Understanding Incentives in Healthcare
The intersection of COVID policy and patient care
I have been meaning to write this post for quite some time. Through the pandemic, I watched as many outside of the healthcare space misinterpreted the incentives of those in it. I have seen people accuse doctors of getting rich through misdiagnosis and the promotion of vaccines. Don’t get me wrong, there are those that profit off of these things. However, they are not the majority or even a significant plurality. Most of us are influenced in other ways, through adjustment of reimbursement rates, coercion, and public shaming. I’ll attempt to be brief in my explanation of how this works. One caveat first, I am an Emergency Physician and work in the hospital setting. I discuss things primarily from that lens. There may be healthcare settings that I don’t work in where incentive structures are different. I would love to hear about those, but they won’t be discussed here.
Where the Rules Come From
Many of the rules in place regarding billing and reimbursement come from the Center for Medicare and Medicaid Services (CMS). This government agency lays out the rules for hospitals and clinics that accept Medicare and Medicaid. This agency sets reimbursement rates for all manner of encounters from emergent surgery to routine doctor visits. If you want to bill Medicare or Medicaid, you have to abide by their rules. Why, you ask, would a physician want to bill these agencies? Ideally, you wouldn’t. However, Medicare and Medicaid make up 1/3 of all healthcare expenditures and most hospitals and clinics can’t afford to forego this patient population. With this in mind, let’s get into some of the debate regarding healthcare incentives as it relates to COVID.
COVID Reimbursement and Medical Decision Making
I have seen a lot of people claiming that the guaranteed Medicare reimbursements for COVID visits and intubated COVID patients were responsible for overdiagnosis and excessive intubation. While the first claim may have a grain of truth attached to it, the second is based on a misunderstanding of the state of COVID treatment early in the pandemic. When the pandemic hit, there was a huge drop in patient visits to hospitals, and many states mandated hospitals cancel “elective” surgeries. Elective surgeries are a major source of healthcare revenues for hospitals and there was legitimate concern that some may go into bankruptcy or even close. This led the Federal Government to guarantee payment for patients admitted with a diagnosis of COVID, including the uninsured.
At this point, it might be worth a brief digression into how final diagnosis codes are decided upon for a hospital visit. It starts with the notes entered into a patient’s medical record, either in the ER or from the team that takes care of a patient in the hospital. Those notes are reviewed by administrative staff in the billing and coding department who then enter in final diagnosis codes and their associated billing rates. If there is uncertainty, a physician may be asked if a specific diagnosis should be included in the final list. Adding or removing a diagnosis code can affect the total amount a hospital can get for a patient visit or admission. The final unit of account from the physician's side is called a Relative Value Unit (RVU). RVU scales attempt to adjust for the relative value, time, and effort required to perform a procedure or patient visit. For example, placing a stent in one of the arteries that supply blood to the heart is worth 9.85 RVUs while a follow-up visit or a long-term patient could be worth as little as 0.18 RVUs. In some systems, physician bonuses may be based in whole or in part on their total RVUs for the year. This may incentivize physicians to perform more procedures and definitely could add to the total healthcare costs. However, to my knowledge (and please correct me on this) the added COVID reimbursement does not change the visit RVUs. It could potentially impact a physician's pay if they make more for treatment that is reimbursed. As an aside, review of my billing vs what is actually paid shows that my hospital takes in 20-30% of what it bills for my work.
Back to COVID, health systems absolutely had an incentive to diagnose patients with COVID. Early in the pandemic testing was difficult to come by so they depended on symptoms to make a presumed diagnosis. This could have incentivized hospital billers to list ‘possible COVID-19’ in the final codes of patients with any of the myriad of symptoms listed for the disease. Did this directly affect patient care? It’s an important question and one I can’t answer for everyone. In my experience, those early days were filled with bad information and recommendations. One of the ones that likely ended up being the most harmful was to intubate early in the course of illness for those with severe disease. It’s unclear where this initially came from but we have since done a full 180-degree turn on this practice. It is that change that suggests to me that these actions were not based on payment structures but instead on bad information. The payment structures didn’t change, but with more experience the practice patterns did.
We are a long way past that early period that was full of uncertainty. We now have ubiquitous testing available. This has led to a systems-based process that may have been implemented, in part, to increase reimbursement: universal COVID testing for admitted patients. No matter the reason for admission whether there is a concern for active COVID or not, everyone gets a COVID test. Some will argue that it is to prevent the spread of COVID in the hospital and protect vulnerable populations. That is likely true to a point but is never the full story in our current healthcare system. There is a financial incentive to both do the testing and document any potential positives whether the person has evidence of active infection or not. The current healthcare system is more interested in test results than clinical judgment, so the physician isn’t asked if they think the patient has an infection. As far as the administrative system is concerned, the test tells the tale.
Influence Through Metrics
The modern healthcare system is driven by metrics. Some of these metrics objectively improve patient health (i.e., offering options for smoking cessation) while some may inadvertently cause harm (overly aggressive cancer screening can result in unnecessary procedures). Your quality as a healthcare provider is not judged on a patient-by-patient basis, it is judged in aggregate. This is particularly true for outpatient providers. Depending on what system you work for, your metrics may be judged against others and your reimbursement may also be affected. These systems do not consider if a certain physician has taken on the most challenging and unique cases. Instead, they look at final diagnosis, medications provided, immunization rates, and screenings performed. These “quality of care” metrics can even be used to change how much money is paid for a specific patient visit. It is not surprising that outpatient providers feel the pressure. They often work in clinics with narrow margins and for less pay than their hospital-based colleagues. This makes them susceptible to new metrics such as COVID vaccination rates.
That is not to say that only outpatient providers are susceptible to these pressures. Those working in the ER or inpatient settings have other metrics such as 72-hour return rates, readmission rates, and hospital length of stay. All of this can impact a person’s ability to advance to higher levels in the healthcare system or even keep their job. While most physicians would claim that such things do not affect their patient care, that would be ignoring basic human psychology. The healthcare systems know this which is why they use these metrics to their advantage to decrease costs and drive revenue.
For those not in the know, BPA stands for “Best Practice Advisory”. It is a tool in the electronic medical record to encourage a provider to perform a specific action. These are perhaps one of the most effective tools for affecting a patient’s care. When used correctly they encourage early evaluation by physical therapy for those with difficulty walking or extremity injuries. They can also drive hospital-based initiatives aimed at preventing injuries. In the COVID pandemic, they were used to drive testing and vaccination.
During a typical ER visit, a physician may encounter several BPAs linked to a myriad of actions such as ordering a specific test or the patient having a specific complaint. The more of these advisories pop up, the more likely a physician is to take the path of least resistance which often means placing an order they otherwise might not have placed. This does not absolve the physician of responsibility. They are the ones responsible for the care of each patient they evaluate. However, it does help to explain how certain actions are pushed on physicians which can change practices.
My final area of discussion should be familiar to anyone reading this. Like any other group, medicine has developed a herd mentality. This became even more clear as the pandemic struck. Any dissent regarding the severity of the pandemic, the utility of certain restrictions, or suggestions that the current treatment approach could be harming people was met with dismissal at best and derision/demonization at worst. This groupthink solidified itself early in the pandemic and continues to this day. Even suggesting that certain groups may not get a net benefit from vaccination (see children <5 and 5-11 y/o males) is grounds for banishment. Some organizations exist today with the express goal of getting licenses revoked from physicians who spread “disinformation”, whatever that means. This has a chilling effect on healthy debate.
Now, all groups are susceptible to the pressures of groupthink, but I think physicians are particularly vulnerable due to the process required to become a licensed physician. It takes twenty years of schooling for most physicians to earn an MD (12 years to get a high school diploma, 4 years of college, and 4 years of medical school). This is followed by 3+ years (as many as 9) of residency training in a specific specialty (even more if a subspecialty is pursued). Most physicians finish school with >$200k in debt. These statements are not meant to be a sob story. Physicians enter the process knowing the cost and rewards on the back end. Instead, it is to explain the incentives in play for those that consider challenging groupthink.
Let’s start with the recent graduate. This person suddenly enters the top 10% of earners but is saddled with an extraordinary amount of debt. If they challenge the wrong orthodoxy, it could ruin their ability to continue to practice medicine, let alone pay back their debt. As a person progresses and has some success in their chosen field, they may pay off that debt and start a life, maybe start a family, and maybe purchase a home. This progress to conventional adulthood is delayed in many pursuing a career in medicine (this is also true for many others who take on large amounts of student debt). This group looks at where they are and where they want to be and realizes that the primary way to get from point A to point B is to keep your head down and do your job. You may disagree with that action, but I would hope that you can at least understand why someone would make that choice. The final group is the late-career physician. Assuming they have stayed up to date on recent practice, they may have reached a position of power in their healthcare system or may simply be counting the days until retirement. Either way, neither of these groups is incentivized to make waves.
I hope those of you who got to the end of this post feel that you have a slightly better understanding of some of the incentive structures in modern healthcare. A quick recap:
Reimbursement - on the physician level the decision to guarantee a certain level of reimbursement for all COVID admissions had little to no impact on how much they made. On the hospital level, that isn’t true.
Influence through metrics - patient care metrics are used to push physicians to perform certain actions. Physicians out of compliance may not advance normally or may have their reimbursement cut.
BPA fatigue - provides barraged with pop-ups and hard stops in the electronic medical record will often select the option that makes the BPA go away for the longest time.
Groupthink - this issue is widely understood and not unique to medicine. However, the medical community had previously prided itself on being scientific and praised prior iconoclasts. With COVID, even the most milquetoast critiques are derided with some wanting any who dares challenge the orthodoxy to lose their licenses.
Debt - Physicians are typically over thirty when they finally finish all of their training. They also typically exit with >$200k in debt. The best way to ensure that you can pay down this debt and then make up for the lost earning years is to remain employed as a physician.
I don’t want any of what I have said here to be misconstrued. Every individual physician is responsible for the decision they make when taking care of patients. Full stop. Instead, I hope that this has shed some light on some of the incentive structures at play in medicine and how they can be used to influence patient care. As it relates to COVID, I think the incentive structures exist for systems more than individuals, although that could easily change.
I hope to use this forum moving forward to explain healthcare to those interested in understanding its inner workings. I welcome suggestions on future topics that you may be interested in.