Turning Back the Clock

Pocket WatchIn the past few months, I have delivered quite a bit of free care–by my estimation, nearly $15,000 worth. The type of care varied from routine office visits to major cancer surgery, from elective infertility treatments to reconstructive surgery and trauma. For me, this is not a problem, but a privilege–I have been blessed a great deal in life in so many ways, and giving of my time and skills has rewards which far outweigh any financial renumeration that might otherwise be received. I am also certain that this is not unusual for other physicians. In a 2002 study by the Center for Studying Health System Change (HSC), nearly 72% of physicians provided charity care, although the percentage had declined somewhat from previous years, especially in practices with a high percentage of managed care. Ethically, the large majority of physicians feel a strong responsibility to provide needed care to those who cannot afford it.

Such care is typically provided to the uninsured, and while free to the patient it is not free to provide. The physician must still pay rent, malpractice premiums, staff salaries and benefits, office and medical supplies, and other expenses of sustaining a practice to deliver this care. As reimbursements to providers from both private and federal health insurance decline, and practice expenses rise, there are increasing financial pressures on physicians to limit their delivery of charity care.

Furthermore, even having federal health care coverage–Medicare, and especially Medicaid–is no assurance of access to health care, as reimbursement rates slip well below the costs of providing care to these patients, forcing growing numbers of practices to close their doors to new patients with such coverage. The current system — politically-charged, burdened by bloated bureaucracies and burgeoning regulations, is increasingly unable to cope with this spiraling crisis. Tight budgets exacerbate the problem, as lawmakers respond to increasing costs with further cuts in reimbursements. So access to health care by the poor, whether federally-covered or uninsured, is declining at a significant rate. The system as it stands is unfixable, as there is no political will for the kind of radical structural overhaul needed to repair it.

Historically, charity care has always been a major component of the American health care system. While Europe tended to rely on government-established hospitals, in America hospitals were often funded and run by religious denominations or charitable trusts, driven by both educational and social motivation and a wariness of government control and intervention. This environment changed drastically under the influence of accelerating technology with its attendant costs, combined with the introduction of federally-funded health care — Medicare and Medicaid — in 1964. Since this time, institutional charity care has all but disappeared as a distinct entity, and individual charity care by physicians has also declined sharply.

The answer to this problem for many is more of the same: socialized medicine, single national payer, and other similar solutions. But as virtually all countries who have implemented such solutions have found, demand always exceeds supply, resulting in spiraling costs, long waits for basic services, and a heavy burden on national economies with growth-stunting high tax rates. Using government to solve such a widespread social problem is like feeding a horse to fertilize the grass: while it’s great in theory, the horse gets fatter while the grass gets thinner, ’til there’s nothing left but dirt and manure.

So here’s another proposal to consider: why not turn back the clock a bit, and create incentives for charity care? Let’s encourage physicians to see patients for free.

Nice trick, you say, how ya gonna pry those greedy bastards out of their Beamers long enough to see folks for nothing? Pretty simple, actually: by augmenting their natural inclination to care for their patients with financial incentives, rather than financial barriers.

The current system provides numerous barriers to providing care to the indigent. The federal-state partnership program for the poor, Medicaid, is a disaster in virtually every state. Reimbursement rates which do not even cover expenses; administrative snafus which delay payment and drive up billing costs; arcane and complex regulations enforced with punitive and often arbitrary discipline; the requirement for expensive in-house quality assurance programs to meet federal fraud and abuse and privacy standards: the list of liabilities is huge. Were it not for physicians’ natural desire to care for all patients who need it, no one would participate in Medicaid. And as the financial buffer of higher reimbursements from private carriers disappears, physicians are leaving the Medicaid program in droves.

It’s even worse financially when seeing the uninsured. While technically you can write off bad debt as a business expense, this involves repeatedly billing the patient who cannot pay–an expensive process from a staffing standpoint (it costs from $5 to $20 in total costs to send a single billing statement, depending on location), and is humiliating to the patient, who is likely already burdened by debt and harassed by collection agencies.

So here’s my thought: let’s cut out the middle man. Provide tax credits to physicians for charity care. Fund health care for the poor directly out of tax receipts.

Tax credits are preferable to bad debt deductions because they are used to directly reduce taxes, rather than taxable income. A $1 tax credit reduces your tax by $1, whereas a $1 deduction decreases it by $0.35, if you are in the 35% tax bracket, for example. If you’re a physician or other health care provider, and want to reduce your taxes, see more poor patients.

So how do you measure how much charity care a physician provides? Again, this is rather simple. All medical services are now quantified by a number called the relative value unit, or RVU. This value forms the basis for virtually all federal and private insurance reimbursement: multiply a medical service RVU by a conversion factor, and you get the dollar amount you will be paid. Computer software currently used for insurance billing almost always tracks these values, which are publically released annually by the government. Multiply the total RVUs for all charity care provided by another conversion factor, and you have your tax credit. All the components are already in place for this to work.

What about fraud? Well, fraud is a risk whenever there’s money involved in any business or profession, but the use of tax credits would be inherently limiting. The tax credits could be calculated at less than $1 for $1 of care provided, lessening the value for fraud purposes (but also lessening the incentive to provide charity). And once you’ve eliminated all taxes due, additional tax credits become worthless, making massive fraud scams much less likely. Documentation for care provided would also be necessary, of course, but physicians are already having to document care in excruciating detail for reimbursement.

On the patient side, a system of income verification would be needed, so that Daddy Warbucks doesn’t drop his health insurance and go seeking free health care. This does not need to be intrusive or complicated. The patient takes his 1040 and ID to an office to verify his or her income, and receives a health card color-coded by income strata, say, red for $10,000 or less, orange for $10,000 to $15,000, etc. Higher income patients should be asked to pay a modest copay for services, graduated by income level. But keeping it simple is key.

Oh, and one last thing: create a Good Samaritan exemption for malpractice. Barring gross negligence or malfeasance, physicians should be exempt from malpractice for charity care provided. Turning the charity care system into a malpractice lottery should not be an option; you should not financially benefit from that which you have received for free. To do otherwise will kill the system, and is unfair.

I believe this approach would begin to solve a host of problems in health care financing. Access to health care for the uninsured would increase quickly and dramatically. The administrative costs of the large bureaucracy now micromanaging indigent health care would drop significantly. Physicians could provide the care they are already motivated to give, relieved of the huge administrative burden of dealing with Medicaid, and would be provided some relief from malpractice fears and expenses.

There would be many challenges remaining in such a system, including hospital care and the cost of technology and prescription drugs. But the biggest hurdle would likely be inertia and the politics of class warfare: some would rather tax the rich than care for the poor. But it’s time to think outside the box in health care access and financing.. The costs of not doing so are unthinkable.

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8 thoughts on “Turning Back the Clock

  1. Pingback: truegrit
  2. I like your idea, Doc! I have one observation to make .. a 1040 might not be good enough to determine income since many un(der)employed people have lost a steady job and may or may not ever find another steady job that pays a reasonable income. For example, last year’s income for some people might be terrible, but existant, while the curent year’s income could be a disaster so far. But, given that scenario, an un(der)employed person would not be able to “claim” that to a doctor until next year, even though that person could be sleeping on a park bench in the interrim.

    Another point; more than a few un(der)employed people refuse to apply for medicaid even though they qualify because of the huge, nearly incomprehensible tangle of paperwork required as well as the gross invasion of privacy combined with a healthy fear of government snooping and later spilling of their medical secrets.

    I have no comments at this moment about the doctor-tax credit idea, except to say that I like it. But at the patient end of things, I like a sliding scale method for dealing with this might be better; where a patient fills out a schedule of expenses versus income and then health care is awarded on that basis. As you probably know, most people (even middle-class) are one or perhaps two paycheck(s) away from living on the streets anyway, so a sliding scale provides more immediate relief than your 1040 approach, methinks.

    GrrlScientist

  3. The means of using the 1040 to verify patient income was just a quick thought – some more rigorous means would probably be appropriate. But someone whose income was fine last year, employed with insurance, may tank this year after losing a job, so current status might be a better measure. Thanks for the thoughts–you go, grrl!

  4. Oh, and one last thing: create a Good Samaritan exemption for malpractice. Barring gross negligence or malfeasance, physicians should be exempt from malpractice for charity care provided.

    So if you’ve been awake for 80 hours and accidentally remove my left leg instead of the right, I have no recourse? I guess we could set up a system wherein the feds indemnify the doctor for malpractice in the course of charitable practice. That might work, although you can bet that the first time that happens, there’s going to be a lot of pressure on the government to rescind the indemnification.

    One question I have about the credit idea (which is an interesting one): are most doctors DBA? Cuz if they organize as corps, their effective tax rate is probably already low, meaning that the incentive for charitable practice is that much lower (I don’t know if that’s the case – I know jack about the structure of medical business).

  5. Dr. Bob,
    I have had similar thoughts, the real key is that there are already codes and “values” and documentation of what we do so there really is no chance for fraud ie we can’t overvalue our charity care to reduce our taxes.
    There was a bill in Congress(can’t recall specifics) to allow for deduction of pro-bono work for lawyers but it disappeared when they recognized that it would probably have to apply to health care.
    I may be cynical but I believe that with EMTALA laws as they are today our leaders know that we have to provide the care for free and they like it that way. Don’t look for this idea to suddenly get political traction and take off.
    Lastly, how do you write off bad debt?

  6. This approach wouldn’t involve physicians being paid directly by the government…, but would reduce revenue to the government….

    Half dozen on the one hand, 6 on the other, y’know. From an accounting perspective, credits v tax-then-payment is a distinction without a difference. So it is socialism – it’s just a more efficient system with respect to delivery of benefits to the doctor.

  7. Lastly, how do you write off bad debt?

    It’s just deducted against income. There all kinds of technical rules, as you’d expect from the IRS, but that’s the gist. I’m sure Dr. Bob is better with the particulars.

  8. JPE
    There is no way to write off bad debt for services rendered. It is just as if you never performed the service, you still have to maintain the records, absorb the malpractice risks but absolutely no way to write off the unpaid bills.
    That is the exact reason for Dr. Bob’s proposal…so we could write off the bad debt. This is why I raised the question and am still not sure what Dr. Bob meant to say. The whole discussion would be moot if free care(bad debt) was deductible.
    Dr. Will

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