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Would They Recommend an Operation if You Had Different Health Insurance?

Timothy B. McCall, M.D.

Except in some HMOs, doctors typically bill for every procedure they do, but these days insurers only will pay part of the bill. Doctors may be less likely to perform a procedure when the reimbursement rates aren’t as good. Since people without insurance and the indigent may have difficulty paying their bills, doctors may attempt to cut their losses by offering them a lower cost alternative. Consider this study from the American Journal of Public Health.

A researcher at the University of California assessed the relationship between the amount of payment a doctor gets for a C-section and the rate they perform it. Doctors’ fees (exclusive of hospital charges) for C-sections are more than $2000 compared with under $1500 for vaginal deliveries but physicians may only receive partial payment, depending on who pays the bill. The following chart lists the percentage of C-sections doctors perform on patients with different sources of payment.

Source of Payment	C-section Rate
Private Insurance	29.1 percent
Medicaid	22.9 percent
Kaiser HMO	19.7 percent
Indigent Patients	15.6 percent

At the time this study was conducted, most private insurers tended to pay most or all of the doctor’s fee, whereas Medicaid, the government program for the poor, paid a lower percentage of it. These days, in some states Medicaid reimbursement is actually better than that of many managed care plans. We might therefore expect the C-section rates seen above to have changed. The principle that doctors respond to financial incentives--whatever they are--has not.

Financial incentives are less likely to play a role in your doctor’s recommendation when the proper course of action is obvious. Some people definitely need or definitely do not need a particular operation and in those instances only a few particularly unscrupulous physicians will be influenced by the profit motive. In a case where the proper course of action is less clear financial incentives may influence a doctor’s recommendation.

In an HMO the less the doctor does, the more profit the HMO makes. HMOs achieve much of their cost savings by decreasing the rate of elective surgery and other pricey interventions. Their doctors salaries and bonuses often depend on how effectively services are denied. Conscientious doctors in HMOs will still recommend needed interventions but clearly their judgment may be influenced by the reimbursement system.

HMO doctors may not have the same incentives as doctors in private practice but that doesn’t mean that they won’t recommend intervention when it’s inappropriate. These doctors were trained in our intervention-oriented medical system, a system that developed its norms of practice under fee-for-service reimbursement. Over the years, what doctors consider appropriate intervention may have been subtly influenced by the financial rewards for intervening. Keep in mind that even within tightly-controlled HMOs, individuals doctors vary in their practice styles.

Financial incentives also affect hospitals. If a hospital or clinic buys equipment, for example, they have an incentive to use it. Hospitals often invest millions of dollars to buy MRI machines, dialysis units and heart catheterization labs. To pay off their loans, hospitals encourage their staff to use the facilities.

Like superpowers acquiring warheads, competing hospitals fight a battle of one-upmanship, acquiring on-site MRI machines, bypass surgery programs and radiation therapy centers. With the pressure to recoup investments, the result is more intervention, both appropriate and inappropriate.

We have seen that for interventions like heart surgery, the more you do the better you get. When more hospitals offer a procedure, there aren’t enough patients to go around. As a result, some hospitals may be performing too few operations for the optimal safety of their patients.

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