Excerpts from Paying Doctors to Ignore Patients,
an Op-Ed by Peter B. Bach, a doctor at Memorial Sloan-Kettering Cancer Center, New York Times, July 24, 2008

… Last week, Congress, overriding a presidential veto, canceled Medicare’s scheduled 10.6 percent cut in payment rates for doctors, and instead raised the rates 1.1 percent. But this action fails to address the problem with the Medicare payment system, which is not the amounts doctors are paid but the way their payments are calculated.

Medicare pays doctors for specific services. If a patient has a checkup that includes an X-ray, a urine analysis and a physical, Medicare pays the doctor three separate fees.

Each fee is meant to reimburse the doctor for the time and skill he or she devotes to the patient. But it is also supposed to pay for overhead... When the agency pays a fee to a doctor who has performed a CT scan, it is meant to cover some of the cost of buying or leasing the scanner itself…

Any first-year business school student can see the profit opportunity here. The cost of a CT scanner is fixed, but a doctor earns fees each time it is used. This means that a scanner becomes highly profitable as soon as it’s paid for.

In contrast, the doctor-patient visit, which involves no expensive equipment, offers no significant profit opportunity. So the best way for a doctor to make money in his practice is not to spend time with patients but to use equipment as much as possible…

From 2000 to 2005, the number of Medicare patients seen by doctors increased by 8.5 percent, while the number of services each one received was up 14 percent, according to the Government Accountability Office.

It’s not only Medicare that pays doctors on a fee-for-service basis; most private insurers do also. This is part of the reason that spending on physician services nationwide has risen every year since 2000 by about $25 billion…

… More fundamental changes are needed in the way doctors are paid.

For their time, doctors should be given a stipend for each of their patients. It should be larger for patients with complicated medical conditions and smaller for those who are healthy, and it should not be influenced by the number of services or tests a doctor orders.

For overhead, doctors should be paid an amount that covers the typical cost of tests and treatments needed to address a patient’s condition. …

Without changes to the way Medicare pays doctors, the fights in Congress over raising or lowering payment rates will continue. And doctors will still have no financial incentive to do what is most important: spend more time with their patients.