Why Incentives Matter (Even For Physicians)

The inexorable rise of healthcare costs in America is no secret. As a recent NYTimes article notes, there are several reasons underlying the increase in costs:

Overutilization is driven by many factors — “defensive” medicine by doctors trying to avoid lawsuits; patients’ demands; a pervading belief among doctors and patients that newer, more expensive technology is better.

The most important factor, however, may be the perverse financial incentives of our current system.

These incentives reward doctors who perform more procedures. As reimbursement rates fall, volume increases to make up. Even when doctors try to do the 'right thing,' reality forces them to bend to the market. As the author notes:

Not long ago, I visited a friend — a cardiologist in his late 30s — at his office on Long Island to ask him about imaging in private practices.

“When I started in practice, I wanted to do the right thing,” he told me matter-of-factly. “A young woman would come in with palpitations. I’d tell her she was fine. But then I realized that she’d just go down the street to another physician and he’d order all the tests anyway: echocardiogram, stress test, Holter monitor — stuff she didn’t really need. Then she’d go around and tell her friends what a great doctor — a thorough doctor — the other cardiologist was."

To be honest, as a future physician, I suppose I have the "incentive" to not criticize a system that will eventually pay my bills, but I think in the long run, the inefficiencies built into our healthcare system harm physicians as much as anyone else. As costs rise, people will target physicians more and more as sources of the cost. Reimbursement rates will fall further, worsening the downward spiral. As rates fall, physicians will continue to cede power to insurance companies who dictate rates. At the same time, there will be greater demand for non-physician professionals (such as PAs) who can provide similar services at lower cost. All in all, without a change in the incentive structure, physicians will continue to squeeze each other out of the market, and that's not good for anyone.

Want more? Check out how salaries vary across medical specialties, or the Democratic candidates' healthcare proposals.