Health Care in the U.S.

Be Careful What You Pay For, and How You Pay for It.

 “If you change from fixed pay to piece rates, production will increase by forty percent.”

Curt Nicolin

 Swedish Industrialist  

  I was talking with the late Dr. Curt Nicolin about the best way of paying people to get the most for your dollar.  The health sector in the U.S. shifted its payroll focus to piece rates in October 1983. The results were predictable.  The number of procedures and tests per patient increased.  So did the number of prescriptions. Dr. Nicolin was right about the volume increase in work and billings that followed. But would providing more procedures, tests and prescriptions lead to better health?

 Sweden’s best doctors at Karolinska Sjukhuset in Stockholm were paid the same if they did one surgery per year or one thousand.

 Yet Sweden had better outcomes than the U.S. in all the conventional outcome measures: Infant mortality rate, life expectancy, and health care cost per patient per year. And everyone in Sweden was covered by health insurance.

 The late W. Edwards Deming advocated a fixed annual salary as the best way to ensure quality work, even for sales people.  Salary is the opposite of piecework; compensation is unaffected by volume.  Yet that is the way we most often choose to pay government workers of all kinds, teachers, bankers, pilots, journalists, university employees, soldiers and judges.  A case could be made that the more important we think an economic sector in society is, the more likely we are to pay salaries to those who work there.

 HMOs were supposed to contain costs by reducing overhead costs, eliminating unnecessary tests and promoting preventive care.  For that, they were to receive a fixed payment per year for each enrollee.  The health sector will have little interest in preventing disease if disease care is the only way it will get paid.  In fact, under fee-for-service, your doctor is financially better off the sicker you are.  So are the hospitals and clinics that serve your community.  And so are the insurance companies, paid for each claim they handle.  It is a system in perfect harmony: Everyone is financially better off the sicker everyone is  That includes you, since most insurance schemes do not reimburse desirable and life-prolonging expenses incurred for prevention measures, such as anti-smoking clinics, weight reduction clinics, fitness centers and vaccinations.

 HMOs are financially successful when they keep you healthy and when they withhold care.  Fee-for-service providers are rewarded financially when you get sick, and when they give more care than you need.  Americans don’t want their doctors to withhold care, and they don’t like to be to be told that they should not smoke or drink, exercise more and reduce weight; so fee for service bests capitation or salary in disease care if we judge it by these criteria.