15 June 2009

Should Physicians be Salaried?

Obama obliquely made the point that physician compensation should change fundamentally: "[T]he reforms we propose are to reward best practices, focus on patient care, not the current piece-work reimbursement." Ezra Klein also stated it more directly: "if we paid doctors exactly the same amount overall, but made that money a yearly salary rather than a reward for volume of treatment, doctors would lose an important incentive to provide more health-care services than we actually need." This is in many ways a logical outgrowth of the expose on physicians' perverse incentives authored by Atul Gawande. Is the wonk consensus solidifying that the health care system would benefit if doctors were paid on salary?

I hope not, and I hope this doesn't happen on a large scale. Not because I'm a doctor looking out for doctors' interests, but because it's bad policy. As any MBA or business executive will tell you, when it comes to personnel management, you get the behavior you incentivize. For most physicians, the behavior that is promoted by the fee-for-service system is patient contacts, and this mode of compensation is important in maintaining physician productivity.

Consider the emergency department, for example. If I have a patient volume of 100 patients per day, this is for basic purposes a static demand that has to be met. As it is, if I staff this ER with a group of motivated and efficient docs seeing 2.5 patients per hour, I need to provide 40 physician hours of staffing daily, or about 15,000 hours annually, equivalent to about 10 FTEs (Full-Time Equivalents). Predictably, when you drop the direct correlation between how much work you do and how much you get paid, there is a decrement in productivity. This amount may vary but might easily be 10% or more; this is often defended by physicians who claim that by going slower they are providing better care, which is actually a fair point. The consequence, however, is that I will need to hire another physician to staff my department, and, writ large, there will need to be 10% more ED physicians nationwide to keep up with demand. If those docs don't materialize, then the ERs will back up and waiting times and boarding will increase.

The same phenomenon will apply to, say, a Family Practitioner seeing patients in the office. Currently, the patients are scheduled in 10 minute blocks with little down time, just to keep the practice profitable. If the doc goes on salary and can see fewer patients for the same income, why would he not? It would be great for patients, too. Wouldn't it be nice to sit down and talk with your doctor without those time constraints? But again, the demand for these services won't go away just because the docs are working slower, and the consequence is that more PCPs will be needed to serve the same population, or that access to primary care services will erode.

Now maybe if these salaries were skewed to favor cognitive services, there'd be lots of proceduralists and specialists who no longer wanted to work so hard and do all those unnecessary procedures in McCallam, Texas that cost the system so much money. They would all retrain in primary care, or the graduating med students would gravitate to primary care. Maybe if the workforce were opened up dramatically there would be enough docs to fill the need for primary care. I haven't seen these proposals floated in any serious venue, though, and my gut feeling is that is not going to happen

Even if it did, it wouldn't save money. If you add another doc in a salaried environment, you've added another salary to your payroll. If the nation's ERs and internal medicine clinics all added 10% more physicians, the compensation for physician services would rise by a similar proportion. Now maybe - just maybe - the equation would turn out to be a net positive, as cost savings were realized through higher quality and care coordination. But it will take quite an investment to find out.

I also wonder what the unintended consequences of getting rid of piece-work compensation will be. When I call a consultant who is going to be paid the same amount whether he sees my patient or not, will he be more likely to refuse to consult? As an ER docs, this is a non-trivial possibility.

None of this is to say that the fee-for-service system is perfect, or that it doesn't create perverse incentives. I'll admit that I don't know an easy counterbalance to the incentive doctor's have to "do more." But I have seen the difference between salaried and incentivized physicians and it's night and day, with the incentivized docs being more effective, more efficient, better motivated and happier. I'd hate to lose that.


  1. Politicians are in denial. They need to realize that they are playing a zero sum game... Every dollar they 'save' in whatever plan the implement is a dollar coming out of someone's pocket. Pretending everyone can win is nothing but political smoke and mirrors. And if they are willing to lie about that, what else wont end up working as promised?

  2. Let me just play devil's advocate here, because I agree with most of what you have to say. I worked in a salaried environment for several years--in the Navy--so I have some experience with this. First, the downside is definitely productivity, though maybe not as much as you think. Most physicians are self-motivated people who work hard because that's who they are, and that's how they have been trained to work. We all know the exceptions, but those people are exceptions in the current system as well. The main benefit of a salaried system, as I see it, is that it allows doctors to act like we expect them to work, without worrying about fitting in that 5th elective gallbladder (in the case of a general surgeon). I can't tell you how many times the first words I hear from one of my surgical colleagues when I call them about an emergent appy or some such case are: "I just don't have time for that." The same concept applies over all specialties; surgeons are not unique. When I was in the Navy, there was a much greater sense of collegiality and professional collaboration, unencumbered by the financial concerns that we see every day. Decisions about care were generally made for the "right" reasons, and it was no big thing to buttonhole a consultant in the hallway, because they weren't losing money without an official consult. In that way, at least, care was more streamlined and efficient. I have no idea how much of that was due to the kind of people who join the Navy, the shared Navy experience, or the lack of profit motive. Don't get me wrong. If I'm seeing more patients than my deadwood partner sitting in the next chair in the ED, then I want that to be reflected in my paycheck. There are benefits to medicine practiced unencumbered by a direct financial incentive that we all have to acknowledge, though, and we have to decide whether those benefits outweigh the costs. Do you really see your practice patterns and productivity changing if you were all of a sudden on salary? Personally, I don't. I'm just wired that way, kind of like a one speed bike, and I'd love it if it transformed some of my consultants into doctors rather than businessmen.

  3. I was in the Navy. It was nice. I worked a third as hard as I do now. We all gamed the system. Went to the gym at lunch. I had paid vacations and sick days and all that but it was complete mind rot. It was fine for the Active Duty, they are not sick any way. The retirees who thought they had free care for life waited months and months for appointments.

    If Obama wants to take my liability like the the Govment did when I was in the Navy I might be willing to make a deal, otherwise there is no deal. Who would want to see the tough cases, take more risk, if there is no reward??

    I think your assumption of 10% decrease in productivity is way off. I bet it is closer to 50%. How productive do you think just about any specialist is in private practice vs. one employed at the VA? I think there would be an instant need of 50% more doctors were physicians to be nationalized.

  4. I think the only place where a doctor salary would work is in the ghetto at the county hospital or a subsidized non-profit charity clinic with bad payer mixes.

    Everyone else should be paid based on work-load to some degree. There's no reason why our doctors should be paid hourly (which is as close as you can get to a salary for an ER doc) while sitting on their butts ordering MRI after MRI on knee pain, chronic back pain and 20-year-olds with paresthesias just so they don't have to take a new patient.

    Certainly, some of our doctors have the ER Personality and will turn and burn no matter what, but, there are definitely some working there who would barely clear a nurses' salary if they were paid based on how much they do.

  5. Also, if I am to become salaried or an agent of some universal public plan then I am going to expect what all other typical salaried government workers get:

    1. retirement
    2. vacation
    3. sick days
    4. CME
    5. employer portion of self employment tax.
    6. maternity/paternity leave
    7. my own healthcare

    None of these are a benefit that I enjoy as a self employed physician.

  6. Our ED just went from hourly- to production-based pay for the moonlighters, who are all in various residency programs. Overall moonlighter production (as measured in patients per hour) more than doubled.

  7. There are plenty of us out there in careers heavy on the cognitive skills who need to find our own ways of staying motivated and staying productive despite a salaried pay structure and in some cases without any real meaningful metrics available. Sometimes we even work the kind of hours doctors complain about and carry pagers without compensation (shocking, I know).

    Of course, there's a big difference between people who've been salaried since graduation day and doctors who've adapted to the existing pay structure. I have a hard time envisioning a way in which this transition could be made without a bad outcome.

    I do feel that a salary, retainer fee, or some functionally similar scheme is a natural fit for primary care, assuming that we emerge from the next decade with primary care physicians practicing in this country. At least my feeling is that that is a specialty that needs incentives aligned such that more time can be spent on a patient as needed.

  8. The Gawande article has been the most misunderstood, misinterpreted health care policy piece in years. It isn't coherent. I rambled on about the specifics somewhere on my blog.

    When GI gets consulted on a BS abdominal pain case, the inpatient EGD they invariably do is certainly wasteful proceduralism. But what else do they do? They order CT enterography and get HIDA scans and get small bowel follow throughs: none of which benefit him financially.

    The problem isn't financial motivation; it's lack of thinking. Fear of imagined lawsuits may play a role. But ultimately, physicians aren't thinking about what they do and order. We're completely disconnected from the cost aspects of health care delivery.

    We can do better, certainly. But putting everyone on salary like middle management at Intel is not the solution.

  9. I agree with bluedevildoc.

    Call me idealistic, but I would hope that physicians practice with integrity and compassion. How patronizing that we are incentivized and treated like mindless robots to only produce more money and ultimately focus on the bottom line.

    I have practiced as an outpatient primary care internist under different compensation models, and I would emphatically say that the production model only leads to burn-out, resentment, and eventually -- it forces one to focus more on the bottom line and the dreaded weekly productivity report rather than patient-centric care. It really wears on my morale that I should see more, produce more, and order tests in order to make our clinic's health grades look better for insurance compensation. My strong work ethic allowed me to become incredibly productive, but that came at the expense of giving up vacation time and staying longer hours at work. I have lost track of how many PCP's have left our clinic, but I will say it's in the double digits, and it's a constantly revolving door in our large practice.

    Don't get me wrong, I still tried to keep the patient at the center even when I was working under a production model -- but the productivity monster didn't care that I spent an hour helping a patient who was incredibly ill and scared and needed a caring physician to provide thorough and conscientious care. Rather, the sloppy careless doctor in my office who spent 10 minutes with a patient and misdiagnosed them was the one who got paid a higher salary b/c they were more "productive".

    As a result, I have switched to a compensation model that pays me on an hourly salaried basis. Do you know what? I don't feel the psychological stress, burden and burn-out any longer, and I am able to practice medicine with more compassion and with a PATIENT-CENTERED focus. Since I can practice knowing that I don't have to worry all day long about money, it actually has made me MORE productive b/c I am happier, more balanced, feel appreciated, and can spend more of my emotions and brain space on really focusing on the patient rather than feeling pressured to keep my productivity report card looking good. Furthermore, since I know I am being paid fairly, it actually makes me want to work even harder for my new employer who compensates me well on my hourly salary. I make more on a salary, and I produce more too now b/c I am happier.

    The incentivized production model is counter-productive. It leads to physician burn-out in primary care, and it absolutely leads to patient dissatisfaction b/c they have physicians who are forced to rush and appear less compassionate. Unfortunately, there are those select few physicians who lack integrity, character and a strong work-ethic. As a result, we are forced to play under an incentivized production model that mimicks a factory assembly line. Furthermore, I find it frustrating that it's the specialists on your comment board who are so opposed to a salary model b/c they are the ones who ultimately benefit from procedural incentivized production model that can cloud one's judgement and even lead to abuse of the system, such as in Texas (which Obama was referring to). Why don't we all take a step back and try to remember who is at the center of patient care. The PATIENT...

  10. So, subspecialty surgeons and proceduralists who spend 5-9 years of post-professional school training to develop their expertise should donate their income to the primary care guys who spend 3 or 4 years in residency?

  11. Alec,

    No. Under my proposed reform, it wouldn't be "their" income to donate. The system now rewards procuralists very well. A more functional system perhaps would rewards them less well and reward PCPs better.