Switching from a fee-for-service system [i.e., what the United States has] to a straight-salary system would reduce measured administrative costs. However, it produces a different kind of economic inefficiency. It breaks the connection between work effort and pay for health care providers. Doctors will be paid for showing up, not necessarily for putting in a full day's work.In a way, that's true. The classic example is the Matthew Thornton Health Plan, described in this week's New Yorker, in which a group of doctors decided to run a mini single-payer health clinic up in New Hampshire. They bypassed insurance companies altogether, offered fixed fees to all their patients, and paid themselves flat salaries. At first, everyone loved it—patients signed up by the droves, doctors didn't have to hassle over billing and reimbursement, and even some specialists came aboard (the clinic paid specialists a fixed fee too). Costs were controlled brilliantly. Moreover, all doctors involved became more concerned with preventive care, since they didn't get any extra money for doing extra operations. It was perfect. Single-payer paradise! Soon, however, the problems started:
After a few years, the Matthew Thornton Health Plan started to be cheaper than other insurers. Employers caught on and enrollment soared. Berman had to bring in more doctors. That’s when things got more complicated. “In the beginning, we were all committed,” he said.Exactly as Kling predicted! So that's a real problem with single-payer. On the other hand, though, it's not clear that the current "fee-for-service" system is any more economically efficient. By which I mean, it's not clear that there's a direct economic link between the work doctors perform and their salary. For starters, insurance fee schedules, even in the private market, are largely driven by Medicare prices set by Congress, and these prices change relatively slowly—so they don't always reflect doctor effort at that point in time. (If, for instance, Congress decides that removing an appendix costs $X, based on how much work goes into the operation (they actually do try to measure this), but then new technology arrives that makes appendectomies even easier and quicker, then that operation instantly becomes overpriced compared to others.) Obviously there are some perverted incentives here.
“We worked hard—long hours, a lot of dedication, young and hungry. Then, as we started to get bigger and bring in more staff, we found that others joined for other reasons. They liked the salaried life style—the idea that being a doc could be a job, rather than a day-and-night commitment. Some were part-timers. We began to see people looking at their watches as five o’clock approached. It became clear that we had a productivity problem.”
Over the course of thirty years, Berman told me, he’d tried paying physicians almost every conceivable way. He’d paid low salaries and high salaries and still watched them go home at three in the afternoon. He’d paid fee-for-service and watched the paperwork accumulate and the doctors run up the bills to make more money. He’d come up with complicated bonus schemes for productivity and given doctors budgets to oversee. He’d given patients cash accounts to pay their doctors themselves. But no system was able to provide both simplicity and the right balance of thriftiness and reward for good patient care.