Posted by Bill Sandweg on 24 December 2017.

The primary method of doctor and hospital compensation in the United States is “fee for service.”  Under this model, doctors and hospitals get paid on an individual basis for each act of service they provide to a patient.  The model is inefficient, wasteful, expensive and encourages overreaching and greed.  It also leads to unnecessary medical care, fraud and malpractice.  It is time for us to adopt a new model.

It seems pretty obvious that the goal of any health care delivery system should be to get us well and keep us that way.  While fee for service does a good job in getting us well, there is no incentive for it to keep us that way.  I have often pointed out that under fee for service, doctors don’t get paid unless they do something to or for you.  Keeping you healthy is no way to pay for the next ski trip to Aspen.  We need to adopt compensation systems in which physicians and hospitals have at least as much interest in keeping us well as we do.  Under fee for service, a healthy patient is of no financial benefit to doctors and hospitals.

Fee for service also encourages unnecessary tests and procedures, which doctors often pass off as the practice of “defensive medicine” and for which they blame the lawyers.  Make no mistake, these unnecessary tests and procedures put a lot of money in doctors’ pockets.  As in so much of life, the profit motive encourages behavior which might be good for the person making the profit but not so good for the rest of us.

The extreme variant of unnecessary tests and procedures is found in the thankfully rare cases where a doctor claims you are sick and administers expensive treatments for your imaginary illness.  A recent case involved an oncologist in Michigan who told a number of his healthy patients that they had cancer and gave them risky chemotherapy, all so he could keep his income level high.  Many of his patients were badly damaged by the unnecessary chemotherapy.

For the same reason fee for service encourages unnecessary tests and procedures, it encourages fraud.  Not a week goes by that the federal government doesn’t catch some doctor or other health care or equipment provider engaged in a scam to rip off the system.  Sometimes this takes the form of enrolling homeless people in treatment programs where they either never show up or receive unnecessary treatment for which the program operator bills the federal government.  At other times it takes the form of the pharmacist in Kansas who intentionally diluted cancer drugs going to patients so he could make more money.

We have one of the most expensive health care systems in the world yet we are way down the list of healthiest countries.  Fee for service is at least partly to blame for this inefficiency.  When doctors and hospitals have as much interest in keeping us healthy as they do in keeping us sick, we will all be in a better place.