Opinion
Make medical providers compete on
price as well as quality
In health care, patients are largely barred from
shopping and have become isolated from true costs
they incur, writes guest columnist Roger Stark.
By Roger Stark
Special to The Times
THE method doctors and hospitals are paid for their work is undergoing gradual but
relentless change. Providers traditionally have been compensated on a fee-for-service
basis, where they receive a specific amount of money for a specific visit or medical
procedure. This is how other highly trained professionals, like lawyers, dentists, auto
mechanics and architects are paid — they receive a fee for service rendered.
The main argument offered against allowing doctors to charge for their services is that it
leads to overutilization and increases health-care costs. Doctors are accused of ordering
more visits, extra tests and unnecessary operations simply to pad their incomes.
From an economic standpoint, the fundamental difference with health care is the third-party payer system
in the United States. The overwhelming majority of health care in this country is paid for by employers or
the government, with money channeled through heavily regulated insurance companies. In other economic
activities, consumers pay directly for a product or service and consequently become savvy shoppers who can
take advantage of marketplace competition. In health care, patients are largely barred from shopping and have
become isolated from true costs they incur.
Third-party payers were disinterested until health-care costs and utilization exploded. Now, the payers, and not
patients or providers, are attempting to change the payment model by imposing wage and price controls on
doctors and hospitals. Patients are not seeking these caps, they are cost-control efforts by the entities that have to
pay the bills.
A second argument against doctor fees is it discourages the use of “integrated care,” by which patients are
placed in some type of provider-group that controls all aspects of their care. These integrated groups have many
different names, including medical homes and accountable care organizations. In reality, they are simply various
forms of the health maintenance organizations (HMOs).
HMOs may or may not provide integrated care but, through force, they can hold down health-care costs. HMOs
decrease health-care costs by using a gatekeeper system where clinical decisions are weighed against budgets.
Various types of HMOs are strongly encouraged or outright mandated in the Affordable Care Act.
The idea of pay-for-performance is becoming popular with payers, regulators and policymakers. The reason is
that they, not patients or doctors, decide what “performance” means and how much the “pay” will be. Providers
get paid a higher amount if they meet certain quality measures that are determined, in many cases, by nonclinician policymakers or other regulators.
Results with the pay-for-performance model over the past 15 years have been varied. There is no clear evidence
its defined quality measures decrease patient complications, improve care or predictably lower costs. It does
increase the regulatory and compliance burden on providers, however. In reality, most hospitals have been
improving quality measures and the patient experience without pay for performance.
What is a real and meaningful solution to the provider reimbursement problem?
First, solve the third-party payer problem by removing employers and the government as payers of most health
care. Allow patients, working with their providers, to make their own medical decisions and control their own
health-care dollars. Change the tax code and allow individuals to take the same health-insurance deduction
employers now receive. Use government programs such as Medicare and Medicaid as safety-net plans for lowincome people. Reform or repeal the vast new system of government controls imposed by the Affordable Care
Act.
Second, allow more competition in the health-insurance industry by eliminating many of the government benefit
mandates. Let patients decide what insurance plans are best for them and allow them to purchase plans across
state lines. Encourage the use of health-savings accounts and low-cost, high-deductible insurance plans.
Third, increase the use of high-risk pools for high-use and high-cost patients.
Fourth, pass meaningful tort reform so providers don’t feel the need to order extra tests out of fear of lawsuits.
Finally, encourage more price transparency in the system and allow providers to compete on price as well as
quality, just as professionals do in other parts of our economy.
The most important person in the health-care system is the patient, not cost-conscious employers or distant
government bureaucrats. The patient, as a consumer of health care, should determine the value and quality of
services received and how much doctors should be paid to provide them.