Forget Who Pays Medical Bills,
It’s Who Sets the Cost
(and it's not preventing any problems, anyway!)

By DAVID LEONHARDT Published: July 25, 2009

Related
Political Memo: Partisan or Not, a Tough Course on Health Care (July 26, 2009)
Obama Defends Proposed Health Office (July 26, 2009)
Obama Moves to Reclaim the Debate on Health Care (July 23, 2009)
Times Topics: Health Care Reform

WASHINGTON — Every fight over health care reform is different, and every fight over health care reform is the same.

In 1929, Michael Shadid, a doctor in western Oklahoma, proposed an idea for making medical care affordable to farmers. Rather than pay piecemeal for treatments, farmers would each contribute $50 a year to a cooperative. Dr. Shadid and his colleagues would pay their own salaries and expenses with the aggregate sum, and no farmer’s annual bill for family medical care would exceed $50.

Horrified by the plan, other Oklahoma doctors tried to revoke Dr. Shadid’s license. The conflict was soon duplicated across the country; cooperatives sprang up, and the American Medical Association tried to beat them back. The A.M.A.’s members, as the historian Paul Starr has written, felt threatened because the cooperatives “subjected doctors’ incomes and working conditions to direct control by their clients.”

The issue was clear: Who controls the doctor-patient relationship? That question has been at the core of every big subsequent battle over health care. Should doctors determine not only their patients’ treatment but also their own pay, through the fee-for-service system that has survived since the 1920s? Or should patients have more power in the relationship? And who could claim to act on patients’ behalf, monitoring treatments and bargaining with doctors?

A succession of presidents — from Harry S. Truman to Richard M. Nixon to Bill Clinton — volunteered the government for the role of patients’ advocate, and their grand efforts all failed. Now it is President Obama’s turn to try to remake America’s medical system.

Last week’s back and forth, when Congressional Democrats squabbled and Mr. Obama took his case to the public, highlighted how difficult his task will be. Reform of health care has the potential to threaten profits and incomes that make up one-sixth of the economy. More daunting, perhaps, Americans seem to have great trust in their doctors — more, certainly, than they trust the government on medical matters.

More than three in four Americans are “very satisfied” or “somewhat satisfied” with their own care, according to the latest New York Times/CBS News poll. But a substantial majority also say that the health care system needs fundamental change and that rising costs are a serious threat to the economy — a view that economists strongly share.

Thus the political challenge facing any effort at an overhaul: Americans say they want change, but they also want to preserve their own status quo.

The disconnect can be explained partly by the peculiar economics of health care. Because third parties — the government or a private insurer — typically pay the bill, many people miss the fact that the money originally comes from them. They see the benefits of medical care without seeing the costs.

But trust in doctors is a factor as well. Even when doctors order costly treatments with serious side effects and little evidence of their being effective, as studies find is common, patients are loath to question the decision. Instead of blaming such treatments for the rising cost of medicine, many people are inclined to blame forces that health economists say are far less important, like greedy insurance companies or onerous malpractice laws.

Mr. Obama is well aware of the public perception. This is why he directs his criticism not at doctors but at insurers and drug companies. In his news conference on Wednesday night, he advocated creating a government panel with the power to begin moving Medicare away from its fee-for-service model and emphasize outcomes instead. But he described it in doctor-friendly terms — as “an independent group of doctors and medical experts who are empowered to eliminate waste and inefficiency.”

His rhetorical choices highlight one of the least discussed but most important conflicts in the current health care debate. The fight isn’t just a matter of Democrats vs. Republicans, Blue Dogs vs. liberals or patients vs. insurers. It is also doctors vs. doctors.

That’s the same as in Oklahoma in 1929. And what has happened to Dr. Shadid’s model? It has survived. He built a team of doctors who collaborated closely and were not paid based on how many procedures they performed. Today, this description fits the Mayo Clinic and the Cleveland Clinic (which Mr. Obama visited on Thursday), as well as less-known groups around the country.

Medicare data shows that these groups generally provide less expensive care and appear to deliver better results. Armed with this data, the doctors who run the groups have been lobbying Congress to make their model a bigger part of health reform. Two weeks ago, 13 such groups released a letter saying that recent versions of proposed legislation did not control costs enough.

Their goal is to weaken the fee-for-service system. In its place, doctors might receive a lump-sum payment to treat a patient with a certain condition, based on average costs elsewhere and on what scientific evidence had found to be effective. Hospitals with especially good outcomes might earn bonuses.

Advocates say such a system could ultimately give doctors more control. Rather than having to organize their schedules around the tests and procedures that insurers agree to reimburse, doctors could opt for the treatments they deem most effective. “It’s a lot more accountability, which is why it’s scary for physicians,” said Dr. Mark McClellan, a former head of Medicare under George W. Bush. “But in some ways it’s also more autonomy.”

On Tuesday, doctors and hospital executives from 10 cities with below-average cost growth gathered in Washington for a conference called, “How Do They Do That?” They were a diverse lot, only some of whom hailed from providers resembling the Mayo Clinic. While crediting a range of factors for their success, they generally agreed about what ails American medicine.

When Dr. McClellan, who helped organize the conference, asked how many people thought the fee-for-service system was “archaic and fundamentally at odds” with good practice, most hands shot up. In effect, they were siding with Dr. Shadid and against a system that provides incentives for more and more care, regardless of its benefit.

“There are no consequences right now to over-utilization,” Dr. Anthony F. Oliva, chief medical officer of the Guthrie Healthcare System, in northeast Pennsylvania, said later. “If you don’t have consequences, you won’t change the culture. If you don’t have consequences, the people that are killing themselves to control cost are going to say, ‘Why am I doing this?’”

It is a message, of course, that a doctor can deliver more easily than anyone else.