Copays and price controls

“By the way,” the patient says as you are opening the door to leave the exam room. You sigh, inaudibly you hope, and close the door. The patient, of course, had come in for a quick blood pressure recheck which in primary care means also addressing at least two other unrelated complaints. Now you have the choice of declining to manage yet another problem, thereby demonstrating to the patient that you “don’t care” about his medical concerns, or addressing another complaint and falling even further behind schedule. Worse still, the next patient you see may also try to turn a brief visit for a medication refill or head cold into a lengthy, multiple complaint encounter. The explanations that come to mind to account for this phenomenon, encountered daily by primary care providers, tend to be rather cynical. Maybe the patient is disorganized or simply inconsiderate of the practitioner’s time. Perhaps the patient is retired or otherwise unemployed and therefore out of the habit of living life on the clock. While these interpretations may have some merit, a less censorious, and perhaps more likely, rationale for this sort of patient behavior may be that they are simply doing what all intelligent people do: trying to get the best deal for their money.

Third party payor systems like private insurance or Medicare typically require the patient to pay only a small fixed sum (or sometimes a small percentage of the total cost) for an office visit: the copay. While unburdening the patient from the full cost of the encounter, the copay system has the adverse effect of acting like a de facto price control. “Artificially lower prices…encourage more use of goods and services,” notes economist Thomas Sowell in his book Applied Economics.(1) Because the copay for a 99212 visit is no different from the copay for a 99213 or 99214 visit, the rational patient will try to get the practitioner to address as many issues as possible because that is in his financial self-interest.

The problems inherent in the copay system can be illustrated through an imaginary parallel. What if a grocery store chain decided that rather than charge customers for the various items they purchased, the store would instead charge a flat fee of, say, $50 for any given visit to the store. A person entering the store to buy a gallon of milk and a loaf of bread would be charged $50. A person filling two shopping carts with a small fortune in groceries would also be charged $50. Needless to say, the latter would occur a lot oftener than the former. In fact, the purchaser of less than $50 worth of groceries would find himself penalized for his conservative shopping trip. He would thus be incentivized to acquire more groceries, whether he needed them or not, to justify the cost of his trip to the grocery store.

The grocery store would itself be affected by this flat fee policy. In short order, aisles of empty shelves would be seen, the result of encouraging consumption by consumers while discouraging replacement of sold items since the grocery store would presumably not be able to purchase food and other goods on the same flat fee basis but would have to pay what the items actually cost.

Because practitioners offer a service rather than a tangible good, medical offices do not have bare shelves as a result of the copay/price control system. Instead, they have fewer available appointments. Your doctor can’t see you until next week because his schedule is full of patients who were incentivized to seek medical attention by the copay system: being seen for a runny nose might be worth a $35 copay but if the patient had to pay for the entire $110 visit he might have tried rest, fluids, and an over-the-counter cough syrup, leaving that appointment open for someone else.

The copay also accounts, at least in part, for the practitioner’s infamous lack of punctuality. The doctor or mid-level provider is often late due to the cumulative effect of patient’s trying to get more than one or two — and in some cases staggering numbers — of complaints addressed in a single office visit.

Copays are effectively price controls. They encourage over-utilization of the health care system and decrease the efficiency with which patients are seen by providers. Doctors can of course “up code” from a 99213 to a 99214 visit, to take one example, if the visit turns out to be more involved than initially thought. But practitioners cannot see patients with unexpectedly more complicated and/or more numerous problems faster. The result is often patients who feel their visits are rushed, even as physicians find themselves chronically late for their appointments.

The copay system is a dysfunction of the third party payor health care finance system that is rarely discussed in health care reform circles. It deserves to be more widely examined as it has a direct effect on the behavior of patients and physicians and thereby on our entire health care system.

1) Sowell T.  Applied Economics.  New York: Basic Books; 2004, page 70.

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