NO differences in utilization of referrals whether they were required or not. Hence, there remains no good evidence that this system works to reduce utilization or enhance primary care.

Currently our health care is a system that emphasizes specialty and complex care over primary care and requires patients to get referrals from their PCPs but does not absolutely require them to be compliant with routine primary care visits and preventative care. As such, the importance and utilization of primary care has been marginalized even by patients who increasingly see it as a bureaucratic burden. Even for patients, primary care is little more than a paperwork hassle.

The irony is that primary care works!

In 2008, a Congressional Budget Office report found huge geographic variations in Medicare resource utilization (health care spending) and that areas with high spending also tended to have high relative populations of medical and surgical specialists (and hospital beds) and actually had WORSE quality outcomes than areas with lower spending rates and lower relative numbers of specialists. But it’s not just the relative numbers of expensive specialty care that affects care quality. A 2005 review of the literature by  Johns Hopkins University researchers found that primary care does indeed work to prevent and treat disease and health care quality and access is improved in areas that have higher relative numbers of primary care physicians.

But all of this favorable data was virtually ignored by Democrats and the Obama administration in the last – certain to be disastrous – “reform” of health care which didn’t even fix the always impending 21% Medicare physician pay cut.

Patients take their cues from the current system and insurance company and Medicare policy. Primary care providers are seen as little more than purposeless “gatekeepers”, especially when it comes to anything more serious than a cold or vaccines.

But maybe if these patients in question – all of whom had insurance with low co-pays – had been seen regularly then maybe this would have changed. Maybe if the patient noted above would have been seen much earlier when her symptoms first appeared, a simple blood test could have detected her condition at a stage where she could have been evaluated and treated as an out-patient before it became severe and life-threatening. Avoiding expensive hospitalizations is something that primary care can improve and yet primary care is even marginalized by the insurance companies who end up paying for the hospitalizations and ER visits. Go figure.

Recently I saw a patient who had been seen by a nurse practitioner (NP) a few months prior. The patient was an advanced octogenarian who had not been feeling well with recent loose stools, nausea, and weakness. I reviewed his medication list and found that the NP had prescribed metformin for this patient’s diabetes. Metformin is an excellent medication for diabetics since it is cost effective and does not have as much risk of weight gain and hypoglycemia (low blood sugar) as other medications. But it does have side effects, the most common being nausea, vomiting, and diarrhea, and a rare risk of lactic acidosis which has a very high fatality rate.

Although not an absolute contraindication, advanced age is associated with increased risk of metformin associated lactic acidosis because of age and diabetes related decreases in kidney function and the increased incidence of other co-morbidities including heart failure. Sudden illnesses in the elderly such as infection can quickly lead to dehydration which can lead in turn to kidney failure and induce metformin associated lactic acidosis.

I asked the NP about this issue and the apparent solution was to be argumentative. First the NP suggested that we periodically check a lactic acid level. Not only is this of no practical value since lactic acidosis can set in and lead to death in a period of hours but there is no evidence that periodic  monitoring of renal function and lactate levels reduces this risk. Then the NP’s plan B was to claim that metformin is safer in the elderly than other drugs called sulfonylureas because it won’t cause dangerously low blood sugar. But studies (Arch Intern Med 1997 Aug 11-25 and JAMA 1998 Jan 14)  have found the risk of hypoglycemia from these medications in the elderly to be very low (16.6 episodes/1000 person-years) and have concluded that elderly patients can be safely treated with these medications.

Then there are the practical aspects of avoiding harmful effects. Though the incidence and hence risk of hypoglycemia with sulfonylureas is higher than the risk of lactic acidosis with metformin, the symptoms of low blood sugar are much more apparent and can result in quick and effective treatment while lactic acidosis often presents as vague and non-specific symptoms leading to treatment delay. And there is no evidence that early intervention in metformin associated lactic acidosis can reduce the risk of death. And while lactic acidosis is mostly an idiosyncratic and difficult to predict condition, hypoglycemic risk can be effectively ameliorated by starting treatment with low doses and increasing the dose slowly while educating the patient and the caregivers about the signs and symptoms of hypoglycemia and ways to avoid it and treat it.

But the NP didn’t understand the biggest issue of all. Does the patient’s diabetes even need to be treated?

As it turns out, the patient’s measure of diabetic severity, the Hba1c test, was very low at 6.3% (normal being less than 6%) and was checked several months prior when the patient was not taking any diabetic medication. So the question remains, why should we treat this patient with medication?

There are two reasons why we treat diabetes. The first is to reduce the near term effects of hyperglycemia (high blood glucose) that can lead to increased urination, increased thirst, dehydration, weakness, blurred vision, ketoacidosis, etc.  The second reason is to reduce the long term risks from untreated diabetes such as heart disease, stroke, blindness, peripheral vascular disease, and kidney damage. Not only did this patient NOT have any symptoms of diabetes in his untreated state but given his advanced age and other co-morbid conditions, his chances of developing a complication or symptom of diabetes in its untreated state are minuscule compared to his risk of developing complications from a side effect of diabetic medications!

It is this subtle point that is the “art” of medical practice. It’s the ability to compile all the data and treatment standards and throw in rationality in understanding risk and benefit to determine the importance of knowing when NOT to treat the patient as much as knowing when and how to treat.

Had this issue been about a rare side effect of a very uncommonly used medication, I would have understood but this issue involved one of the MOST commonly prescribed medications with a very well known risk for an extremely common medical condition.

In the very least, this NP is a malpractice lawyer’s dream. If you are going to treat a patient with a potentially deadly medication when there are safer alternatives around then prudence would dictate that you do so for a good reason and document this reason as well as the fact that you informed the patient of the risks and what to look out for and how to avoid the risks (if possible). This NP didn’t document any of this and lawyers like nothing more than an uninformed patient.

So far, studies have not shown any difference in the quality of care or outcomes of care between NPs and MDs/DOs. But many of these studies were done at academic centers where the training and preparation of the NPs and physicians is generally excellent rather then in the usual outpatient setting where the quality of NP training and delivery of care can be much more variable and less controlled. And though the odds of a serious reaction in this patient are low, multiply this by hundreds of patients and the odds that there will be a serious medication reaction increase dramatically.

I don’t know how to teach the “art” of medicine but it seems reasonable to assume that this “art” will be significantly lacking for health care providers who are either inadequately trained and experienced and/or don’t have the time to apply anything more than a “cookie cutter approach” to medical practice.  As primary care dies a slow death in this country, both of these factors are going to become more common. NPs will have an ever increasing role in primary care since very few physicians are entering this field after training and most NPs will be employed by corporations and private clinics and under ever increasing pressure to see as many patients as possible.

• Satisfaction with community or area
• Area getting better as a place to live
• Clean water
• Medicine
• Safe place to exercise
• Affordable fruits and vegetables
• Feel safe walking alone at night
• Enough money for food
• Enough money for shelter
• Enough money for healthcare
• Visited a dentist recently
• Have a doctor
• Have health insurance

The two largest population centers on the Texas-Mexico boarder (El Paso and McAllen-Edinburg-Mission), ranked within the bottom 10 of the 187 meto areas in the variables listed above while no metro area in Texas ranked in the 10 ten.

Not a surprise since the El Paso and McAllen areas have some of the highest rates of poverty in the nation. It also does not help that Medicare pays reimburses doctors at a lower rate in these areas.

1. SAGE testing for Alzheimer’s Dementia: Far too many patients are diagnosed in the advanced stages of dementia after they are no longer able to hide their memory loss from their family and physicians and their cognitive decline becomes too obvious to ignore. At this stage, they are generally beyond effective treatment since their lost mental faculties are not recoverable. Paper tests for dementia such as the “mini-mental state  exam” (MMSE) or the “Mini-cog” require a lot of interaction between the health provider and the patient and so are less likely to be used by busy physicians. Another paper test called the Short Portable Mental Status Questionnaire can be done in just 5 minutes but its sensitivity in detecting mild, early dementia is only 55%. The SAGE test (Self-Administered Geocognitive Examination) can be done by the patient while they wait and has a sensitivity (detecting mild dementia) of 80% and a specificity (ruling out mild dementia) of 95%. In contrast, laboratory testing and neuroimaging (CAT scan or MRI) have extremely low yield rates – i.e. they are either completely normal or don’t show a treatable cause for the dementia – even in cases of moderate to advanced memory and cognitive decline.
2. The 3 Minute Mental Health Questionnaire (M3): Depression is screened for using the PHQ-9 questionnaire but it doesn’t evaluate for other mental health conditions such as anxiety, bipolar depression, PTSD, psychosis, etc. This is where the M3 comes in.
3. Predicting Diabetic Risk ages 45-64: Type II diabetes usually develops asymptotically over years (10 +) before manifesting. A recent study has found that a simple non-lab evaluation based on family history, weight, weight, waste size, resting heart rate, and a few other factors can predict the chances of developing diabetes within the next 10 years.

The true value of these tests comes from the fact that they are quick and easy to perform and do not require any expensive lab testing or imaging and can be very useful in either initiating early treatment and/or raising patient and provider awareness of this increased risks of diabetes, psychiatric disorders, or dementia for a particular patient.

Of course, neither Medicare nor any health insurance will pay specifically for these tests (no kidding) but they will shell out thousands for neuroimaging that usually has a very low diagnostic yield when applied “shotgun style” for every dementia patient.

• MRI will usually yield a correct diagnosis.
• MRI will usually rule out a serious condition.
• MRI is the BEST of all imaging studies.
• MRI will usually help direct further evaluation efforts and lead to the correct treatment.
• MRI is without risks.
• The costs for an MRI don’t matter.

Even if MRIs were cheaper than aspirin (each scan is well over $1,000) and even if they were 100% safe (gadolinium IV contrast can cause nephrogenic systemic sclerosis in rare cases), they would still not be the definitive end-all, be-all, gold-standard imaging and diagnostic modality of all time.

Other than the excessive costs involved, there are significant downsides to a very sensitive test. For one, MRIs can pick up many abnormal findings that can often confuse the clinical picture. Are these findings incidental and harmless and not related to the problem at hand? Or are the findings related but harmless or unrelated but potentially harmful and in need of further evaluation? Sensitive testing undertaken without a clear clinical question in need of being answered  is a problematic setup and likely to raise more questions and worries and lead to more testing (often invasive testing with increased associated costs and risks).

One of the worst cases of MRI abuse I have ever witnessed  involved a middle aged patient who presented with some rather vague but worrisome pain. The patient’s exam was benign and routine blood tests and an ultrasound were normal. Because the pain appeared to be improving, we decided to see how it progressed over the next several weeks before deciding what to do next.

In the mean time, the patient ended up being seen by a mid-level practitioner for several visits on follow up (don’t ask me how this happened) who, when told about the mild and improving  pain, proceeded to order MRIs of the chest, abdomen, pelvis, lumbar spine, the thoracic aorta, and the renal arteries, all  of which were negative for any significant findings.

By the time the patient got back to see me after several months, the pain had resolved – as we hoped it would – and she was doing very well. I reviewed her prior extensive “magnetic therapy” in amazement. It was not at all clear from the mid-level practitioner’s progress notes as to why all of these MRIs were ordered but despite this lack of documentation, the patient reported that the health insurance company had paid the complete MRI bill. The total cost for this work up was well in excess of $10,000.

It’s evident that there remain huge gaps in utilization and cost review processes of insurance companies. It’s also evident that health care providers who don’t have the training, experience, or time to bother with the concepts of cost containment, resource utilization management, and standards of care (which usually call for the simplest and cheapest test to start the evaluation process) are the ones most likely to go for the “shotgun” method of diagnostic medical practice.

This is very bad omen since  primary care is headed is towards an ever larger percentage of care being provided by mid-levels and both mid-level providers and physicians are being forced by dropping reimbursement rates to see more and more patients. All of this is going to translate into worse medical resource utilization and higher costs and a big part of it will be MRI abuse.

According to the Chief Operating Officer of Valley Baptist Medical Center in Texas, Edgardo Tenreiro, as of 2007, Medicare uses the following equation to determine reimbursement fees for physicians

Work RVU x Budget Neutrality Work Adjustor x Work (GPCI)+Practice Expense (PE) RVU x PE GPCI+Malpractice (PLI) RVU x PLI GPCI= Total RVUxCY 2007 Conversion Factor of $37.8975= Medicare Payment

The key value in this monster equation is the RVU which stands for Relative Value Unit and takes into account the work effort, skill, time, intensity and risk for every procedure. The overhead costs and liability risk and costs are factored in as well.

Where the hell did the RVU come from?

It turns out that in 1991 the Federal government hired the Harvard economist Dr. William Hsiao to develop a scientific way to rationalize the costs of various medical procedures. Before this time, medical costs were based on “traditional” fees or whatever doctors had historically charged their patients and what their patients were willing to pay. Before the 1970s, doctors billed their patients for services rendered in much the same way that plumbers bill for their services or say . . lawyers bill by the hour. It’s a rational economic system that bases costs on what value the professional believes they are worth versus what the customer is willing to pay based on need and perception of the value of the service.

After the introduction of Medicare and Medicaid in the late 1960s, the medical care economic model change from being one where professional fees were determined by the market to the dysfunctional insurance model that we have today. Somehow it was decided that medical care was too important for a free-market, out-of-pocket economic system to determine prices and so both doctors and patients were removed from their roles of determining fees and prices. From then on, and for the most part,  insurance company and government bureaucrats have been setting prices in much the same way that government central planning bureaucrats for the now defunct Soviet Union set prices for toilet paper.

But wait. It gets even better.

Without having to worry about upfront costs, doctors and patients started utilizing and spending on health care like a drunken Republican administration in a Tijuana whore house. Total health care spending went from about 6.5% of the GDP in 1969 to 13.5% by 1991.  The rise in health care costs was a direct result of the paradigm shift in the late 1960s that disconnected the consumer from a rational economic system for determining prices while the costs were simply shifted and reflected in higher insurance premiums and taxes.

The government believed that what was needed to control costs was another layer of bureaucracy. So Dr. Hsiao was hired to develop a bureaucratic way to determine the costs of professional services since basic supply and demand forces no longer applied. Yet, ironically, the RVU system as originally envisioned by Dr. Hsiao as a way to control health care cost increases has actually worsened the situation while giving primary care physicians the royal (Medicare) screw.

In a follow up study, Dr. Hsiao found that the RVU system as implemented by Congress and Medicare actually lead to higher reimbursement rates for specialists performing invasive procedures than what would have been calculated using Dr. Hsiao’s original work. The RVU system calculates reimbursement in part based on actual physician work and practice cost (overhead). Dr. Hsiao found that as implemented, the RVU system calculated practice costs based on “historical” data – what physicians traditionally charged – instead of any type of assessment of actual overhead costs.

The result was that the RVU system simply codified and cemented reimbursement inequities that went beyond the more accurate calculations of physicians work per procedure. Specialists who perform invasive procedures were over compensated and primary care docs where drastically under compensated based on actual practice costs.

To make matters even worse, the study found that overall, physicians were drastically under-compensated by established Medicare rates based on their level of training and work. AND THIS WAS IN 1993!!!! Even back then, Medicare rates were so bad that Hsaio calculated the net annual income of a family practitioner would be only $40,000 a year if all payers used the Medicare fee schedule.

Of course, physicians don’t make as little as this because they limit the number of Medicare patients in their practices (or they don’t take Medicare at all) and compensate for low reimbursement rates in other ways such as increasing the volume of patients seen per day and performing more invasive procedures and diagnostic testing. Of course, the end result of this system of government brilliance is that health care utilization and the resulting costs have increased. This is an end result that is still reflected today in significant regional variations in Medicare spending.

This institutionalized dysfunction has direct implications on every one’s health care costs.

Not only has the Federal government ensured that Medicare rates drastically under-compensate physicians (especially primary care providers), but by tipping the payment scales in favor of invasive procedures and advanced diagnostic testing (regardless of clinical utility) they  have ensured that health care costs will continue to increase without regard to outcomes or quality or utilization and the most recent “health care” reform law passed by Congress does not address this problem in the least. Think of the current RVU system and Medicare reimbursement schedule as a machine . . an engine that increases health care utilization and costs from the moment that it is turned on. Then think of all the hundreds of billions of dollars in additional funding established by the recent “health care” reform legislation as the fuel that will power this engine.

Except for those who will have their health care subsidized under the new law, the cost for health care for the rest of us is just going to get much worse.

Without an adequate supply of primary care physicians, however, the plan cannot guarantee timely access to care, creating a gap between coverage and actual provision of services. As a result, waiting times to see a primary care physician can amount to weeks and even months in some instances.

It’s ironic since the health care reform bill in Massachusetts was supposed to stress the importance of preventative care but because of the relative shortage of doctors to deliver preventative care, many patients are seeking primary care from specialists. Unfortunately, specialists also specialize in expensive care. Thus, health reform in Massachusetts has resulted in decreased access to primary care and higher costs.

This is what happens when you call an expansion of government health care spending,  health care “reform” instead of legislation that actually reforms a broken system. This may be a bad harbinger of what is to come for the rest of the nation.

What can Massachusetts do to actually reform their primary care system? Well, they can improve primary care reimbursement or revamp the reimbursement system to reward overall care and good outcomes rather then only rewarding physicians for visits (quantity over quality) or medical school debt repayment. But why pay doctors more for better care when you can just force them to accept lower reimbursement rates (as low as 110% of Medicare rates) “as a condition of their licesnure” that would effectively make these physicians employees of the state?

[Senate bill 2170 and house bill 4452] would require physicians and all other health care providers to accept 110% of Medicare rates for health insurance for small businesses. For physicians, acceptance of set rates would be as a condition of licensure!  Moreover, physicians would have to accept all such patients – and such rates – if they participate in any other plan offered by that insurer.

The stated purpose of such a misguided bill is to try to decrease health care costs for small businesses but all it does is show how little the sponsors of these bills understand medical economics. These bills make no distinction between primary care providers who are in the best position to decrease costs and specialists who tend to increase costs. Both are penalized equally. Nor do these bills require private insurers to pass on savings to employers. The end result is likely to be a net loss of physicians to nearby states and many who join the increasing ranks of physicians who have cash only practices.

Even from a practical standpoint, these bills are confusing. What does “as a condition of their licensure” mean? Does this apply only to new applicants or to re-applicants? Are physicians who refuse to accept lower rates going to be stripped of their licenses? What about physicians who are employees of private health clinics who do not have control over the rates that are accepted? Will they be forced to quit or risk losing their licenses? Aren’t people in the Northeast supposed to be generally smarter or does that not apply to their state legislators? Is this the beginning of the nationalization of health care in this country? Is this a good time to get out of the profession of medical care?