Moving Beyond Merchant Health Care


By Brian Klepper

Published 4/05/12 on MedPage Today

Another luminary-rich panel has been formed to make recommendations about how physician and other healthcare services should be valued and paid for.

The Society for General Internal Medicine launched the National Commission on Physician Payment Reform with funding from prominent healthcare foundations. The 13 commissioners represent a mix of perspectives: a former surgeon/senator, community physicians, academics, two healthcare mega-corporations, a think tank, a state regulator, and a reform-oriented advocacy organization. A group representing large employer purchasers has one seat.

The Commission’s chairman, Steven Schroeder, MD, worries that the group will end up being just another voice. “[Many commission] report[s] wind up sitting on a shelf. We want people to say at the end of this that our findings really made sense.”

He is right to be concerned.

One question is whether any panel’s recommendations, no matter how sensible, can overcome the industry’s influential opposition to giving up fee-for-service reimbursement. Another is whether, the commissioners’ good intentions notwithstanding, its composition renders it likely to comprehensively address the problem.

After all, excess has served healthcare well. A payment structure that values only appropriate care could devastate revenues for the professionals and organizations at the table.

Fee-for-service has made healthcare a merchant enterprise. Every product and service delivers a margin, and so the industry does as many as possible. The payment system’s clear incentive is to deliver more care, and more expensive care, where the absolute profit dollars are higher.

Consider, for example, the 2011 500,000 patient follow-up analysis by William Boden, MD, and colleagues to their 2007 landmark COURAGE study. COURAGE definitively showed that expensive invasive procedures like angioplasty and stenting provide no additional benefit to patients with stable coronary artery disease beyond that provided by less costly drug treatment — referred to clinically as optimal medical therapy (OMT).

The new study found that COURAGE has been virtually ignored by American cardiologists, who continue to rely as enthusiastically on stents and angioplasties as they did before the COURAGE results.

The U.S. reception of COURAGE starkly contrasts with its reception in England, where the findings were incorporated into best-practice guidelines that were disseminated to primary care physicians.

The differences between our two health systems? Britain pays its primary care doctors more if they follow the protocols that encourage better patient care at lower cost. Here, we use financial incentives — fee-for-service reimbursement — that encourage doctors to deliver substandard care if the financial rewards are high enough.

We have become hostage to a payment method that, more often than not, puts the financial interests of doctors, hospitals, and corporations above the interests of patients and purchasers of care.

Every thinking healthcare professional knows it and everyone outside the profession is confused or enraged by it.

The best doctors are endlessly frustrated by the choices they face, but many healthcare professionals are content to simply play the game and reap the rewards.

There are alternatives. In the employer on-site clinic market, many vendors now pass through all operational costs without a markup — there is supporting documentation for the purchaser — and then charge a per employee per month fee for managing the care process. Unlike fee-for-service, this model incorporates no financial incentives to deliver unnecessary services (or to deny necessary ones). In this arrangement, the purchaser evaluates how effectively the clinic vendor reduces cost while improving individual and population health status.

The vendor’s incentives are to develop mechanisms that ensure the appropriateness of care and cost within the clinic and downstream, throughout the care continuum. It is also in the vendor’s interests to provide credible data showing how much the clinics are being used, what impact they have had on the health of the group, and whether cost patterns have changed.

In other words, the focus has moved beyond a merchant mentality to facilitating better care for the patient while protecting the purchaser’s financial interests. This payment model has been so well received that many clinic requests-for-proposal now specify it as a design requirement.

In truth, the current healthcare marketplace is loaded with low-hanging fruit that can yield tremendous quality and financial improvements — big benefits for patients and purchasers — which is why this sector is perhaps the fastest growing in healthcare and why this “care-neutral” payment approach could ultimately be appreciated as a model for the system.

Even so, getting payment models like this into policy will require that patients and purchasers have as strong a voice as healthcare vendors do now. So far, it appears that the healthcare industry doesn’t see that approach as productive.

Previous articleWhat Causes Inflammation? Comprehensive Look At The Causes and Effects of Inflammation (Part 1)
Next articleThe Anti-Aging Empire
Brian Klepper is a health care analyst, commentator and entrepreneur. He is a Founding Principal of Health Value Direct, which connects health care purchasers to high performing, high impact health care services. He formerly served as CEO of the Washington DC-based National Business Coalition on Health, which represents 5,000 employers and unions, and some 35 million people in 52 regional business health coalitions. Much of Brian’s work has been focused on the mechanisms that underlie America’s health care cost crisis and how institutionalized clinical and business practices have distorted care and cost patterns, driving unnecessary cost. His perspective favors patients, whose medical care often exposes them to needless physical risk, and purchasers, whose health care costs are double those in other developed nations, creating a cascade of negative economic impacts.


  1. In his preface to the 1909 play, “The Doctor’s Dilemma,” George Bernard Shaw let loose with his feelings about the (non-scientific) doctors of his day. Unscientific they may have been, but when it comes to economics, what he wrote then would fit almost seamlessly into Brian’s description of fee-for-service’s “merchant” culture and the problems with the RUC that he’s documented.

    Here’s Shaw, below:

    “It is not the fault of our doctors that the medical service of the community, as at present provided for, is a murderous absurdity. That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity. But that is precisely what we have done. And the more appalling the mutilation, the more the mutilator is paid. He who corrects the ingrowing toe-nail receives a few shillings: he who cuts your inside out receives hundreds of guineas, except when he does it to a poor person for practice.”