Paying for Health Care

03/04/2013 11:43 am ET | Updated May 04, 2013

Legislative gridlock on budget issues has again focused the thinking of those who bother to think on what to do about entitlements, with Medicare and Medicaid being the biggest potential disasters looming in our future. The common assumption is that our fee-for-service system for compensating doctors and hospitals is the key to solving catastrophic costs as baby boomers enter the patient pool. The simple fact is that there is nothing simple about any of this. The scope of the medical establishment and its attendant spending issues make figuring out defense spending a walk in the park.

Superficial perusal will not replace thorough scrubbing of the reasons that healthcare costs are out of control. Let's look at a few issues.

Why are health insurance companies allowed to be for profit if people have come to see healthcare as a right? Unlike many popular villains in the health care debate, insurance companies bring absolutely no added value to the patient while reaping billions in profits every year. There are a number of models to replace them, and they don't necessarily involve single-payer systems, if that's one's greatest fear.

Why does an aspirin cost $16 or some such nonsense when you get in as an in-patient? When you want aspirin, you go to the drug store and buy a bottle of aspirin. In the hospital, an inventory guy has to order it, a pharmacist has to allocate it, a nurse has to administer it, and every part of this transaction has to be logged. The cost of the aspirin reflects the edifice we've constructed to administer it: to make sure it's clean; to give it to the right patient; to get the right dose, etc. It also has to cover the cost of aspirin given to patients who can't pay for it. An eight-ounce soft drink at non-profit Lincoln Center in New York City costs $6.50. Why? Because it's paying for a lot more than some flat Coke.

What do we do about malpractice suits? There are some simple measures to address this hot potato, which results in unnecessary measures such as excessive testing. Some estimate that half of testing is due to this problem. Here are two possibilities, neither of which I thought of. First, prior studies indicate that fewer than 10 percent of physicians are responsible for the overwhelming majority of malpractice suits. A like number are of questionable quality. The rest, about 85 percent, are well meaning. They do the best they can for their patients, and range from being average to being brilliant. Get rid of the bottom group of stinkers (maybe a point system, like the one for drivers' licenses). Watch the middle group. Establish mandatory panels to adjudicate the quality of fact patterns in lawsuits (maybe a grand jury-type system). This might facilitate settlements, just as the grand jury system makes plea bargains more likely. If you realize that 90 percent of lawsuits that go to a jury are found in favor of the physician, we're obviously wasting a lot of time and money on testing and legal costs.

Why is fee-for-service medicine such a mess? The single biggest problem is in the administration of compensation. Because compensation per procedure has steadily gone down for years, procedures are broken down into components, and the components get billed separately. This has a micro-component. For example, instead of billing for a routine physical, you get billed separately for the examination, the EKG, the blood work, and about twenty other things, even though they're all part of a standard procedure.

The macro-component is more egregious. Let's say you're having a Cesarean section and you also want a tubal ligation. The doctor and hospital would bill for two procedures. The insurance companies stopped paying for two procedures. Suddenly, in many cases, patients were told they had to come back for the second procedure, often under the guise of something like, "Make sure the baby's okay and you definitely don't want to get pregnant again." There are many situations like this, resulting in extra hospitalizations, anesthetics, etc.

Is the problem with Medicare and Medicaid mostly doctor-driven? I retired from medical practice in 2000, so my information is from colleagues I trust, but I can say two things from personal experience as an anesthesiologist with 25,000 cases under my belt. First, Medicare paid me less in 2000 than it did in 1980. Second, I never collected a cent from Medicaid, because the compensation was so low that it was never worth the paperwork.

Does that mean that doctors are underpaid? My own philosophy is that the best could not be overpaid, and the crappy ones could not be underpaid. What should a doctor earn? Search me. For 20 years, I worked in a great community hospital in northern New Jersey, where the anesthesia department made a great living, but took care of charity patients, practiced a quality of medicine that would be the envy of any university center, and stayed up on all the latest techniques.

As compensation goes down and practice becomes more onerous because of red tape, the old-timers with whom I practiced and who still practice and also teach tell me that doctor attitudes reflect the decline in the desirability of medicine as a profession. If you're 30, you may not notice. But if you're my age, tell me honestly you don't see a difference. Want to replace fee-for service? Go ahead. I'm for anything that works, as long as it doesn't turn off quality youngsters from wanting to be doctors.

There are a million other issues. The bottom line is we're going to get what we pay for. When medical care was only 14 percent of our GDP, Eliot Janeway, the brilliant economist, suggested that maybe that was the cost of medicine if we were going to have it just the way we wanted it. If we don't want to pay current costs, we've got to come to grips with issues like availability, quality of doctors and hospitals, and rationing. Obamacare does nothing to address underlying costs. Political posturing, lobbyists, and Band-Aids are not the solution. We're going to have to get serious.