Misplaced Incentives Drive Health Care Cost

If you read this column regularly, you’ve heard about my mother’s bad back. The pain can be debilitating. She worries that she’ll be confined to a wheelchair if it gets worse and lose her independence. Mom gets along quite nicely on her own for the moment, however. I was pleased to see that she was still eager to play Scrabble when we visited at Christmas. She lost—but only by two points to my son, a grad student in Physics. I didn’t play, figuring I’d avoid the indignity of being whipped by one or the other.

She’s rejected spine surgery before, but revisited the issue with a different surgeon. She emailed his conclusion that “because I am in such good physical condition at the age of 85, I will probably live until I am 100 – so don’t spend your inheritance yet! Surgery would involve two rods, 14 screws, and a steel plate. I would have about four days of pain and then feel better the rest of my life.”

Doesn’t that sound great? Here’s the rub: The surgeon has a conflict of interest. I can believe that he believes that he’s going to help her. And who wants to deliver bad news? How much harder is it to say, “I’m sorry, but nothing can be done. You just have to live with this.” It is easier—and far more lucrative—for the surgeon to DO something. An article in the Journal of the American Medical Association just last year noted that Medicare-financed “complex spinal fusion procedures” increased 15-fold from 2002 to 2007. The article also reported that the odds of life-threatening complications were triple those of “decompression,” a simpler and less invasive procedure. Along with other studies, this article notes that spinal fusion surgery is expensive, risky and often doesn’t help.

A December 20 article in the Wall Street Journal explored the unseemly financials of orthopedic surgery. You can’t buy the screws for Mom’s spinal fusion at Home Depot or Black’s Hardware. This specialized hardware comes from the lucrative medical device sector. Minnesota-based Medtronic is the market leader in this type of hardware, with a 50% market share of the $7 billion spinal implant market. The WSJ article claims that each of the screws costs less than $100 to make but sells for $1,000-2,000. I can’t imagine what the rods and plates must cost. A surgeon quoted in the article said that Medtronic hardware for a single surgery can run to $30,000.

Medtronic does not make kick-backs to surgeons for procedures they perform, so my mother’s surgeon wouldn’t profit directly from his use of Medtronic hardware in her surgery. But the company has found other ways to keep orthopedic surgeons interested in its products. Through royalties and consulting fees, millions of dollars flows to Medtronic customers (the docs, not the patients). Under pressure from Senator Charles Grassley, Medtronic has now posted the details of these financial relationships in a searchable database. My sister looked up the Chicago-based doc who was going do the surgery on our mom: He earned $722,000 in fees from Medtronic in 2010. Perhaps his decisions are unaffected by the fees. Perhaps they are not. (FYI, I found only a single Rochester doc in Medtronic’s database and his earnings from the company were trivial.)

In my September 2010 column, I reported on a different physician, a “pain management” specialist who solicited business in my mother’s retirement community. He and his associates promised to perform their procedures “in the comfort of your own home” and to “bill nothing above insurance reimbursement” which, in my mother’s case, includes Medicare and her Blue Cross supplemental insurance.

After considering the money made by the surgeons, it hardly seems fair to criticize the guy who makes house calls to address her back pain. Yet while his take was chump change when compared to that received by the big boys, the Medicare bills reveal that the doc had been paid twice for “home visit, new patient” plus 14 units of “nerve conduction test.” Each of these diagnostic visits earned the provider $726. Each of the six therapy sessions (involving epidural injections and electrical stimulation) earned $1,274. With other diagnostics thrown in, Medicare paid out about $10,000 in fees for visits from August 3 through September 20. I don’t know whether her Blue Cross provider paid out additional sums.

I’m not qualified to judge whether the treatments were legitimate or were competently performed. What is troubling to me is that Medicare is paying for procedures she may have already received at another time, from other physicians. I’m troubled that this physician can be paid to perform treatments without consulting her many diagnostic scans, including a recent MRI. He apparently did no harm. On her good days she wonders if they may possibly have helped.

It is up to her to decide whether the procedures pose a risk. But as she doesn’t pay the bill, she doesn’t have to weigh the potential benefit against the certain cost. I can tell you that she would never have paid $10,000 herself without asking a lot more questions.

If we want to reform health care, we have to reform the incentives. The cost escalation we bemoan will continue unless someone considers the cost of care as part of the treatment decision. We have two choices: If consumers control the care they receive and providers are paid for what they do, then the consumer must bear a larger responsibility for cost. That’s the “high deductible health plan” approach. If we choose to hold consumers harmless from the financial implications of their care, then someone else must look out for whoever is paying the bill. That’s some form of the “medical home” or HMO model, with gatekeepers who are empowered to say no. Both solutions are imperfect. But the status quo is unsustainable.

This article appears in the 1/14/11 issue of the Rochester Business Journal.