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Encouraging quality in healthcare is the new 'mantra' nowadays. In a typical bureaucratic fashion "quality promotion initiatives" such as PQRS and MACRA have been rolled out to improve quality. These initiatives have never been proven to be beneficial but such empirical bureaucratic approach is not surprising now that the 'control' of healthcare is completely outside the control of physicians and firmly in the hands of politicians, bureaucrats and hospital administrators. Most of those involved in creating these "innovative" quality promotion initiatives have little or no understanding of the incentives in healthcare but they still feel qualified to do so. This article discusses how 'excellent clinicians' have systematically been undervalued in our healthcare system. To most, it would be surprising since commonsense would dictate that clinical excellence and therefore 'excellent clinicians' are central to delivering high quality healthcare. But like everything else in our healthcare system, this is just another "phenomenon" that defies logic. But understanding it and correcting it will be more effective in improving the quality of our healthcare than those attractively named initiatives which have so far been complete fiascos and have only served to take attention away from 'real quality in healthcare'
It is a given in all professions that as an individual professional becomes more skilled he/she can expect a higher payment for his/her services. The lawyers command a higher fee as they become better lawyers, the business graduates earn more as they get better and even a plumber can charge more by becoming a more skilled plumber. However, in the current US healthcare system, due to its unique regulations and incentive structure, clinicians cannot earn a dime more by becoming more skilled clinicians. In other words, physicians are paid the same for providing a clinical service (consultation or a surgery) irrespective of their level of expertise. A procedure or surgery performed by a national or international expert in the field or a fresh graduate from an obscure training program and probably at the bottom his/her class results in exactly the same payment for the service provided. This might come as a surprise to most who are not aware of the healthcare regulations especially when they keep hearing incessantly about the importance of quality in healthcare.
Lately, there is a lot of talk about the importance of quality of healthcare. Quality improvement initiatives and pay for performance (read 'quality') are aggressively being implemented. Physician are mandated to attend continuous medical education programs and take re-certification exams to improve their clinical skills. And yet, motivated and quality obsessed physicians who invest considerable time and effort in becoming more skilled find themselves wondering about the benefits of doing so.
What are the usual rewards for improvement of quality and skills? Why are they lacking in American healthcare?
Most humans are motivated to keep improving by lure of either more power and prestige or more money. In most professions, as an individual becomes more and more skilled they are rewarded with one or more of these.
Power and Prestige: Several high performers are driven to keep improving by their lure of prestige or power. In healthcare, for last several decades, high-quality clinicians were not rewarded with power. Most leadership positions were given to physician-scientists and not to high quality clinicians. Most reputed medical institutions provided little recognition to physicians who were "just good clinicians" without any research accomplishments. Good clinicians had (and still have) a tough time getting promoted while their counterparts who are less accomplished clinicians but had research publications got the promotions and the prestigious positions. In several leading medical institutions, being "just a clinician" was used in a derogatory way. As a result, most high quality clinicians (except a few who besides being good clinicians were also accomplished scientists) left academic institutions and went into private practice where they could make more money commensurate with their clinical skills and not be looked down upon for being "just a clinician".
Money: Till recently, physicians looking to refer a patient to a specialist had personal and professional incentives for referring their patients to the best specialist(s) they knew. Therefore, high quality physicians had large clinical practices and could therefore earn more despite the fact that there was no 'quality premium' in payments they received for their services. Higher volume of business provided a financial incentive to improve quality. In recent years, the hospital systems have bought the primary care practices and hospitalist groups, besides already owning the Emergency Rooms (ERs). The referrals to specialists are now NOT based on the quality of the specialist physician but on strategic business alliances. As a result, at this point in time, high quality physicians cannot attract higher volume of business based on their clinical excellence. They now effectively have no positive incentive for investing time or effort in improving quality since these investments bring no additional financial returns.
"How can you reward quality particularly when it is impossible to measure quality of healthcare?"
A direct measure of quality is impossible not only in healthcare but also in all other professions. There is no way to objectively and reliably measure the quality of a lawyer, or a business school graduate or a plumber? Comparing their success rates is not reliable since it can easily be gamed by an individual by accepting only easy problems/cases to achieve a high success rate. If the US government ever feels compelled to 'set' the price of services of lawyers, MBAs and plumbers in US, it would encounter the similar problem of measuring the quality of lawyers, MBAs and plumbers. In contrast in the marketplace, high quality lawyers, business school graduate or a plumber are still able to get a quality premium in proportion to their skill levels. A similar outcome will occur in healthcare if the price of physician services is allowed to 'float' in the marketplace. It was the norm before the physician fees became arbitrarily fixed by CMS- a semi-government agency (which also serves as basis for payments from private insurance companies). Free market is the most efficient mechanism to encourage, recognize and reward quality, even though it is not perfect. Trying to create a 'sophisticated' payment mechanism outside of free market to reward quality is near impossible, creates bureaucracy and is grossly inefficient. The latest version of payment codes in healthcare (ICD-10) has over 65,000 codes and has dramatically increased the burden of documentation on the healthcare providers. Yet, it does not reward physicians for the skill level and quality. If the present trends continue, a day will soon come when the training for billing and coding professionals in healthcare might be longer and more exhaustive than attending medical school.
"Shouldn't the physicians become better because it is their moral duty to do so?"
Several people (usually non-physicians) argue that physicians should act based on their morals and not on their individual selfish motivations. Therefore, it is their moral duty to make all possible efforts to improve in quality to do maximum good to their patients and the society. It is a tempting argument. To become a better clinician and to deliver higher quality of care requires significant investment of time and resources. As somebody tries to push quality to the Max, the cost associated with quality can increase dramatically. When the higher quality does not provide additional revenue, these costs become non-reimbursed expenses. If a physician is guided by morals to keep improving quality, these non-reimbursed costs become a "Quality Tax" that he/she has to pay to be able to deliver quality. I would leave it the reader to predict the consequent behavior of most physicians and also to try to see what he/she would do if in a physician's shoes.
We should remember that physicians being humans behave like other humans. The fate of systems which counted on individuals acting "morally" and not following their individual incentives (communism being the biggest such example) is known to all and should serve as constant reminder of the infeasibility of this line of thinking. Robust systems are built on recognizing and acknowledging an individual's incentives and using them to reward desirable behavior.
"That is why we have medical litigation. Physicians who compromise on quality of care should be made to pay dearly"
It is tempting to think that the fear of litigation would ensure the quality of healthcare since the errant physicians can be punished accordingly. This strategy might be feasible if there was a way to measure or assess quality objectively. Most policy makers and administrators keep reminding us how it is impossible to do so. Then, if quality of healthcare cannot be measured objectively, the same applies to determination of "poor quality care". Most medical litigation penalizes physicians for isolated mishaps and accidents without regard for the overall track record of a physician. It does not fuel improvements in quality. Rather it fuels the practice of defensive medicine which increases costs and increases unnecessary or marginally indicated testing, procedures, surgeries and treatments. I am not against litigation to protect patient's rights and to keep the physicians accountable. However, medical litigation in its current form does not ensure quality.
Some have suggested that quality can be defined with use of 'National benchmarks'. However, since all healthcare providers in the country are operating under the same set of incentives which do not reward but rather de-incentivize quality, the healthcare quality will decrease across the nation. Punishing only those who fall below "National benchmark" only serves to co-ordinate the gradual nationwide decline in quality of healthcare.
"That is why physicians should be employed. It would enable them to focus on quality rather than on the revenues?"
Some policy makers and economists have suggested that all physicians should be employed by hospitals on a fixed salary. This would enable them to focus on quality of care without having to worry about maximizing the revenue. Though this suggestion seems appealing at first look, a careful look at resultant incentives raises questions about its validity. Firstly, if all physicians are paid the same irrespective of quality, what incentive do they have to improve their skill level and quality? Why would they just not relax and take it easy, rather than work harder to improve their skills? Isn't this reminiscent of government employment where things move at their own pace? I don't know of any government institution(s) which are admired for quality or efficiency.
Secondly, even if the employed physicians have no apparent motivation to cut on quality to maximize profit, their focus on quality will lower their individual output (as delivering quality requires more time and effort) and also decrease throughput of their team. To deliver higher quality, physicians also require higher quality and higher-paid supporting personnel (nurses, technicians and secretaries), higher utilization of hospital resources and availability of premium quality (more expensive) equipment. Since higher quality care is not reimbursed at higher rates even for the hospital, an employed physician's efforts to increase quality leads to reduced throughput, higher costs and lower profit margins for the hospital. The will not please the CEO of the hospital who is incentivized and accountable for profits and is not accountable for quality of care, and does not have a medical license to protect. Though employed physicians may have no bonus for higher productivity, they are still held accountable for meeting their minimum output commitments (measured in Relative Work Units or RVUs) by their employers. In absence of meaningful personal reward/incentives for becoming better clinicians, most employed clinicians default to a more comfortable lifestyle where they deliver the required output, do not 'waste' time and energy in improving quality and do not earn the wrath of the hospital administration.
"If healthcare is so dysfunctional then why don't physicians just walk away from it and do something else?"
Most physicians are completely vested in healthcare. They have spent a large part of their life (7-10 years) going through medical school and training and usually $200-300K in student loans. Most young men and women start medical school with the noble intentions of serving the sick and the needy. They do not realize or understand the economic realities of healthcare, including financial constraints and incentives, till late in their training or after finishing training. Even then, they assume this to be normal as they don't know any better. For those who don't want to behave this way, it is too late because they have invested so much time, effort and money. They don't know if it will be different in any other profession (frankly, I am also not sure if people's behavior is much different in any other profession or business). They just have to learn to survive and thrive in the system and follow incentives set for them by the system. They do not have the power to change the system or the incentive structure. A small minority of physicians might take this to ridiculous extremes and make themselves fodder for juicy articles about physician greed in the lay media, and in the process cast a shadow on the entire physician community. However, society has to appreciate and realize that the system and its incentive structure that enables and promotes that kind of behavior is completely outside the control of physicians. Any meaningful improvement in our healthcare system would require careful evaluation of incentive structure in our healthcare. It would involve removal or correction of anomalies and discrepancies in incentives which lead to undesirable behavior not only amongst the physicians, but also the patients, and the executives of hospital systems, insurance companies, drug and medical equipment manufacturers, and last but not the least, the policy makers.
What is the appropriate quality premium?
A meaningful quality premium is the one which drives an individual to preferentially invest the available resources (time, effort and money) into improving quality. Alternately, physicians can invest their time and resources in trying to increase their throughput or in creating other parallel revenue streams to increase their revenues. Therefore, to really promote and incentivize quality, the returns provided to a physician for delivering higher quality (by investing in quality) should be more than the returns the physicians can get by increasing their throughput or by creating other ancillary revenue streams. Moreover, as the quality increases, the cost of further increase in quality increases logarithmically (and not in a linear fashion), the quality premium should increase similarly. This happens instinctively and subconsciously in free markets where say a 5% improvement in quality at the upper end (say of a singer, football, lawyer or a business executive) can result in huge financial rewards (and not just a 5% increase in income). It is virtually impossible outside of a free-market to meaningfully and appropriately reward quality. Free markets not only appropriately reward quality but also ensure that only those quality attributes that the consumer's value, are rewarded.
Only free markets can allow sufficient granularity whereby payments for providing a service or performing a surgery is a function of the skill level of the provider. That will incentivize individual physician to do what he/she does best and improve their skill level for higher financial returns. This would result in the highest financial rewards going to the most skilled and accomplished physicians rather than to those who can most effectively game the system. This would be the biggest incentive for physicians to improve their skill level and deliver higher quality and would lead to long term sustainable improvement in quality in healthcare.
How can we get started in removing impediments to quality in our healthcare system?
Any sincere effort to overhaul the system and create meaningful incentives for encouraging quality in healthcare has to restore the 'usual' market incentives for higher quality. In our healthcare system, fixed payment for a service and recently control of patient referrals based on strategic business alliances have removed the financial incentives for high quality clinicians. There are stringent laws (STARK laws) to prevent hospitals from luring physicians to bring patients to their facility by providing kickbacks in any form. However, the new reality in healthcare following the reforms have made a mockery of those laws. In the new healthcare scenario, hospitals now own and control the primary gatekeepers of patients – the ER, primary care physicians and the hospitalists. They now also employ specialist physicians and direct the patients preferentially to the specialists employed by them for obvious financial reasons. The employed specialist physicians now have no incentive to improve quality since their business volumes no longer depend on their reputation for quality. In contrast, those specialist physicians who are independent and not employed by the hospital cannot get higher volume of business based on their reputation for professional excellence. To restore a meaningful incentive for clinicians to provide high quality care, hospitals should not be allowed to influence patient referrals to specialist physicians and this should be implemented with the same vigor and strictness as the STARK laws.
A higher fee is not only a reward for providing higher quality, but it also is a credible 'quality signal' to potential patients. A fixed fee to physicians also hurts the patients' interests as they are unable to 'find' good physicians based on their market price and land up paying the same price for sub-par physicians. That patients are willing to pay a higher price for higher quality of care is evident from the recent increase in the number and popularity of 'concierge practices'. As a first step, the patient co-pay should not be fixed and the physicians should be allowed to charge a co-pay commensurate with what the market would bear based on perception of the level of their clinical excellence. This would encourage physicians to demonstrate their quality credibly to the patients to be able to maximize what patients are willing to pay for their services.
These two changes will be a good start in restoring the incentives for clinicians to provide high quality care and make continuous efforts to meaningfully improve their skills and quality.