Healthcare Dysincentives: Who is left holding the bag?

Holding the Bag (hōl’dĭng thə băg) N.

  1. Abandon someone, force someone to bear the responsibility or blame.
  2. This idiom grew out of the earlier give one the bag (to hold), which dates from about 1600 and alludes to being left with an empty bag while others have taken the valuable contents.

I grow weary of the socialists in our midsts who want us to go blindly into a socialist system single payer system. Even worse is when I hear the talk of the efficiencies that will be gained, the equity of the system, and the correction of current perverse incentives.

Let me take a case in point from one of my anesthesia friends who runs a 15 physician group in a western state in a mid-size city of about 350,000. Apparently when the government was developing the current CPT coding RVRBS system they forgot to include anesthesia in the mix. As a result, anesthesia developed their own billing paradigm, a time based system (with complexity modifiers) along the lines of how lawyer bill services.

As an example how this unique time based billing system works: In his geographic area, the going rate is $75/unit to deliver anesthesia. A “unit” is defined as an increment of time, typically 15 minutes, or 4 units per hour. This incremental measurement is important because in addition to the minute by minute charges, there are modifiers for “setup” costs and case complexity (age, severity, co-morbidities, etc). Thus an hour long heart case could be billed at 25 units (15 units for setup, 6 units for complexity, and 4 units of anesthesia) at $75/units which is $1,875.

Now before you lose focus on how much per hour the anesthesiologist make, lets determine what is involved in this hour long procedure. It actually involves about 4 hours of work by the Anesthesiologist (case review, pre-surgical interview with patient, prep time, induction, maintenance, recovery, and post-op assessment). To walk into the room the anesthesiologist has had four years of medical school, four years of residency, and passing of both written and oral boards. There is also a highly technical aspects to consciously bring someone to the brink of death, maintain them in this comatose state for an hour while maintaining all their other bodily functions, and bring them back from this near death state pain-free, nausea-free, and to the satisfaction of the patient, surgeon, and family members.

Under the Medicare paradigm, this same anesthesiologist performing the same procedure on the same complexity of patient will receive $14/unit. That is not a typo: F-o-u-r-t-e-e-n!. This equates to $350, or 5.36 times less money for the same work! Put another way, a healthy 40-year patient undergoing a simple 30 minute arthroscopic cartilage repair can generate $500 in revenue for an anesthesiologist. This is exactly what he would get paid for 35 unit anesthesia case on a complex cardiac bypass surgery on a frail, elderly multi-system failure patient.

This should give you a nice hint of what happens when non-market based government price fixing occurs. An anesthesiologist can make more money doing one third party knee arthroscopy on a health 40 year triathlete than he can make doing complex bypass surgery on elderly, complicated, multi-system failure patient fraught with risk, complication, and potential for bad outcomes. These misincentives create major distorations in markets wherein the natural consequence is that anesthiologist will opt out of Medicare services, focus on private insurance patients, choose to opt out of Medicare services, or be forced to get creative in fixing the distortions by innovative payment schemes (ie, Cost Shifting – somebody always pays to get to the market price equilibrium as we shall see).

Remember, physicians are service providers running a business in order to provide for their families not running a charity foundation. So what is an enterprising, or even as an idealistic, anesthesiology group supposed to do? Work for $14/unit in a Medicare world or work for $75/unit in a private insurance world. Why would ANYONE take 5.2 X less money for an infinitely more complex assignment? All you single payer “government save me” people you really going to promote these types of distortions?

Well, the anesthesiologist aren’t mindless drones moping around while their livelihood disintegrates. So they go right back to the CEO of the hospital, armed with a mountain of data on each surgeon, payor mixes, surgery times, revenue generation, and an incredible powerful story of the value they create as an anesthesia group. They also let the CEO know that if there are not anesthesiologist there is no OR. No OR, no surgery. No surgery, the hospital is broke in 30 days. This is not by way of threat, but by way of overwhelming sense these parties need to find a way to work together in overcoming $14/unit reimbursement price fixing.

The hospital, realizing this, of course has got to respond. The evidence of the value of the anesthesia group creates for the hospital is irrefutable – their data outflanks, outmanuevers, and eventually overwhelms the CEO. His only option is to work with the group to help provide some minimum gaurantees to deliver the services beyond the fees they collect for Medicare. This is not “balanced billing” in that the group charges what is most appropriately considered an “access fee” in order to be available to provide services. This access fee not only guarantees availability, but in reality actually normalizes the price due to the exceptionally and artificially low reimbursement.

So while Medicare prices fixes at $14/unit, the cost is simply shifted somewhere else. In this case, it is the community hospital who ends up paying an “access fee” to help normalize to market rates. Of course, as you follow the money, you will see that this just gets passed back to the patient in the form of higher hospital charges. And in the end, the government’s own price fixing, is just passed right on back to the government who is shouldering a majority of the overall Medicare bill for hospital stay anyway. The byzantine games that are engendered in the market distortions don’t create value for anyone in the chain.

At the end of the day, somebody always pays. So we have to pay more to have access to a level of service that is unattainable when administered by the government. I would love to hear a rebuttal from anyone on this point.  While distortions certainly exists in our misaligned third party payer system, I dont’ believe a government controlled price fixing reimbursement system does anything to help correct the current problems. While it may be a different song, ultimately the music stops and someone is still left holding the bag. In a single payer system – that person would be YOU! (in the form of higher taxes, decreased access, decreased quality, and ongoing cost shifting)

Universal health care anyone?

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1 Comment

Filed under Insurance, Transparency, Value

One response to “Healthcare Dysincentives: Who is left holding the bag?

  1. Excellent article! I do enjoy your blog.

    The universal single payer (government plan) will cause a huge burden on the citizens of the US and those illegal residents who need health care.

    There is certainly more than a little larceny in the hearts of the universal health care proponents who want to use the system and those who want to pass it.

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