A system based on units of activity encourages more units of care

Today we mostly have prepaid medical care insurance with some co-pays and deductibles – both with commercial insurance and with Medicare.

In other words, our insurance covers essentially everything from basic and routine care to the catastrophic. And the insurance pays out based on units of care – a visit, a test, a procedure, a hospitalization, a prescription. This creates a system in which providers (physicians, hospitals, drug and device companies, others) get paid for a unit of activity – self interest dictates that all providers will offer more and more units of care, especially when providers feel that are underpaid for the individual units.

And since insurance pays for care of illness but not at all or not much for disease prevention and health promotion, we can call this a disease industry rather than a healthcare industry. (I accept that, with rare exceptions, each provider attempts to offer the best care possible for each patient but I also am certain that the patient often does not need all of the units of care offered and often does not get the most appropriate units in a well coordinated manner.)

If the basic payment system changes to one that:

  • Expects us (patients) to pay for routine, basic and preventive care, including medications, up to a maximum of, say, $1000/year, (offset by tax-advantages HSA accounts for all, including those on Medicare, and tax credits for the less well off)
  • Creates a “professional services contract” between the patient and the provider (rather than today’s contract between the provider and the insurer)
  • Has insurance pay for everything beyond that

Then three things would happen:

  • We would pay attention to what drugs, tests and procedures are offered or suggested and query our provider in much more detail than we do now — because it is our money that is being spent in a direct manner with the provider
  • Providers would be mindful of the “contract” and be careful to recommend drugs, tests and procedures only if truly needed, appropriate and useful; they would think about our pocketbook
  • Insurance would cost much less

A fourth thing would possibly happen. Because we are paying our provider, especially our primary care physician (PCP) directly, as we do our lawyer, accountant or other professional – and paying a price jointly agreed to be acceptable – our PCP would earn enough to reduce the total number of patients in his/her practice.

All of which would result in:

  • More time available per patient
  • Time available for true preventive care
  • Time available to give good coordination of care to those with complex chronic illnesses

This would not be a panacea and there are other changes also needed to the payment system, but the effect of these few initiatives would be — less expensive yet better quality care.

And if this does not come to pass, expect primary care physicians to take matters into their own hands by moving to retainer based practices, charging an annual administrative fee, or just not accepting insurance, especially Medicare, anymore.

Stephen C. Schimpff is a retired CEO of the University of Maryland Medical Center in Baltimore and is the author of The Future of Medicine — Megatrends in Healthcare. He blogs at Medical Megatrends and the Future of Medicine.

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  • http://www.chrisjohnsonmd.com Chris Johnson

    I agree that it’s pretty self-evident if you pay doctors according to how much stuff they do, more stuff will get done. And, unlike other economic activities, in most situations the doctor — the doer of the stuff — is the one who decides the stuff needs to be done. It’s a system hard-wired for over-utilization.

  • solo dr

    Today I saw a patient who is paying $1,600 a month for his family of four’s premium to the inusurance company. Between the four of them for that goes to $19,200 to the insurance company. I will likely see the teenage kids and healthy dad 1x/year for their annual physicals at $80 each with the mom with T2DM/HTN 4x/year at aroun $75 a visit. Seems like the insurance company is coming out way ahead of me.

    • HJ

      This is how insurance works…you need a whole bunch of people who don’t get anything to cover the person who needs a lot. While it may be true that the insurance company is coming out way ahead of you, it’s not necessarily because this family is healthy and doesn’t need much health care

  • jimmyz

    I say pay physicians by the hour like attorneys and accountants. If the patient wants to ask a million questions, just bill them in 6 minute increments.

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