When Doctors Take Vacations

Over the weekend, I had a lovely dinner with a friend of mine, an excellent general practitioner / primary care physician, who works in a medical system built mostly upon HMOs. While there is non-HMO practice, it is mostly reserved for specialists and people who cater to the wealthy, like the rapidly-growing field of concierge medicine.

In this particular structure, the HMOs all have a mix of employee doctors and private practice doctors.

• Employee doctors receive a fixed salary, along with the usual benefits, sick days, vacation days, etc. Employees see as many patients as can be fit into their working hours.
• Private practice doctors are independent, working either for themselves or an independent employer such as a group practice. They have contracted with the various HMOs to accept patients on their behalf, and receive payment for each patient they see.

Like the difference between employees and consultants at any firm, being a consultant can be more lucrative on a cash basis, if you can fill up the hours, but runs the risk of having not enough hours billed.

The interesting twist here is how the payments are provided. Unlike in many fee-for-service countries, these HMOs pay the independent doctors once per quarterly visit. The doctor receives payment the first time the patient visits the doctor in each fiscal quarter (which matches calendar quarters), but not for any subsequent visits.

Thus, if you visit the doctor on Oct 1st, the doctor will receive, say, $50; if you visit once on Oct 1st and once again on Dec 31st, the doctor will receive $50. If you visit every single Monday from Oct 1st through Dec 31st, the doctor will still receive... $50.

In essence, the HMOs want the doctors to have some of the efficiency incentives that come from maximizing patients treated, while at the same time discouraging "patient cycling", where the same patient comes in again and again and again, running up HMO costs.

Inevitably, like all incentives, this payment system, too, has several downsides:

1. Don't Come Back: Once a doctor has seen you on Oct 1st, it is a zero gain for him to see you again that quarter. It even qualifies as a loss, since when you return on Nov 1st, he could be seeing some other patient who has not yet been in this quarter, making $50 off of her!
2. Vacation Time! Once a doctor has reached the number of visits he wants per quarter, he has little incentive to work too hard the last 2 weeks of the quarter. Even worse, most of the visits then are likely to be repeats of people who have already visited in the quarter. Why work hard for the last 2 weeks for zero additional income?

Both of these issues are mitigated, at least partially, by market factors. Anyone who is sick yet cannot see their doctor because they discourage repeat visits in the quarter will lose their patients very quickly, followed by their HMO contract. The medical business is a repeat business; you simply cannot live on the one-time $50 (or whatever it is) payment. In this respect, doctors are like any other business that has an incentive to "take the money and run" but understands that it needs its reputation intact and repeat customers.

The "Vacation Time" issue is a harder one to crack. The most direct evidence for it is the fact that most doctors in the system actually do take vacations in the last weeks of the quarter. It is much harder to get an appointment in the last weeks of March, July, October and December.

How do we solve for the vacation time issue? Partially we don't. As long as all the HMOs in the region function in the same way, there is no competitive pressure to solve the issue. However, if we really wanted to, we would need to change the payment mechanisms slightly. Here are two possibilities:

1. Bonuses: pay small incremental bonuses for visits in the last 2 weeks of the quarter. Thus, a first visit is $50, a follow-on generates no payment, but a follow-on in the last 2 weeks generates a $10 bonus. Many doctors will still choose to take a vacation over the work, but it will create some balance.
2. Sliding Scale: Instead of paying a fixed fee per quarterly patient, pay a sliding scale based on first visit. Make it $40 in the first month, $50 in the second month, and $60 in the third month, or similar. Make the later visits worth more. Most doctors would be happy to take this, as would most businesses. Money upfront is worth more than money later.