Possible Insight

Fixing Health Care II: Doctor’s Visits

with 27 comments

Now that we’ve solved the problem of the uninsured, it’s time to move on to the problem of doctor’s visits. Spending on physician and clinical services was $479B in 2007, 22% of total health care spending. Only hospital spending accounts for a larger share at 32% (I’ll be addressing this category in a subsequent post).

First, let me say that I have no problem with increased spending per se.  We’ve increased spending on entertainment as well as health care and almost nobody has a problem with that. They’re both signs of increased prosperity.  However, our current system encourages an economically inefficient level of spending. That’s the problem we need to fix.

If we want to get close to the efficient level of spending on doctor’s visits, here’s what we need to do:

  1. Eliminate insurance payment of primary care. The risk pooling benefits of insurance only work for rare events or unknown losses. When you use insurance to pay for common events of known magnitude, you are playing the Diner’s Dilemma and most people overconsume. Moreover, you get additional social losses from administrative overhead and reduced incentive to compete on quality. So we should tax any insurance plan that covers primary care (excepting organizations like Kaiser that are paying for essentially all of your care).
  2. Establish personal Health Savings Accounts (HSAs). To reduce the sticker shock of (1), we should give people the ability to pay into personal HSAs roughly the same way they pay into personal IRAs. They will still respond to pricing incentives in the outpatient services market, but the use of pre tax dollars will soften the blow and encourage saving.
  3. Require pricing disclosure. Partly due to strategic behavior in negotiating reimbursement from insurance companies and partly due to wanting to extract the maximum surplus from patients, doctors and labs are reluctant to disclose their prices.  Unfortunately, this behavior makes it difficult for patients to respond to pricing signals and decreases service innovation by obscuring differentiation. Therefore, we should require doctors and labs to publicly disclose their general price lists and give patients specific estimates before rendering services.
  4. Eliminate barriers to “Wal-Mart Medicine”. Doctor’s probably like (1). The are probably mixed on (3).  They probably won’t like this. One of the reasons that trips to the doctor’s office are so expensive is that they just aren’t very efficient operations. Normally, competition would squeeze out inefficiency but doctors are effectively insulated from competition through a variety of subtle and not-so-subtle regulations.  Among the biggest are local restrictions on “retailer clinics” through companies like Wal-Mart and state restrictions on the use of Nurse Practitioners (NPs) and Physician Assistants (PAs). Retailer clinics cost substantially less and provide equivalent care (at least for some basic needs) according to a recent study. Then if you look at salary data from PayScale, NPs and PAs cost about 40% less than family practice doctors. Here, I depart from my usual libertarian bent and advocate using the withholding of federal funds to blackmail encourage local and state authorities to comply.
  5. Fund startups in health advisory and tracking. The first four measures will create a much more open and transparent market for outpatient services. As in other such markets, there are probably a lot of advisory and tracking services that could improve decision making and efficiency. Imagine a self-help applications that advises when a trip to a Wal-Mart clinic is sufficient versus when it’s worth the money to go to a more boutique operation. Or a sophisticated rating and cost comparison services by zip code.

With these measures in place, we would most likely get a richer market that spans Wal-Mart clinics staffed primarily by NPs and PAs that cost $35-50 per visit to high end boutiques where a 30 minute consultation with a star doctor costs $300-$500. Each person would spend much closer to the economically efficient level given their personal circumstances and preferences.


Written by Kevin

September 21, 2009 at 2:00 pm

27 Responses

Subscribe to comments with RSS.

  1. then,
    1. people won’t get primary care
    2. i had an HSA, spent all of it, now back to HMO. doesn’t work without price controls
    3. all for price disclosure
    4. wal-mart medicine leads to duplication of efforts since it’s not coordinated by a medical home
    5. all for med self-help startups


    enoch choi, md

    September 21, 2009 at 2:20 pm

    • Thanks for the comments, but I don’t think they’re backed up by evidence.

      (1) The RAND study says otherwise. If you have a real study that shows people don’t get _adequate_ primary care when insurance doesn’t pay, I’d love to see it. More intuitively, people change the oil and coolant in their cars even though that’s not covered by insurance. And I imagine people want their body to break down a lot less then their cars.

      (2) Price controls simply cause rationing. This is a basic result of economic history. People _routinely_ deal with economic uncertainty about costs in every other arena of their lives. Unless there’s real evidence that they can’t in the primary care arena, the presumption should be that they can. Recall that I took care of the poor (under $50K a year) in a previous post.

      (4) So what? That’s my choice as a consumer. I’m not saying people _can’t_ pay for a higher level of service. I’m saying the provider of said services shouldn’t be able to _force_ them to.


      September 21, 2009 at 3:23 pm

  2. Did you read “How American Health Care Killed My Father” by David Goldhill (September 2009, Atlantic Monthly)?
    As major consumers of primary care medicine I find the clinic issue interesting. I was embarrassed a few years ago when I found myself at the ER on a holiday weekend for a simple ear infection. Because it was covered by my insurance it was less out of pocket than a trip to an urgent care. I would have happily gone to a “Wall-Mart.” Our family is lucky to have long term (10 yr) relationships with our pediatrician and internist. I can’t help, but wonder about how continuity of care would be impacted if primary medicine moved to the scenario you propose.

    Kim Baxter

    September 21, 2009 at 3:33 pm

    • Hey Kim. I skimmed that article. The underlying issue seemed to be a failure of current providers to face vicious competition in cost and quality. I figure a robust market will lead to better solutions just like it does everywhere else. Could you imagine if Apple ran hospitals?

      As for continuity of care, all I propose is giving people choices. If they value continuity of care, they can use a mid-range or luxury provider that focuses on it. If they value bargain basement prices, they can use Wal-Mart. No different from anything else, really. I’d love to see dueling billboards on 101 where Palo Alto Medical Foundation advertises continuity of care and Wal-Mart advertises low prices.


      September 21, 2009 at 5:17 pm

      • This is actually a great article and ends up proposing essentially the same thing as you, Kevin. My favored “Wal Mart” option is actually a very high-tech and patient-centered one called HelloHealth. I first heard about it in an inspiring talk here.

        Last I checked they weren’t ready to take customers, but now they seem to be, so I’m signing up for my free basic account and will likely avail myself of their services (very reasonable fees). What I love most about the approach is that it is designed with my total health in mind and allows primary care and specialists to collaborate to make and keep me healthy. Oh, and they’ll be taking PayPal soon.

        Rafe Furst

        September 23, 2009 at 6:28 am

      • Love it! Here’s hoping they have a doctor within a couple miles of my house. I’m going to encourage mine (who takes no insurance BTW, strictly cash-and-carry) to sign up.


        September 23, 2009 at 9:12 am

  3. duplication of efforts?? Walmart analogy is more like Fedex vs USPS. general practitioners get way too many visits for pointless issues currently. It’s not a duplication, but a reworking of incentives. More people will care about their general health levels and won’t go to work/hospital sick thereby preventing further disease spread. there’s some evidence that the 1917 influenze turned killer when sick soldiers were “allowed” to travel back home, thereby infecting healthy civilians on trains. So both #1 and #4 are good ideas.

    #5 is key. we need to gather clean data, remove the personal identifiers and arb away. It sounds like a dangerous thing to do, but statistical patterns will help PREVENT disease much more so than create coverage less “victims”. what do you think? i mean i know with the current incentive structure insurance companies would want to arb those people out, but the premise is that everyone gets the same coverage period, right?

    Alex Golubev

    September 21, 2009 at 3:51 pm

  4. I like your plan, Kevin. My concern (and perhaps you will address this in the next post), is that there’s not enough incentive for pro-health measures (aka prevention, but I don’t like that word anymore, it’s so negative 🙂 In particular, I agree with more Wal*Mart options priced accordingly, people will take advantage, but only after they are having symptoms. There needs to be a reason for people to see primary care workers (be they NPs, PAs or MDs) on a regular basis. You don’t wait til your car is spewing black smoke before changing the oil…

    Rafe Furst

    September 22, 2009 at 8:15 am

    • I agree, you don’t wait. And given the incredibly tiny number of black-smoke spewing cars I’ve ever seen, almost everyone else realizes this perfectly well… without special routine maintenance incentives.

      Except for people on my government-backed “uninsured” plan, I’m not going to worry about people’s choices (I think Todd is right that people on the government plan need to do something to qualify for their HSA allowance).

      I expect most major medical insurance policies to offer discounts for people that make healthy choices. I expect most people who have to pay the full cost of doctor’s visits to realize they can avoid some of these visits by eating right and exercising. I expect startups who are not competing with subsidized primary care to offer services that help people make healthy choices.


      September 22, 2009 at 10:04 am

    • So you guys are saying we’re not gonna have a “cash for clunkers” in health care. 🙂 I think the toughest nut to crack are the dying cars where you have to make a decision to spend $3k on a transmission in a $4k blue book car. But I bet there’s a separate post coming up on that one – Blue Book Panel: Getting Americans Comfortable with Death.

      Alex Golubev

      September 24, 2009 at 1:17 pm

  5. Hi guys, hmmm- this plan looks good on paper–but it is my humbe and routine observation is that even well insured, highly intelligent people DO wait… I did not get any sleep the last 4 days because was taking care of INSURED, employed patients with acute care issues that only presented to the ER becausue the illness ( mainly pain ) started to interfere with their livestyles.

    The car analogy is hilarious because for the most part seems people in LA spend far more time thinking about and maintaining their cars and not enough time coming to primary care visis. And primary care visits make the acute care admissions much less costly– For example, if you know someone’s baseline status it really cuts down on the number of pre-operative tests that need to be ordered prior to major abdomenal surgery for example. And we routinely find advanced cancers in INSURED patients because they were too busy to get screened.


    September 22, 2009 at 10:48 am

    • So people make decisions and pay the consequences with no excuse about being poor or uneducated. What’s wrong with that?

      Consider a different arena of life-and-death decision making. I routinely see well-off, intelligent people commute from cities to jobs in the suburbs in small fuel-efficient cars. The cities have more violent crime, driving farther increases the chances of getting in a crash, and being in a smaller car increases the chances of more serious injury in the crash. (Note that violent crime and car accidents are large sources of mortality in the US).

      People make tradeoffs of life-and-death vs lifestyle and costs all the time. Just because you observe the cases where people experience bad outcomes, doesn’t mean the tradeoff is bad a priori.


      September 22, 2009 at 11:17 am

  6. People need to get off of the mindset of looking at health care/insurance as getting something for nothing. I totally agree with your analysis here kevin. If we can wal-martcratize primary care by forcing people to take ownership of their primary care and get pricing disclosures for lab tests and procedures I do agree that you’ll get more pricing efficiencies.


    September 22, 2009 at 11:36 am

  7. The tradeoff is bad because people still expect that we can immediately fix their health issue…..and if bad outcomes occur–we are blamed, and not the individaul who chose to wait til the last minute. Not to mention that the costs of treating early disease versus late disase are much more and often not reimbursed by insurance companies even if life saving treatment has already been given. We are currently facing a surgeon shortage as no one wants to do acute care surgery anymore because of suchissues and an increasingly elderly and obese population. http://www.facs.org/news/iomreport.html


    September 22, 2009 at 11:43 am

    • Doctors are not special in this regard. Anyone who deals with people experiencing bad outcomes has the same complaints: car mechanics, lawyers, tech support, dry cleaners, etc. “If only the customer had done this instead.” “We can’t fix this immediately.” “Customers aren’t willing to pay enough.” Welcome to the service business.

      Just like everyone else, doctors need to figure out how to deal with their business problems. You shouldn’t be able to legislate other people’s behavior to make your job easier or more enjoyable. Now, you should be able to offer discounts and pricing that rewards customers who make your lives easier or more enjoyable. There shouldn’t be any barriers up to you doing that.


      September 22, 2009 at 12:00 pm

  8. Mostly agree with your post. I love the idea of HSAs, but I do worry that it will lead people to avoid primary care. No evidence to back that up, just a gut feeling that some people will avoid the doctor until something hurts. With conditions like diabetes and high blood pressure, etc., this is a problem.

    I do think there’s overprovision of care, but I’m not sure the blame lies wholly with the consumer. A couple of recent anecdotes from personal experience:

    1. Broke my finger playing basketball. My wife correctly diagnosed it by looking at it as an avulsion fracture at the tendon origin. Primary care NP misdiagnosed as a sprain, but agreed it should be splinted. Didn’t have splints, so referred me to an ortho. Ortho did x-rays, agreed it was a fracture, and splinted it. However over the next 6 weeks, I had 4 more sets of x-rays (and office visits) to check it. This seems excessive to me, but I (even being a pretty smart guy with a medical professional as a spouse) don’t have enough knowledge to contradict that level of care.

    2. Started having pain in my foot when running. Wife and I suspected it was a Morton’s neuroma (benign, but painful nerve growth). Went to a podiatrist who had provided me with orthotics for plantar fasciitis a year+ earlier. He used a fancy new (expensive) x-ray machine that provided a “live” view of the foot. Ordered new orthotics (even though he said that ones I had should have prevented the problem), suggested a cortisone injection (which could be more accurately guided using his fancy x-ray machine for additional cost) which I declined, and suggested I stretch my achilles. After a week of dutiful stretching, my problem was resolved, and I have another pair of practically identical orthotics that I’m pretty positive I don’t need.

    So, given the right incentives, how would my decisions have changed? In the first case, not at all, because I didn’t feel like I had any basis to question the care of the ortho. I the second case, I did decline the cortisone injection. In retrospect, I should have declined the orthotics too, but I wanted the problem to go away and believed they might help. They were also coming out of pocket because of my relatively high deductible, so I did have as much financial incentive as possible to decline them.

    Seems like we need to create incentives for medical practitioners not to overprovide care they greatly profit from.

    I found this article pretty interesting in pointing to the same problem in town in Texas: http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=1

    Todd White

    September 22, 2009 at 3:47 pm

    • Todd, let’s tax poor nutrition (since it’s too hard to monitor) and rely on a truly competitive marketplace to offer rebates/incentives for people to maintain a healthy weight/BMI (and/or other key numbers).

      Rafe Furst

      September 23, 2009 at 6:30 am

      • I think I’d go along with all that.

        Beyond that, though, I am concerned about the current system creating incentives for certain segments of the medical community to overprovide services. Certainly defensive medicine is a big issue, but I also think the McAllen, Texas case as well as my anecdotes suggest that there is an incentive for providers to invest in technology and recommend treatments that may not have a great cost/benefit ratio for the end-user (patient), and most patients do not have the necessary knowledge to accurately assess the cost/benefit ratio themselves, which kind of throws the whole competition based on informed decision-makers thing out the window. Now, Kevin (putting words into your mouth here) may argue that we have the same disparity of expertise in other common situations like car repair and seem to manage to get along (find a mechanic you trust and use him/her exclusively), but excessive car repair costs aren’t being singled out as a point of economic crisis.

        Todd White

        September 23, 2009 at 8:52 am

      • What you said I’d say 🙂

        A couple of additions. There are two cases, (1) a non-captive situation and (2) a captive situation. I don’t think we need to do anything in (1), where the consumer has the time to explore options. Here, I foresee the market trying a bunch of different approaches. Undercover reporters seeing if doctors overtreat, online software that allows you to upload the doctor’s diagnosis/treatment to evaluate the likelihood of overtreatment, and doctors forming evidence-based medicine logo affiliations so if you see the EBM label you know there’s a lower chance of overtreatment. Remember, the consumer is bearing the cost so has incentive to try to save money.

        Then there’s (2) where the consumer has no time or ability to seek out options. Here, I would advocate some form of incentives or oversight. But this is mostly for hospital based care which I’m planning to treat separately. OF coruse, if anyone has any ideas, I’d love to shamelessly steal them 🙂


        September 23, 2009 at 9:07 am

      • I think, especially after reading the article Rafe recently posted on FB, I’m coming around. I’ve been skeptical that consumers can bring a pressure on the industry that insurers w/ their profit motive haven’t been able to exert. But the moral hazard issue is really dominant. Consumers go to a provider desiring an outcome (“cure”) and have minimal skin in the game in terms of optimizing the services that are provided to reach that outcome. Providers are paid by the insurance companies, which limit the payments for individual services, but don’t necessary limit the number or choice of those services. Thus the provider has an incentive to provide a large number of services, especially the most profitable ones. The consumer won’t complain because he/she is getting a lot of care, and the sheer volume is more likely to lead to the “cure” than a more conservative approach. Thus I get a fancy x-ray, a recommendation for a cortisone injection, new orthotics, and a suggestion to stretch instead of “stretch your achilles and call me in a week if it doesn’t work”. I got the same outcome for minimal cost (assuming I had met my deductible) in either case, but the services I actually got cost the system a whole lot more.

        While I’m not sure that a handful of people with HSAs will make any difference (like I said before I hadn’t met my deductible, so I had every financial incentive to limit my care further and didn’t), I do suspect that a change in mindset system-wide would indeed make a difference.

        Todd White

        September 23, 2009 at 11:20 am

  9. One suggestion that I’d make. I would allow individuals and families to take unused monies put into PSA’s and allow them to transfer those funds into 401K’s or IRA with no tax penalties. I’d allow this transfer any time between January 1st and April 15th. Currently most PSA plans are calendar year “use it or lose it” and many people use this unused money on items that they don’t really need just to avoid losing it. This wrinkle would allow better efficiencies and encourage retirement savings at the same time.


    September 29, 2009 at 5:21 pm

    • As I mentioned in the OP, I think that rules for HSAs should be roughly the same as for IRAs. I agree that being able to transfer money between them (both ways as a matter of fact) is also very desirable.

      Kevin Dick

      September 30, 2009 at 2:48 pm

  10. […] addressed the uninsured and doctor’s visits, the next health care problem on my list is hospital spending. It represents the largest share […]

  11. Will it make the color of the stretch mark go away?

    Smoke Assassin

    March 11, 2010 at 2:24 pm

  12. […] you may recall, I previously posted about my recommendations for fixing health care (Part I, Part II, Part III). Recently, I had to navigate the current system and thought I’d share my […]

  13. […] addressed the uninsured and doctor’s visits, the next health care problem on my list is hospital spending. It represents the largest share […]

  14. […] happy ending.  I eventually obtained an excellent individual plan from Assurant Health. I followed my own advice and got a high deductible plan that covers no primary care. I thought it would be worth comparing […]

Leave a Reply to kevindick Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: