The way we pay doctors in the US makes them find problems that aren’t there

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People become doctors to heal others, but because physicians’ pay in the US is linked to the treatments they recommend, doctors end up unwittingly having a fiscal interest in patient care.

The clinical care business business models employed in American medicine puts doctors at odds with their patients, say Ian Larkin, a UCLA professor of management who specializes in compensation, and George Loewenstein, a professor of economics and psychology at Carnegie Mellon. But that kind of conflict of interest is rarely recognized or discussed, according to their editorial in the Journal of the American Medical Association on May 2.

Still, there may be a relatively simple solution to this thorny problem of doctor pay being linked to patient care. Pay doctors salaries, they say, and this conflict will be eliminated.

Larkin and Loewenstein argue that much research and discussion of conflicts of interest in medicine focus on physician interactions with pharmaceutical and medical device companies though relatively few doctors actually have substantial financial relationships with these businesses. On the other hand, compensation structures for doctors are almost always tied directly or indirectly to the services they order for patients, which makes their pay the most pernicious conflict of interest in medicine, even if least discussed.

There are two prevalent pay systems for physicians in the US—fee-for-service and volume-based reimbursement, where health care entities, and doctors through them, get paid a fixed amount per person based on a patient’s health and pre-existing conditions. Both are problematic, the editorialists argue. While fee-for-service incentivizes unnecessary or expensive treatment, volume-based-reimbursement schemes provide the opposite. By ordering fewer services for patients in the latter context, doctors directly and indirectly, make more money per patient.

“Fee-for-service or volume-based reimbursement, which by one estimate determines payments for nearly 90% of US physicians, provides incentives for physicians to order more and different services than those that match patient need,” write Loewenstein and Larkin. They suggest that if doctors were paid salaries, they’d be more inclined to practice medicine that meets patient needs, and could also be happier in the profession, which typically experiences high burnout rates.

According to their research, the current compensation structure causes both physicians’ needs and clients’ health to become dueling factors in the services they render. It is, however, very difficult to study or quantify the compensation problems and determine with any specificity how many services for patients are recommended or ignored motivated by doctors’ pay needs, the editorialists note.

Still, compensation, the way workers get paid for what they do, is widely understood to have known and unknown consequences. “The vast majority of physicians care first and foremost about their patients. But a significant body of literature in the social sciences demonstrates that financial incentives can and do influence decisions in ways not recognized by decision makers,” write Larkin and Lowenstein.

They argue that doctors don’t necessarily know that they are motivated by payment when making treatment recommendations. Nonetheless, concern about compensation is only natural and it can negatively influence physicians.

Doctors don’t go into medicine because they love its business models. But they also can’t afford to ignore compensation. Loewensten and Larkin suggest that a new approach to practicing medicine in the US  would make the health care system and the individuals it serves healthier, while making doctors happier.