Physician Remuneration is A Mess

By Gerrit Van Wyk.

The art of medicine is the most lucrative of all (Pliny the Elder, 24-79 CE).

Despite what Pliny the Elder said somewhere between 24 and 79 CE, for most medical practitioners, as Paul Starr pointed out in The Social Transformation of American Medicine, medical practice was not lucrative, and many held down second jobs or practiced medicine on the side to survive. The professionalization of medicine changed that.

For most of history, medical practice took place in a market of medical services in exchange for payment by the patient, or in other words a fee for services rendered. For economic reasons, second parties became inserted between physician and patient during the 20th Century and particularly its latter part, of which, in North America, there are two kinds; healthcare insurers in the US, and government in Canada, which technically is a different form of healthcare insurance. In a free market, price is set by supply and demand and barter, but the insurance model, particularly the Canadian model, is monopolistic, which shifts power in favor of the insurer. The price of services and annual increases is set through negotiation between medical associations, essentially weak labor unions with a lot of infighting about how the pie is divided, and the insurer, which aims to keep cost increases as low as possible.

Fee for service practice means I get to bill for a service, and, in the current model, the quality of the service I provide is irrelevant. Economists tell us payment models create incentives, and when increases are forcibly kept below the consumer price index, as they mostly are, the incentive is to increase income by gaming the system. This happens through up-selling. You increase the price of a vehicle by selling paint protection, a fancy surround sound system, different styling options, etc., which you don’t need. The same happens in healthcare. Add-ons are paid on top of a consultation; hence the incentive is to add as many as possible, which, ultimately, costs the system more than it saves by keeping increases below the CPI. A second way to increase profit is by increasing turnover; rushing through more patients during the same time slot, and, or, working longer hours, both of which comes at the cost of quality of service. If you are a specialist doing procedures, the incentive is doing procedures of dubious value or that are not necessary at all, which, again, comes at a cost.

The term for this in healthcare is over servicing, and the provinces have panels keeping an eye out for signs of that, which have the statutory right to claw back payments. Since 2019, in one of the provinces a peculiar trend started emerging. Instead of just clawing back the money, the panel also lays complaints against the perpetrators at its registering College, where they are then reprimanded for “unprofessional” conduct. The thinking behind that is unclear, but presumably the idea is creating fear in anyone thinking of over servicing. Murkier than that is the reprimand comes from a council of peers, of which, every so often, one gets reprimanded as well. Ultimately, as In George Orwell’s Animal Farm, humans, and pigs, or in this case those sitting in judgment of what it means to be professional, and those who are not, are all the same.

In the end, if you are in the fee for service game, it is to make a profit, the bigger the better. Having said that, I never met any physician honestly admitting to that.

The traditional alternative to prevent over servicing is for health insurers, or, in Canada, government, to contract physicians for a salary. That creates a whole new set of incentives. I get paid to turn up for work, no matter what the quality and how much I do, hence the incentive is to under service. As a fee for service surgeon, I am task oriented; I want to finish all the cases for the day no matter how long it takes, as a salaried surgeon, I’m time oriented; I work from 8 to 5 and what’s not done gets postponed for another day.

Of course, no salaried physician ever admits to doing that either.

A third option is pay by capitation, in other words a fixed monthly fee for servicing the number of patients in a medical practice. What it supposedly does, is keep the profit motive, but at the same time shifts the risk to the physician; you get paid the same irrespective of whether you have a practice of crocked retired baby boomers or health young students. Hence, the incentive is to select out difficult and time-consuming cases, and keep the easy ones.

Some suggest another economic solution; pay for team-based performance. The problem with that is outcomes depend on teamwork, and physicians have no control over that. If you luck out with a cup winning team, you will be blessed with a good income, but if you end up on the other side of the fence, it becomes a losing proposition, and you have very little if any control over that, which makes it unpopular.

Clearly, traditional compensation for physicians doesn’t work.

A better reward system will encourage the right amount of time spent with patients and procedures, care for complex cases, discourage unnecessary procedures and the use of unproven technology, and maintain autonomy.

One such solution, the Resource-based Relative Value Scale (RBRVS), considers physician input, practice and insurance costs, and the opportunity cost of medical education in determining a fair payment, but its problem is it is too complex and cumbersome.

Many years ago, the South African Medical Association briefly flirted with condition-based payment (CBP). It clusters medical conditions together based on its complexity, which gives a clear perspective of medical costs, is market related, and ensures practice costs are covered, and makes adjusting known cost changes annually a simple matter. Its advantage is it removes the drive for additional procedures and services, rewards efficiency and work ethic, restores equity, and is a rich source of data.

To protect their advantage, that initiative was quickly strangled by the bigger, more lucrative specialties, who had most to lose from its implementation.

For purely historical reasons there is a very large compensation gap between specialists and family practitioners, and between different specialties, for which there is no justification. Hence the incentive is to keep things the way they are. I was once told by a senior Canadian government health leader in no uncertain terms the subject is off limits and cannot be discussed. It creates a second perverse incentive; if you are going to put in the time and effort, and mortgage what you pay on your education for future income, you may as well shoot for a well-paying specialty at the expense of their poor cousins.

The incentive for payers, governments and insurers, is to keep increases below market rates, which, to a not insignificant extent, contributed towards the current crisis, specifically around practice costs increasing at market rates and more, and not covered by below CPI fee increases. By keeping increases below cost and having physicians absorb the difference, the relative profit of physicians eroded over the time, which becomes a driver for perverse incentives. CBP demands CPI related increases, hence will fail if payers game it.

The conversation so far has been purely around monetary terms, but to many, intrinsic rewards, such as job satisfaction, a sense of fulfillment, a feeling of self-determination, social status, etc., are equally important, and I have never seen anyone raise it as part of the conversation about physician remuneration.

When business, management, and governments took over health care, they removed most intrinsic rewards and switched the emphasis to financial reward. Research shows around 60% of physicians worldwide would quit their job today if they could, the only reason they put up with their jobs is because it pays well and they have no viable alternatives. Note in most other jobs you enter a career path with the possibility of growth, promotion, and career change, whereas as a physician, the job you start with won’t change for next 40 years. To many it is soul destroying.

When you enjoy your job and experience intrinsic reward from it, you are prepared to work for less, but if you hate your job, you want to be paid more for putting up with it. From that perspective, things look gloomy in healthcare.

I’m not claiming there is a perfect compensation system, just that there are models that may be an improvement on what we have now, and therefore is worth a try, but they face high barriers. Pogo said most people don’t read the writing on the wall until their backs are up against it, and we’ll have to wait for governments to feel the cold bricks before things may change. Here in the big white north it would have to be very cold to register.

Pogo also said we have met the enemy and he is us. A health care system evolves from and as such is an expression of a society. The fact ours is broken and dysfunctional says something about us as a society and we should be ashamed of it. There is no reason the compensation problem cannot be fixed. What’s lacking is the will. It’s easy to blame others, it’s difficult to acknowledge all of us are part of the problem.