Ethics, Economics, and Physician Reimbursement

Transcription

1 Ethics, Economics, and Physician Reimbursement MARY ANN BAILY, PH.D. Abstract There has been much debate among health care professionals over how physicians should be paid for their services. This paper addresses the topic through an economic and ethical analysis. It starts from the premise that fairness and cost effectiveness should be the goals of a good physician reimbursement system. Using the goals of fairness and cost effectiveness as measures, it examines the current market model. Finding that the current model provides neither fairness nor cost effectiveness, the paper compares the structure of the physician services market to the assumptions made by economists in the idealized market model. Two major imperfections are found in the former. These imperfections are an asymmetry in information between patient and physician, and the uneven and unpredictable distribution of health needs. These two imperfections are examined in light of the goals set out in the beginning of the paper. The paper finds that, given the imperfections, physician reimbursement as it currently exists is incompatible with the goals of fairness and cost effectiveness. In conclusion, several recommendations are made, most significantly a broadening of the interpretation of physician agency, i.e., physician as agent, and the switch from a fee-for-service physician payment system to a salaried medical practice. Key Words: Medical economics, medical markets, imperfect information, need, medical ethics, fee-for-service, reimbursement, physician-patient relationship, insurance, salaried practice. ANOTHER PAPER IN THIS COLLECTION provides a historical description of how physicians have been paid (1). In contrast, this paper discusses how they should be paid, based on the perspectives of economics and ethics (2 6). The Goals: Equity and Cost Effectiveness If you asked the question What is a physician payment system supposed to accomplish? I think most people would say that we want the right amounts and quality levels of physician services produced and delivered to the right people, we want physicians to get a fair reward for their efforts, and we prefer not to sacrifice any more than is necessary of other goods and services in order to achieve this. In other words, the goal is a payment system that is both fair and cost effective. Address all correspondence to Mary Ann Baily, Ph.D., Associate for Ethics and Health Policy, The Hastings Center, 21 Malcolm Gordon Road, Garrison, NY Presented at the Issues in Medical Ethics 2001 Conference on Medicine, Money and Morals at the Mount Sinai School of Medicine, New York, NY on November 2, 2001, and updated February Economic Perspective: The Market Model When economists think about getting goods and services allocated efficiently, they think immediately of markets. The market is a core concept in economics; it is the model of buyerseller interaction that determines what is produced and how it is distributed through the socalled law of supply and demand. The key to a market s operation is the price, which adjusts to bring the amounts of a good people are willing to sell into harmony with the amounts people want to buy. Economists devote much of their time to analyzing market behavior. This is appropriate in an economic system like ours, in which most goods are allocated through a system of interconnected markets. Such analysis is a very useful tool for explaining where existing patterns of production and distribution come from and how they will change in response to various changes in the factors that determined them. But to economists, the analysis is useful for more than explanation and prediction. They use it to draw normative conclusions to argue that markets are a desirable form of economic organization. When the market price harmonizes de- THE MOUNT SINAI JOURNAL OF MEDICINE Vol. 71 No. 4 September

2 232 THE MOUNT SINAI JOURNAL OF MEDICINE September 2004 cisions to buy a good with decisions to sell, it harmonizes the preferences of consumers with societal resources. Economists can show that under certain idealized assumptions, a market system yields an efficient composition and distribution of output without heavy-handed central planning or control. Theoretically, each good is produced with the minimum sacrifice of other goods, because the competitive process creates desirable incentives for both producers and consumers, so that when they pursue their individual self-interest, they also serve the common good. But what about fairness? Does the market system get goods to the right people and give them a fair reward for their contribution to society? It depends on how you define fairness but in fact, a case for the fairness of the market outcome can be made. When price rises to eliminate excess demand for a good, those who value the good most get it. When individual incomes are determined by markets for labor and other productive resources, those who contribute valued resources to society reap the rewards. But this argument only goes so far. The trouble is that in a system based on market exchange, people who have nothing to put in get nothing out and the initial distribution of productive resources (personal characteristics like strength and intelligence as well as ownership of land and natural resources) is heavily influenced by history and pure luck. Therefore, even in a market system that works perfectly, most people would support intervention to ensure that people with limited initial resources would have enough income to afford basic necessities. And of course, the assumptions are idealized no real market is perfect. Nevertheless, for many economists, the vision of the ideal, plus the perception that real markets often do perform the resource allocation task reasonably well, creates a preference for the use of markets. When a market doesn t yield the desired results, they tend to want to fix the market rather than abandon it altogether. For example, if some people lack basic necessities, they would rather redistribute income than control the prices of the needed goods or give the goods as handouts they would rather get a fairer distribution of purchasing power and let people buy what they want. So why not let a market allocate physician services and, in the process, determine what physicians earn? Physicians market their services to consumers and each service has its price; the result is called the fee-for-service reimbursement system. However, I think it s fair to say that, as a society, many have not liked the results. Problems with the Market Outcome Briefly, the results have been neither cost effective nor fair. I am not going to spell this out in detail here, since you already know the story how we spend an enormous amount on health care yet have the nagging feeling that we are not getting our money s worth how some people get too little care, while others get too much (7 11). Instead, I am going to focus on the role physician reimbursement plays in bringing about these undesirable results, and offer some alternative thoughts about reimbursement structures that might lead to better results. To understand the effects of reimbursement, an economist automatically begins by looking at the structure of the physician services market and asking how it matches up with the assumptions of the idealized model. In fact, there are many imperfections in this market. The two that are generally considered most important are the asymmetry in information between patient and physician, and the uneven and unpredictable distribution of health needs. Imperfect Information The basic market model assumes that buyers have complete information about the product they are buying and the benefits it will give them. This is a simplification that works fairly well for most goods; however, it does not work well for health services. To decide how much benefit will result from a purchase of physician services, a person must typically rely on the advice of the very person who will supply them. In other words, physicians act as agents, helping patients determine what to buy, and they can influence the demand for health care by the advice they give. If physicians only do what their patients would do if the patients fully understood medicine, the agency factor does not change the outcome. But do they? In fact, should they? What is the health care agent s duty to the patient, to the rest of society, to the physician himself and what should be done if these duties conflict? Ethical Duties of Physicians Many ethical questions currently troubling physicians are related to the question of the

3 Vol. 71 No. 4 ETHICS, ECONOMICS, PHYSICIAN REIMBURSEMENT BAILY 233 proper nature of agency. Historically, most physicians have believed that it is their ethical duty as a patient s agent to do everything medically beneficial for that patient without regard to cost. Of course, the patient has to pay the cost. A patient who cannot afford the care a physician believes is beneficial raises a difficult dilemma. If the patient is already in the physician s care, duty requires that the care be provided anyway. Therefore, to avoid financial disaster, physicians have to manage their practices so that they do not take on too many patients who will not be able to pay, taking refuge in the belief that their ethical duty extends only to those patients for whom they have accepted initial responsibility. This view of agency is quite different from the economist s view. Economists (and some physicians) are more inclined to see agency as a contractual relationship in which the physician undertakes to serve the patient s interest as the patient defines it. After all, even if a patient can find the money, the medical benefits it buys may not compensate for the sacrifices which become necessary in other areas of life. In this view, a physician should consider cost to the extent that it matters to the patient (of course making sure the patient fully understands the tradeoffs between medical benefits and costs). These two positions differ with respect to the meaning of serving a patient s interests. They are united, however, in ignoring the interests of others. The physician does so on the grounds that to do otherwise is unethical; the economist on the grounds that it is unnecessary. Why unnecessary? Because in the (idealized) market system, efficiency is served by decentralization, and equity is promoted, if necessary, through policies implemented at other levels of the system, through taxes and transfers of purchasing power. Uneven and Unpredictable Distribution of Needs Let us turn to the other important special feature of this market. Neither the medical ethics nor the economics position on agency deals adequately with the complications associated with variability in health care needs. A person s demand for health care depends on health status, which in turn depends on chance. Few people have enough money to ensure access to all the important medical care they might ever need. The market response is health insurance, which people can buy to protect themselves against the financial consequences of changes in health status. Once a person is insured, however, price no longer plays its key role as mediator between consumer preferences and resource costs to society. Consumers do not weigh the marginal benefit of health care against the price, because they do not pay the price. Of course, indirectly they do pay, because premiums must cover the expenditures on behalf of all those insured, but there is no incentive to consider this, since any one person s consumption is only a small part of the whole. A system of extensive health insurance in which physicians are paid on a fee-for-service basis greatly eases ethical conflicts. The more physicians do for patients, the more they are paid, while the insurance coverage shields patients from the full financial consequences. In such a system, the difference between the two concepts of agency blurs. Physicians are protected from worry about adverse financial effects of clinical decisions, on themselves or the rest of society, as long as they minimize involvement with the uninsured and those on public programs that pay below-market fees. Cost Effectiveness Implications Unfortunately, in the real world, neither patient nor doctor cares about the relationship between benefits and costs. When the doctor is paid on a fee-for-service basis and the patient is well insured, both are happy to use medical care until the point where further care would yield no benefits at all, rather than to stop at a point where benefits are commensurate with costs. Thus, many people are getting care that is not worth what it costs. Under these conditions, there is also little pressure on suppliers to produce efficiently. In a competitive market, the pressure of competition makes producers stay efficient. If they do not, they are competed out of business. When a market organization has no price system or some functional substitute for it, costs and insurance premiums rise, pricing some people out of the market, even as the well-insured receive a pattern of care that fails to match benefits with costs. This is a serious problem. What to do? First, it is important to reach a new consensus on the nature of the physician s agency role. In a world of third-party payment, an economist ought to argue that the concept of agency must be understood in a broader sense. A narrow definition of self-interest seems to lead a patient to prefer a doctor whose clinical decisions ignore all costs that do not fall directly

4 234 THE MOUNT SINAI JOURNAL OF MEDICINE September 2004 on the patient. Yet the patient is part of an insurance risk pool, which in the aggregate bears the costs of all care received by the members. It is in the patient s long-term interests to agree to limits on utilization that reflect an evaluation of the relative benefits and costs of treatments. This holds down the cost of membership in the risk pool and ensures that the common resources are not squandered on low- or zero-benefit care. It also makes it less likely that the patient himself will be priced out of the risk pool. Similarly, the medical ethics interpretation of the physician s agency role must be broadened. The view that the physician s ethical duty is to be strictly a patient advocate without regard to cost or consequences for others seems too narrow, given this interconnected dependence people have for the resources to meet their health care needs. These are arguments based on cost effectiveness considerations. The point is, unless this interconnectedness is taken into account by physicians, we will spend too much for the advantages of pooling risk. The arguments would be valid even if there weren t any differences in purchasing power that made it difficult for some people to afford insurance, and there weren t any differences in initial health status that made insurers reluctant to offer affordable insurance to those considered poor risks. Equity Implications When fairness is also considered, the arguments for a broader interpretation of agency have even greater force. A more generous income redistribution policy would help to improve access to health care, but it would not solve the problem entirely, given the limited ability of private insurance markets to pool the risks resulting from genetic health endowments and chronic illness. Moreover, society seems to have a special sense of moral obligation concerning access to an adequate level of health care, one that is independent of its overall concern about fairness in the distribution of generalized purchasing power. Given this, a system that gets benefits in line with costs will also make tax dollars go further in the provision of health care to fulfill this societal obligation. Remedies In sum, information asymmetries, the need for risk-pooling, and the special redistributive importance of medical care mean that we cannot rely on a decentralized market process to produce an efficient and equitable allocation of health care at the individual patient level. Other mechanisms must be found to do what prices do in simpler markets. Some people have focused on bringing financial incentives back into the patient s decisions to use care, by introducing more cost-sharing at the point of use. This is a dead end. Cost-sharing cannot go very far without losing the whole point of insurance, i.e., freedom from the worry of unexpected, large medical bills. Moreover, since patients still have to rely on their physicians for advice about the benefits of care, physicians must inevitably retain a central role in their decision-making. The health care system must somehow guide doctors to practice cost-conscious medicine cost-conscious in the sense that patients get neither too much nor too little in either quantity or quality of care. There has been some movement toward this view of the physician s ethical duty toward patients, but the process has been agonizingly slow and confusing. Meanwhile, market forces have been fueling very rapid changes in the structure of physician reimbursement, changes that have taken a form that I personally find troubling. As public and private payers have responded to growing pressure to control health care expenditures, they have increasingly relied on the imposition of direct and indirect financial incentives to physicians to reduce costs. At the same time, physicians are receiving no clear guidance from society as to what the proper balance between too much and too little should be. I think it is impossible to achieve the goal of a cost-conscious but fair standard of care purely by means of financial incentives to physicians; moreover, it is ethically dubious to try. Making clinical decisions on the basis of personal financial gain is considered unethical by both economists and ethicists, under both the narrow interpretation of agency that focuses on the short-term interest of the individual patient and the broader interpretation that also takes account of the individual patient s long-term interests and the mutual dependence of all the members of the health care system. If financial incentives have any role at all, it can only be in combination with clear ethical principles and explicit guidance. Society must find a middle ground between two extremes, pejoratively described as expecting physicians to practice cost-benefit analysis at the bedside or, alternatively, to practice cookbook medicine out of government cookbooks.

5 Vol. 71 No. 4 ETHICS, ECONOMICS, PHYSICIAN REIMBURSEMENT BAILY 235 Finding the right way will require a cooperative endeavor in which standards of cost-conscious practice are set by the medical profession and public and private third-party payers working together in the public interest, through consensus development, technology assessment, quality improvement, and quality assurance activities. I think this cooperation would be easier to achieve in a structure in which individual physicians do not gain or lose directly from decisions about how care should be limited. Instead of manipulating financial incentives in ever more complex ways to induce physicians to alter their use of resources, we should consider replacing fee-for-service physician reimbursement with salaried medical practice. In our economy, most people who work for organizations are paid on a salaried basis, not by piecework. Their performance is judged on the basis of general performance standards, and they are fired, promoted, and given merit raises and bonuses in accord with the quality of their work. With the evolution of medical technology, more and more physicians are practicing medicine as members of organizations, rather than as individual solo practitioners. Why shouldn t such a payment structure work for physicians? The change might be initially unpopular, as organized medicine has traditionally resisted salaried practice. However, if the change made it easier to achieve general cooperation in clarifying the standard of care to be provided to patients, there could be a significant reduction in the uncertainty and ethical discomfort physicians experience as they make clinical decisions. Conclusion Recently, there have been calls for a new medical ethics one in which the focus of ethical obligations shifts from individuals to populations. This rhetoric implies that physicians must recognize a separate, new obligation to serve the interests of society an obligation that is in direct conflict with their traditional obligation to do what is best for the individual patient. I think this rhetoric is misleading, and I want to dissociate myself from it. Rather, the obligation to cooperate in defining and implementing a cost-conscious standard of care is an integral part of the physician s obligation to serve the interests of the individual patient, when those interests are less narrowly conceived. The sooner patients and physicians realize this, the sooner we will be able to address the difficult task of reforming our health care system to be both more efficient and more fair. References 1. Valone DA. A history of medical payments: continuity or crisis? Mt Sinai J Med 2004; 71(4): Baily MA. Physician reimbursement: the lessons of economics. In: Moreno JD, editor. Paying the doctor: health policy and physician reimbursement. Westport (CT): Auburn House, Greenwood Publishing Group; Baily MA. Policies for the 1990 s: rationing health care. In: Arnould RJ, Rich RF, White WD, editors. Competitive approaches to health care reform. Washington (DC): Urban Institute Press; Baily MA. Defining the decent minimum. In: Chapman AR, editor. Health care reform: a human rights approach. Washington (DC): Georgetown University Press; Baily MA. Competing for market share in health care. Medical Humanities Review 2000; 14(1): Baily MA. Managed care organizations and the rationing problem. Hastings Cent Rep 2003; 33(1): Arrow KJ. Uncertainty and the welfare economics of medical care. American Economic Review 1963; 53: Newhouse JP. Pricing the priceless: a healthcare conundrum. Cambridge (MA): MIT Press; Roberts MJ, Clyde AT. Your money or your life: the health care crisis explained. New York: Doubleday; Committee on the Consequences of Uninsurance, Board on Health Care Services, Institute of Medicine. Coverage matters: insurance and health care. Washington (DC): National Academy Press; Ginzberg E. Health-care policy in the United States in the 20th century. In: Danis M, Clancy C, Churchill LR, editors. Ethical dimensions of health policy. Oxford (UK): Oxford University Press; 2002.