The Basic Healthcare Transaction

My life changed dramatically 18 months ago when I started my new practice.  The biggest change personally was a dramatic drop in my income as I built a new business using a model that is fairly new.  That\’s a tough thing to do with four kids, three of whom were in college last fall.  OK, that\’s a stupid thing to do, but my stupidity has already been well-established.

Yet even if the income stayed identical to what I earned before the switch, the change in my professional life would have been nearly as dramatic.

  • I am no longer focused only on patients in my office.
  • I am no longer focused on ICD and CPT codes.
  • Saving patients money has become one of my top priorities.
  • I feel like my patients trust me more, and see me as an ally.
  • Patients accept my recommendations for less care (avoiding unnecessary testing and unnecessary medications) much easier.
  • I focus far more on preventing problems or keeping them small.
  • I laugh with my patients far more.

What is most interesting to me about all of this is what is at the center of all of these changes: I changed the way I am paid for my work.  Instead of being paid largely by third-party payors, I am paid by my patients, and instead of being paid more for sickness and procedures, I am rewarded for having healthy and well-informed patients.  (For those who don\’t know, patients pay me between $30 and $60 per month for my services, and there is no copay for office visits).  

Since all of these positive changes stem from the incentives created by this different payment system, I\’ve seen even clearer the reasons for all of the problems in our health care system: it\’s all about the payment system, or the basic transaction of healthcare.  From this transaction flow all of the bad things about our system, the waste, the impersonal nature of care, the physician burn-out, the spending without consideration of cost, and the blatant profiteering by companies associated with healthcare.  Changing our system for the better, therefore, can\’t happen without a basic change in the financial transaction at its center.

A business transaction involves two main participants: the buyer and the seller.  The buyer gets a product or service they want from the seller in exchange for money.  


What about the transaction of healthcare? Who are the participants in this transaction, and what is the product sold?

  • The Seller:  It\’s pretty clear that healthcare providers, doctors, hospitals, and ancillary care facilities, are the seller in this transaction.
  • The Buyer:  It would seem that the patient, the one getting the \”care\” is the buyer here, but this ignores an important fact: providers get almost all of their money from third-party payors (insurance companies and government organizations).  I think it\’s pretty clear that doctors and hospitals are selling their \”product\” to these third-parties, not to the patients.
  • The Product:  Again, it would seem that the care given by the provider is the thing buyers are paying for, but this clearly isn\’t the case.  Reimbursement for health services is based on two main things: codes (CPT and ICD), and the documentation required to support these codes.

So, the basic transaction of healthcare is this:

The healthcare provider is paid by third parties for codes and documentation.

The codes, which are the most valuable commodity for a provider, are two types: problem codes (ICD) and procedure codes (CPT, E/M).  The payment is actually only given for procedures, not problems, but the problem codes are the immediate justification of those procedures, and failure to justify will reduce or eliminate payment.  So, the provider is motivated to find the best paying procedures and find problems to justify their submission.  

Using this, the transaction of healthcare becomes this:

The provider is rewarded for finding the best-paying procedure code to match the most severe problem codes.

Documentation is done after the fact as a bookkeeping tool to prove the validity of the problem and procedure codes.

Where is the patient in all of this?  Patients are the raw materials used for the product.  They are a source of problem and procedure codes.   What about the actual patient care?  It is a byproduct of this transaction.  Care is presumed to be encompassed in the procedure codes (a presumptuous presumption, as many would attest).

Let that sink in: patients are raw materials, and patient care is a byproduct.  That\’s pretty damning.  It\’s also fact, not opinion.  It flows from the basic transaction of healthcare.

So let\’s translate this to an office visit:

  • The patient is nearly always required to come to the office for all \”care\” because this is the only place where payable \”procedures\” are done.  For a PCP, the main \”procedure\” is the office visit itself.
  • The patient history is done to find problems to which procedures can be applied.
  • The bigger the problems, the better the reimbursement for procedures for the doctor.
  • The main task of the office visit is to find problem and procedure codes, and to document those codes.
  • \”Customer service\” in healthcare is not something that applies to patients, since patients are raw materials, not customers.  Doctors are motivated to treat patients only well enough that they will continue to come and supply codes (much as a farmer would treat his/her cow who produces milk).  
  • True \”customer service\” from doctors applies to how quickly and accurately they produce codes for the customer: the payor.

Pretty brutal, isn\’t it?  This gets worse when you consider some of the corollaries that come from these facts:

  • Solving patient problems is bad for business.
  • Priority is given to patients with the best-paying payors.  Conversely, lowest priority is given to those with the worst payors (i.e. Medicare and Medicaid).
  • The best paid physicians are those who are the most skilled at finding the most well-paying codes for the least amount of effort.

When explaining my practice to people, I often take a slightly different take on the transaction:

You are employed by whoever pays you.

The reality of my former practice, and those of most of my colleagues, is that they are employed by the third-party payors, and so will spend most of their time doing the job required by their employer.  In my new practice, on the other hand, I am employed by my patients because I am paid by them.  They are no longer a cow from which I can milk codes. They are no longer a well from which I can draw procedures. They are the one I am hell-bent on keeping happy so that they\’ll continue to pay for the care I give.

Finally, the care I give is no longer a byproduct of codes; it is the product for which I am paid.  My kind of practice is the ultimate accountable care organization because we are accountable to our patients for the quality and value of what we do for them.  If they don\’t like the product we sell, they leave.  The end result is more time devoted to assuring the quality of care our patients see.  

More time for patients?  That\’s something I had to get used to when I started this practice.  It\’s also something my patients are still getting used to.  

Surely there\’s a catch.

No, I work for them, and that makes all the difference.

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