Social Policy in Ontario

It’s time to find a cure for the problem of how doctors are paid

Posted on April 30, 2011 in Health Delivery System

Source: Globe & Mail — Authors: Andre Picard

TheGlobeandMail.com – life/health/new-health
Published Wednesday, Apr. 27, 2011. Last updated Thursday, Apr. 28, 2011.   André Picard

There is much gnashing of teeth and pulling of hair over rising drug costs.

But the reality is that the fastest-growing health expense in Canada is not drugs, it is physician services.

Doctors’ services cost $26.3-billion in 2010, up 6.9 per cent from the previous year and the fourth year in a row that growth in physician spending has outpaced everything else.

One of the principal reasons that doctors are costing the health system more is that there are more doctors – 68,100 and rising. In the last year alone, there has been a net gain of 2,700 physicians.

Financially, doctors do okay. They have powerful unions that negotiate generous contracts with the provinces.

In 2009, the average gross billing for a full-time family doc was $235,420; for a specialist it was $323,004. (The figures include overhead.) The amount earned by physicians is, by and large, reasonable and justifiable.

But the way in which they are paid is not. It is, in many cases, absurd.

Three-quarters of physician payments are made on a fee-for-service basis. That means they are paid a set fee for performing a medical act, according to a schedule of fees negotiated with the province in which they practice.

To take a completely random example from the 812-page OHIP fee schedule, a doctor can bill $20.10 to fill out a death certificate.

From a systems management perspective, the problem with fee-for-service billing is that it is open-ended. Physicians can see as many patients as they wish (or is practical) and bill for services rendered – even if that care could be more efficiently delivered by a nurse or pharmacist.

Most physicians are honest and have the best interests of their patients in mind, but they are only human. They don’t necessarily perform medical acts in a manner that is efficient or cost-effective because doing so is not valued.

In a recent report commissioned by the Canadian Health Services Research Foundation, Pierre Thomas Léger, an associate professor of economics at HEC Montréal, examined fee-for-service and its alternatives.

The fee-for-service model, he said, is one of the leading sources of inefficiency in Canada’s health system.

It creates an incentive for over-consumption because physicians are rewarded for higher volumes – a phenomenon known in the literature as supplier-induced demand.

Further, Dr. Léger said, FFS gives physicians no reason to consider the cost of treatments and it does not provide an incentive to improve patient health because payment is not tied to outcomes.

FFS was a pretty good payment system in the 1950s and 1960s, when doctors largely provided episodic acute care.

Today, there is still a need for acute care but the vast majority of patients have a chronic health condition (or several) and they require ongoing monitoring and help navigating the health system.

The role of physicians – and the manner in which they are paid – has not evolved to reflect that reality.

In a publicly-funded health insurance program like medicare, cost controls are essential. Fee-for-service allows virtually no cost control, so various alternatives have been proposed and tried to varying degrees.

Capitation is a method in which physicians are paid an upfront, fixed amount for each payment they enroll in their practice. In return for the set fee, the physician is contractually bound to provide primary care for a given period without additional reimbursement.

Capitation removes the incentive to over-treat. But the downside is that there is real incentive to pick only healthy patients. It can also lead to overuse of hospitals and specialists because if a health problem becomes time-consuming or expensive you try to fob it off.

So maybe the solution is a mixed model – capitation and then marginal additional payments on a FFS basis – with those payments actually being less than the cost of providing the service. Pilot projects in Quebec have shown that, under this payment scheme, doctors bill less and spend more time with patients doing preventive care and education.

But this approach requires an element of competition so patients shop around and keep doctors on their toes.

Another tack increasingly finding favour is pay-for-performance – paying doctors based on patient outcomes.

To date, this method has been used to promote specific measures – say, mammography, by paying a bonus to doctors whose patients are screened. But tying payment to actual outcomes is difficult – if not impossible – in a system where patients have multiple caregivers.

It is pretty clear that the fee-for-service payment model is driving up costs. Last year, billings by physicians increased almost 10 per cent.

What is less clear is the alternative.

There is no magic bullet waiting to be grasped, no single alternative payment scheme that will rein in health costs.

But there is a need to have the discussion, to experiment, to find a model that remunerates doctors fairly yet allows cost controls and improves delivery of health care to patients.

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