The newly released September issue of Health Affairs contains several thoughtful analyses and proposals about how to change our approach to paying physicians and hospitals. It comes at a time when Washington policymakers begin an annual ritual of Kabuki theater, complete with its hallmark stylized drama and elaborate makeup:  the so-called Sustainable Growth Rate, a recurring threat to cut physician payment in order to restrain Medicare costs. This year the proposed cut is 27 percent. The SGR represents an ongoing approach by some in both the public and private sectors to target physician fees as a lynchpin of cost control.

Is it really a sound strategy to alienate the very people whose cooperation we most need to achieve a more affordable and equitable system?

With the growing realization that the health care system’s costs are unsustainable and represent the greatest threat to the future prosperity of the country, there is virtual unanimity that reducing costs is an absolute necessity. And much of the strategy to reduce costs — from managed care in the 1990s to the SGR in the 2000s — has resulted in considerable pressure on physician income. This pressure has fostered a variety of responses. On the one hand, many leaders of the profession have stepped up to point out ways in which patient care could be improved by decreasing the utilization of low-value and harmful care. Examples include the Choosing Wisely campaign of the American Board of Internal Medicine and the associated Five Things Physicians and Patients Should Questiona partnership with numerous specialty societies and Consumer Reports. And the Archives of Internal Medicine has sponsored an ongoing series, “Less Is More” on the same theme.

On the other hand, there is ample evidence that many everyday, in-the trenches physicians are unhappy, and increasingly burned out, despite being well-paid compared to many others in society. This grumpiness has many sources: growing complexity in biomedical knowledge and organizational relationships, growing expectations for data submission and performance reports, and others. Surely a fair amount of their dyspepsia is related to the perception that their livelihoods are under pressure from forces which they do not understand and cannot control, and that squeezing their incomes is misdirected. There is some validity to that.

Doctors direct most health care spending. They decide, “You’re going to be hospitalized; you need an MRI; you’re going to get a stent; you need a knee replacement.” But despite the fact that they direct this spending, they are not necessarily the principal beneficiaries of it.

Consider the economics of joint replacement. Medicare pays, on average in California, $18,000 for a total hip replacement ($16,336 to the hospital and $1,446 to the surgeon). A recent study asked 1,200 members of the public, “How much do you think Medicare pays an orthopedic surgeon for a total hip replacement?”  On average, patients thought that Medicare paid surgeons $11,000 for the procedure.  (Interestingly, patients reported they thought that Medicare should pay $18,000 to the surgeon).   Cutting the surgeon’s fee by 27 percent saves Medicare $390. While the numbers are higher in the commercial market, approximately the same ratio of payments exists; the bulk of the money goes to hospitals and device manufacturers.

I can only imagine that some elected lawmakers (or their staffs) have the same misunderstanding of physicians’ income as the general public. Or, as cognitive psychologist Amos Tversky famously said, “Whenever there is a simple error that most laymen fall for, there is always a slightly more sophisticated version of the same problem that experts fall for.”

How Pressuring Physician Incomes Can Backfire

Now consider that hip replacements are somewhat discretionary — the surgeon makes a judgment call about whether to recommend one.  So the notion that the way to reduce the overall cost of hip replacements is by reducing what a surgeon gets paid for it — when the doctor is, to some extent,  in control of the volume of procedures — seems very short-sighted. Does Congress really want Medicare to inadvertently encourage more $18,000 procedures to save $390?

One might argue that this problem could be tackled through firmer scientific “appropriateness criteria.” True, to some extent. But the practice of medicine, an ever-changing science with daily innovation in drugs, devices, techniques and understanding, will always have a fair amount of discretion in it; it is inconceivable to me that we will soon have such ironclad criteria for appropriateness as to eliminate the reality that doctors paid on piecework can increase the number of pieces if the price per piece is reduced.

The pressure on physicians’ incomes has other unintended consequences: they will also seek alternative ways to make up lost income.  Medical device manufacturers and pharmaceutical companies long ago recognized the benefits of enlisting physicians as “consultants.”  The companies benefit from getting doctors to use their products and the physicians are handsomely compensated for their expertise. And so a variety of distasteful (and occasionally unethical and even illegal) practices, which periodically create scandals, have resulted.

Then there is physician ownership of imaging centers; self-referrals to physician owned facilities, and on and on.

Enlisting Physicians As Allies Of Change

While it is sometimes hard to see in the hyper-partisan atmosphere of Washington, there is broad bipartisan agreement among policymakers and most health policy experts on two fundamental ideas: health care costs have to be reduced, and the current system of volume-based payments to physicians and hospitals must be replaced. So we are at the beginning of big changes in our system: do we want physicians to be supportive of those changes or opposed to them?

Doctors have understandably come to regard cost control as the enemy of their economic interests; while some in a few specialties should expect to see reductions in income from health reform, there is no reason why the vast majority of physicians cannot continue to make a very handsome living – with a better quality of life. It is not unlike another pivotal point in a nation’s journey towards a modern health care system: the adoption of the National Health Service in the United Kingdom. When later asked how he had secured the acquiescence of the British medical establishment, the British Labor leader Aneurin Bevan said: “We stuffed their mouths with gold.”

We are at a perfect time to attack this problem in a new way, because of the historical convergence of two factors: scientific advances which now allow non-physicians (and even patients themselves) to do much of the work currently provided by physicians, and a looming physician shortage.

Just at the time coverage will be expanded to millions of Americans, the doctors needed to treat them are headed for the exits.  Almost 30 percent of doctors in California are over 60 and moving toward retirement. Of physicians who graduated from medical school prior to 1974, fewer than half report working 40 hours a week, with most working less. The conventional wisdom is that we must open new medical schools, expand class sizes, and generally respond to the physician shortage by creating more physicians. My fear is that in doing so, we will create additional thousands of highly indebted unhappy professionals whose income we will then proceed to ratchet down in order to save money. How much better it would be to present physicians with the prospect of maintaining (indeed, even increasing!) their income by helping to create a more affordable value-driven system.

Of course, these innovations in payment arrangements must happen in a changed policy environment and organizational context. Group and staff model HMOs have long had an environment resembling the needed new framework, and the accountable care organization (ACO) movement seeks to extend to a broader community of physicians practice environments in which it is at least possible for them to be paid on something other than a piecework basis. But it may be many years before most doctors are in functioning ACO arrangements. So one option might be to exempt from the “collective punishment” of the SGR those physicians who wholly integrate with systems that hold down their cost increases (to all payers) to a sustainable rate like, say, the growth of the gross domestic product (GDP).

Breaking Down The Medical Guild System

Like the guilds, doctors have historically maintained their income in two ways:  restricting supply and prohibiting competition. The main way in which competition is discouraged is through the complicated state-by-state “scope of practice” laws that strangle innovation in health care, slicing and dicing services into dozens of silos whose permissible practitioners are determined more by politics than by science or efficiency. So this is a perfect time to accept a “shortage” of physicians (as defined by their current practice patterns) and recruit physicians to the central task of making health care more affordable.

It is worth remembering that part of the social contract of the guilds was that they also assured the quality of the services they provided — a place where medicine has fallen down on the job. To be sure, physicians at times advocate policies which are principally in support of their economic interests in the name of “quality,” “safety,” “the doctor-patient relationship,” and other such goals. To accept an assertion that physicians are not economic animals would clearly be a mistake. But it would also be a mistake to assume that we are only economic animals. The challenge lies in providing concrete and practical ways in which the necessary changes in health care will further physicians’ abilities to fulfill the loftiest aspirations of the profession to which they are dedicated and promote better lives for themselves.

The time is right to make a grand bargain with physicians: they can maintain their traditional role, payment methods and scope of practice, or their income, but not both. And new payment methodologies must successfully blend their interests with those of the public, because doctors are in a key position to either promote or obstruct the growth of value-based health care in a thousand ways, large and small.  As Lyndon Johnson — no mean strategist — once said in reference to a potential adversary, “It’s probably better to have him inside the tent pissing out, than outside the tent pissing in.