From ‘Fee-for-Service’ to ‘No-Fee-No-Service’ Medicine


By: Richard Amerling, M.D.,

After graduating medical school, young doctors must complete residency training in a hospital. Traditionally, most were eager to enter private practice. Not any more: They increasingly seek jobs that keep them within a hospital or clinic system. More alarmingly, we are witnessing a mass migration of physicians in private practice moving back within the hospital walls. In 2005, doctors owned more than two thirds of medical practices. By 2012 over 60% of doctors will be salaried employees, and a third of these will be working for hospitals. A Medical Group Management Association survey of 58,000 physicians found that 55% of practices were hospital owned in 2009, up from 30% five years earlier.

Clearly the largest driver of this mass migration is money. Practice expenses are rising along with or faster than the general inflation rate, and reimbursement rates have not kept pace. Overhead costs exceed 60% of practice revenue on average. Medical malpractice premiums in some specialties have gone up 10-20% annually. Financial pressures imposed by the third party system are literally forcing doctors to give up their independent practices and move into the hospital setting.

Passage of PPACA has accelerated this trend. Doctors can see increasing regulation, reporting requirements, mandatory e-prescribing and electronic health records, coming at them. Many are making a rational decision to pass these hassles and expenses to a larger organization.

The major downside of this trend will be the loss of the fee-for-service payment model, which has long been a target of central planners. Paying physicians a fixed salary results in work avoidance and will have a devastating effect on patients’ access to care.

Medical and surgical residents receive the same meager salary whatever they do. Every additional minute of work done erodes their hourly wage. I have observed a nearly universal attitude among residents to avoid extra work (not including moonlighting, which they eagerly sign up for). The most obvious manifestation of this is the “turf,” where residents attempt to have a new admission or a difficult patient directed to someone else’s service. There’s no question doctors will revert to “turfing” if they become salaried hospital employees.

The only cure for this behavior is the fee-for-service model. FFS has been wrongly blamed for runaway health spending, when the real culprit is the third party system, unrestrained by meaningful co-pays or deductibles. FFS aligns the payment with actually working on behalf of a patient, and insures patients are treated promptly. FFS rewards physicians for doing what is often a difficult job.

For years, radiologists at my hospital were salaried and had no incentive plan. It was a constant struggle getting studies scheduled and reports were sluggish to arrive. A few years ago, a new department chief instituted a FFS plan for the physicians. Overnight, the waiting list vanished, and reports were faxed or emailed within a few hours.

With the transition from FFS to salaried status also comes the loss of autonomy. Doctors will have no choice but to follow hospital diktats regarding length of stay, choice of medicine, and adherence to clinical practice guidelines, many of which are either obsolete or inappropriate.

Total costs will certainly increase; as physicians work less hard, they will be less “productive.” More will need to be hired, and there will be a proliferation of physician extenders—nurse practitioners and physicians’ assistants, to help manage the increased numbers of patients who will be dumped into the third party system. Quality of care will decline and medical errors will increase, further adding to expense.

If current trends continue, private medical practice will be reduced to those in direct pay and concierge practices. The good news is that these models are increasing, and if left unfettered, will provide excellent, reasonably priced and timely care to millions of Americans. However, it is unlikely these practitioners will be able to handle the load. Many millions will be seen in hospital clinics, in Accountable Care Organizations (the new, unimproved HMOs), or in emergency rooms, where care will be fragmented, regimented, and more expensive.

Richard Amerling, MD is a nephrologist practicing in New York City. He is an Associate Professor of clinical medicine at Albert Einstein College of Medicine in New York, and the Director of Outpatient Dialysis at the Beth Israel Medical Center. Dr. Amerling studied medicine at the Catholic University of Louvain in Belgium, graduating cum laude in 1981. He completed a medical residency at the New York Hospital Queens and a nephrology fellowship at the Hospital of the University of Pennsylvania. He has written and lectured extensively on health care issues and is a Director of the Association of American Physicians and Surgeons. Dr. Amerling is the author of the Physicians’ Declaration of Independence.

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