Matt Yglesias is frustrated with

the nutty and dysfunctional nature of “fee-for-service” medicine in which doctors are paid for doing stuff rather than for treating illness.

I feel the same way, but not about medicine. My wife is an attorney at a large firm, where the firm’s earnings depend on how many hours its lawyers bill, not whether the client’s legal illnesses get treated. It’s an extremely frustrating system, since it punishes lawyers for their efficiency. If a good lawyer can write a brief in five hours, but a less good lawyer takes ten, the less good lawyer earns more money for the firm. In fact, that second lawyer may not be less good, but more smart, since annual bonuses are handed out on the basis of hours billed, not objectives accomplished.

But is there a viable alternative to this system? Should the firm offer to defend its clients for a fixed price? Probably not. A lawsuit can go one for one year or it can go on for ten.

Is there an alternative to fee-for-service billing in medicine? Kevin Drum sympathizes with Matt’s frustration, but observes,

Paying doctors a straight salary seems like the best middle ground. But that just pushes the problem up a level: maybe individual doctors get a salary, but how do you set overall compensation for the medical group or hospital? And what about physicians in private practice? You can’t very well pay them a salary when they work for themselves, so does private practice go away? And what about bonuses? Should doctors be paid more based on some kind of formula for productivity and general wonderfulness? Would you care to propose such a formula so the rest of can all laugh at it?

Anyway: complicated.

An understatement.

Cross-posted at Conventional Folly

David Adesnik, TMV Guest Voice Columnist
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Copyright 2009 The Moderate Voice
  • pacatrue

    Hm. I have a tendency to misread your posts somehow, overreact, and then realize I got it wrong. So I just deleted a bunch of stuff. But I will still say that I too don’t know if a straight salary is the right way to go, but it’s a viable option worth considering. Most jobs are salaried in this manner. It’s not inherently wrong to pay someone a straight salary.

  • GeorgeSorwell

    Presumably your wife is a good lawyer, which means she’s in line to make some big bucks at her firm in the future.

  • $199537

    Yglesias shows a poor understanding of how many doctors are reimbursed. There are essentially three types of practices – office-based, hospital-based or procedure-based (actually many doctors have some combination of the three, but most can be classified into one of these).. The criticism of doctors getting paid for “doing stuff” refers mainly to the procedure-based, where they are rewarded for doing more procedures as opposed to treating conservatively. In other words there is a financial incentive to do more stuff.

    Contrast that with office-based. Imagine Doctor A who is capable, well-liked, stays late during flu season to make sure everyone is seen, tries to see last-minute problems and walk-ins, and manages problems and refers appropriately. Imagine Doctor B who is rude, doesn’t listen to patients, sends anything complicated to a specialist because he doesn’t want to deal with it, never stays late and refuses to see more than 25 patients a day since that is the national average.

    Which of these doctors deserves to be reimbursed better? How can you justify giving them the same salary? Currently Doctor A will do better since more patients will want to go to him, plus he has increased availability and sees more patients. This is where market forces work in medicine. Putting Doctor A and Doctor B on the same salary rewards the bad doctor and punishes the good doctor. The end result is Doctor A will become more like Doctor B since you have removed his incentive not to be.

  • jwest

    Yglesias shows a poor understanding of capitalism and the free market system. Fee for service would be the most efficient system of healthcare services if it was a true fee for service transaction – with the doctor charging the patient for services rendered – with no middleman.

    Under the real market based system, the customer makes the choices, determines the level of quality and quantity, seeks out competitive prices and has the incentive to do everything possible to save money.

    This type of healthcare system was proposed by the Bush administration under HSAs (health savings accounts) and created controversy because the Democrats refused to even come to the table if this was an option. Liberals realized that if the public ever was empowered by having the ability to make their own decisions on healthcare, Democrats would lose the issue forever.

  • Ricorun

    It seems to me that another fitting analogy is the energy industry. In many places utilities are still paid on the basis of how much energy they provide, not so much on how efficiently they provide it. CA was the first state to recognize the problem with the “fees for services” business model and endeavored to change it. These days utilities are reimbursed on the basis of how many consumers they service, not on the amount of energy consumed per consumer. Thus, the incentive now is to provide energy more efficiently. As a result it is not uncommon for utilities partner with manufacturers of energy-efficient devices (light bulbs, appliances, windows, building materials etc.), offering discounts on the latter so as to reduce the amount of energy they have to supply per capita.

    The efficiency model has proven very effective, and as a result has been adopted by more and more other localities. And, as Leonhardt indicated (in the article Yglesias mentioned in his article), there are also examples in the health care industry who employ a variation of the efficiency model to great effect — places like Mayo Clinic and Cleveland Clinic. My understanding is that the VA health care system has worked hard to transition to a similar model. And it was working very well until the wars in Iraq and Afghanistan dramatically increased their patient load. Unfortunately, their funding didn’t increase proportionately, so now the VA system has again come under fire.

    Anyway, these revelations have changed the way I think about the health care problem. It seems to me that unless the business model is modified no other reform — including a public option — is likely to work.