October 24, 2005
Profit Police Pound Physicians
They seem to be in a perpetually bad mood these days. Physicians that is. Grumpy. Unhappy. So what gives?
If you were a physician and you got this in your email box, how would you feel on your way to another 14-hour day?
“Medicare Cuts Could Get Worse, Much Worse”
It was the headline on an e-mail greeting physicians from the Texas Medical Association on October 13.
The government within its healthcare programs enacts severe wage and price controls. Over the past several years, the reimbursement for physician services has fairly consistently been ratcheted down, despite pressure on physicians’ true cost mandated by government regulation. Most practices have had to add overhead just to meet compliance with such mandate.
It’s not hard to figure, decreasing revenue and increasing costs do what to your take home income?
The e-mail said in part:
“What would be worse than cutting Medicare rates by 4.4 percent? How about slashing and chopping them by nearly 20 percent?”
“The federal budget crunch has some of our leaders in Washington - especially in the U.S. Senate - considering an across-the-board 15-percent reduction in federal health care spending. That would come on top of the 4.4-percent cut in physician's Medicare reimbursements that are already scheduled to take effect Jan. 1.”
“We simply cannot continue to provide health care when we are paid less than it costs to provide that care.”
What is interesting besides the rather pathetic tone of the email is the last statement. The true cost of production was decoupled from Medicare reimbursement long ago while incentives for productivity and innovation are inhibited or even prohibited. For anyone who has ever managed a medical office, the cost curve grew greater than the reimbursement curve for simple office visits about ten years ago.
It is simply true that if the only way a physician generates fees is from patient visits, they are basically out of business today. So how do they stay in business? In two words: ancillary revenue. Testing. X-rays. In some states, pharmacy. Subsidy from an institution.
So it was troubling to see the September 30 Wall Street Journal take a whack at physician revenue. Entitled "How Some Doctors Turn a $79 profit from a $30 Test physicians take it in the shorts for trying to increase their revenues…like all people trying to make a living in the face of artificial constraints." My first response was “So what?”
As I have often noted to the uninitiated: What seems like normal and reasonable business activity in any other field is probably illegal in healthcare. In the US there has always been a conflict between the idea that physicians are altruistic beings borne from a monastic oath versus highly skilled folks who sell and deliver a service.
Physicians, however, constitute a protected industry. The trade-off for enduring wage-price controls is restriction of entry to competition. And what disturbs the most is the lack of transparency and choice by the patients. Again the “third party” becomes the problem.
Remember the axiom: The healthcare system can never be rationalized until the financial and service transactions take place between the same two people.
According to the article “it works like this: A doctor sends a patient sample to an outside lab for testing. The lab charges the doctor a discounted price -- say, $30 for a skin biopsy. The doctor then gets reimbursed by the patient's insurer for a much higher amount, say $100. The difference, $70, is profit for the doctor.”
“While referral deals aren't new, people in the industry say they have grown rapidly in recent years as doctors seek new sources of income.” Duh!!
“Federal laws broadly prohibit doctors from receiving inducements for referrals or engaging in "self-dealing" -- referring patients for services in which they have a financial interest. Doctors and companies involved in lab referrals say what they do is legal. Companies say they're just offering a service for a price, and that doesn't add up to illegal inducement. In general doctors don't own a stake in the outside labs, which they say clears them of any charge of self-dealing. They say they're entitled to mark up work farmed out to a contractor to cover costs such as billing for the work and delivering results to patients.”
Once again, a solution is simple. Get the government out of the wage-price control business and out of the delivery business. Get the government out of the restriction of access business and the restriction of competition business. Give consumers price and services transparency and choice.
If you take away revenue from physicians through wage and price controls and then get upset when physicians find other legal ways to generate revenue, in the end, consumers as patients suffer from diminished access, quality, and innovation.
Get the service and the financial transaction between the same two people and it will largely fix itself. Oh and get the profit police off their backs.
