The Washington PostDemocracy Dies in Darkness

Doctors and hospitals are struggling financially in a pandemic. Here’s why.

Procedures drive the bottom line in our medical system

Medical workers outside a special coronavirus intake area at Maimonides Medical Center on May 4 in the Borough Park neighborhood of Brooklyn. (Spencer Platt/Getty Images)

As politicians and public health officials at the federal and state level dithered and bickered early in the coronavirus crisis, it left individual health-care systems to try to respond to the pandemic. Yet the reality of our public-private health-care model created a fundamental problem: Our hospitals’ financial existence depends on maintaining near-maximal capacity of patients and procedures.

Nowhere was this more obvious than in the slow decision to postpone elective medical interventions — pre-scheduled procedures that are often nonetheless serious, ranging from removing a cancerous growth to removing a pesky gallbladder causing repeat inflammation.

In mid-March, a month and a half after the first diagnosis of covid-19 in the United States, Surgeon General Jerome M. Adams urged specialists to reschedule elective procedures when possible and medically safe. Such a pause promised to free up operating rooms and post-surgical units for covid-19 patients and to direct limited resources, including personal protective equipment (PPE), to front-line providers.

Yet, initially, this suggestion provoked backlash from powerful groups that represent hospitals and medical colleges, because the revenue from such procedures is critical for their financial survival. But while outpatient clinics and surgical centers eventually closed, and for the most part, remain so, the initial delay probably exposed an unknown number of health-care providers and patients to the virus as they performed procedures that initially were not considered risky and used precious quantities of PPE now in short supply.

Now, many hospitals face a budget crisis that reveals the extent to which their business model is structured to reward high-cost surgeries over the very type of routine care that covid-19 is demanding.

Rapid transformation in medical knowledge and practice in the late 19th century, advances in bacteriology, antiseptic technique and anesthesia all set the stage for a rapid growth in surgery. This increase in surgical capabilities, new laboratory and imaging technologies and a social transformation in the role of hospitals from almshouses to scientific centers of acute care led to ever-rising numbers of surgeries being performed in growing numbers of hospitals. Medical technology and hospital design changed to create clean, appealing spaces for sterile interventions and monitored recovery.

This reliance on inpatient stays for scheduled surgeries helped create the hospital system we have today in which hospitals are meccas of medical innovation and knowledge.

This fueled a steady rise in the cost of medical care, but also disparities in payment across the medical profession. Primary-care physicians cried foul that their work was poorly compensated in comparison to that of their surgical colleagues. A desire to participate in this new financial windfall led to many unethical practices, widespread but for the most part decried by the medical establishment, such as kickbacks for referrals.

Some physicians also experimented with different models for payment, such as a monthly fee or subscription for medical services. Yet this provoked an outcry from their more mainstream colleagues, because mainstream physicians felt that such an approach would erode income, professional standing and professional independence. They saw “group practices” as an experiment in socialism and expelled these doctors from professional societies for their experimentation. In fact, the leading medical societies were so ruthless in their pursuit of dissenters that they ran afoul of legal norms, and in 1943, the Supreme Court upheld a conviction of the American Medical Association (AMA) on antitrust violations.

Instead, the medical establishment overwhelmingly preferred a fee-for-service model in which physicians were paid for the services they provided, ensuring both financial and professional independence.

The 1965 passage of Medicare and Medicaid offered an opportunity to rethink the financing of medicine. Yet the AMA ensured that this opportunity would be squandered, successfully lobbying to enshrine the fee-for-service model within Medicare, allowing doctors to charge “usual, customary and reasonable” fees for their services. Unsurprisingly, with a government agency committed to paying whatever doctors might charge, physician charges skyrocketed, while hospitals, which would now be reimbursed for their expenditures, predictably spent more money on care.

The result: rising health-care expenditures in the 1970s and new discussions about cost control that had champions on both sides of the political aisle.

The AMA, however, fought relentlessly against these efforts.

The Health Maintenance Organization (HMO) Act of 1973, sponsored by Sen. Edward M. Kennedy (D-Mass.) and signed into law by Richard Nixon, held enormous promise to reshape the medical payment structure. HMOs were organizations that provided comprehensive health services for a fixed fee — conceptually similar to the group practices of the earlier decades. Rather than paying for medical care by volume, a set annual price was designed to encourage efficiency and cost savings — at the expense of patient care and physician autonomy, critics countered. But the AMA lobbied tirelessly and relentlessly to limit its scope, producing a narrow bill, which helped guarantee the failure of HMOs, and their enduring unpopularity.

As the problem of skyrocketing medical costs persisted in the late 1970s and onward, more successful measures to rein in costs were implemented. These changes focused both on how hospitals were compensated for the care they provided and how physicians could bill for their services.

Today, hospitals are most often paid based on how much the care of a certain disease in a certain patient should ideally cost. Physicians’ labor is compensated by a complex system that takes into account time, effort and complexity and attempts to assign a discrete value to each component. This system overcompensates surgical and other procedural interventions in comparison with nonsurgical intellectual labor, even that demanded by the care of critically ill patients in hospitals. This structure enshrines more than a century of financial incentives to reward procedural volume and incentivize interventions.

At its core, the American health-care system still relies on volume for financial solvency — providing a strong incentive for physicians and hospitals to maximize the number of procedures performed. Many physicians have no alternative streams of income, and their clinical work may not translate easily to the inpatient setting. Even as hard-hit areas such as New York are struggling to find physicians to care for covid-19 patients, this is not a task that, say, an ophthalmologist would feel comfortable or proficient doing.

Hospitals are also dependent on procedure revenue. They rely on large volumes of surgery to balance budgets: Highly specialized surgeries are compensated much more generously than the routine care of patients admitted for illness, even those admitted in ICUs. The result is that even hospitals dealing with an overflow of critically ill patients today are losing money.

Across the nation, hospitals are announcing profound monetary losses and suggesting budget cuts, salary reductions and even furloughing physicians and other staff members. Even physicians on the front lines of the pandemic, including myself, are experiencing pay cuts, to make up for lost revenue brought in primarily by our surgical colleagues.

Newer models, championed by the Affordable Care Act, were designed to serve as a template for changing this system by shifting focus away from volume and placing it instead on value. Rather than doing more to patients, these measures aimed to incentivize doctors and health-care systems to do the right thing for patients — even when less is more; sometimes, the less expensive intervention or technology is, in fact, better.

But the pandemic has also revealed that a health-care system that prioritizes volume — specifically of procedures — is structurally incapable of sustainably responding and adapting to such an unprecedented challenge. As the dust settles and practices reopen and procedures are rescheduled, it is important to consider the often invisible structures of our health-care system, and how we might restructure them to create a more adaptive system less based on volume and the political battles of the 20th century.