Preparing to Stick It to Doctors

Listening to the federal conversation about healthcare "reform" as it takes shape, one notices that some of the problem, specifically with the shortage of primary care doctors, appears to have been the government's handling of its own piece of the industry:

The disparity results from Medicare-driven compensation that pays more to doctors who do procedures than to those who diagnose illness and dispense prescriptions. In 2005, for example, Medicare paid $89.64 for a half-hour visit to a primary-care doctor in Chicago, according to a Government Accountability Office report. It paid $422.90 to a gastroenterologist who spent about the same amount of time performing a colonoscopy in a private office. The colonoscopy, specialists point out, requires more equipment, specialized skills and higher malpractice premiums.

Given the proclaimed movement of most doctors toward specialties, one would expect the law of supply and demand to make up some of that 472% difference all on its own. Instead, the government looks intent on fighting that economic law:

In the various legislative proposals under debate, Congress and the administration have moved toward providing incentives for doctors entering residency programs to pursue careers in primary care. Most residency slots are funded through Medicare, giving the government a stick to wield over residency administrators, and changes in Medicare reimbursement alluded to by Obama on Monday could be the carrot that makes primary care more attractive.

The promise is to increase both the supply and the pay of primary care doctors. We don't have to perform extensive analysis to suspect that there might be market repercussions to that sort of distortion. (That assumes, of course, that the government doesn't try to cover all of the increased remuneration with new money for the industry.)

Here's the general shape of what I would suggest: Decouple health insurance from employment, remove coverage mandates, reform tort law, and require catastrophic coverage. Some consumers will use the increased money from their employers to finance similar plans to what they currently have, while others will go for the minimum coverage. Competing for those dollars, insurance companies will design plans to attract individuals, with healthier individuals being especially desirable; one aspect may be a certain number of routine visits (i.e., primary care) for free, or for low cost. The focus will shift from insurers' catering to payers to their having to address the desires of consumers and accommodate the doctors whom consumers wish to see.

At the same time, since insurance will become insurance again (rather than something more resembling a healthcare financial management service, as it is now), some portion of consumers will need or want to pay directly for routine visits. Doctors will have more responsibility, therefore, for setting their own fees, and they'll develop a base of clients whom neither insurers nor government payers can use as a stick to dictate payments or behavior.

More people will leverage primary care service, driving up the demand and, therefore, the doctor's fee. Increased demand, pay, and regularity will give primary care doctors more control over their practices and their lifestyles and will attract more practitioners.

Meanwhile, demand for the services of specialists will go down because people will catch more during primary care visits. They'll also have a more direct sense of how their health affects the cost of their healthcare. They'll also be less inclined to turn to specialists at every possibility.