Physician Discretion in Medical Decisions

This is a new entry in an ongoing series about why US health spending may be so high.  I have noted many times that physicians control most spending through their prescribing power.  While price per unit is the dominant factor in higher spending in the US, excess utilization plays a role, so understanding why doctors adopt the practice patterns they do in treating various diseases is useful.   If we know the critical factors in adoption of a practice pattern, we can potentially influence those patterns in a positive manner.  And of course, money is probably the most important factor.

A new paper at the National Bureau of Economic Research examines physician discretion in the evaluation of workers’ compensation claims and the subsequent effect of those physician evaluations on patient outcomes.   Workers’ compensation tends to involve a relatively limited set of conditions and treatments.  There are recommended care pathways for most of those.  But the researchers found significant variation across doctors.  Now there tend to be a few doctors who specialize in workers’ compensation evaluations and treatment and as you might imagine, workers seek out those who are known to be more liberal, while employers and insurers will create panels of doctors who are more rigorous in their evaluation and treatment practices.  State laws, however, often limit the ability of insurers and employers to manage care.

The disparity in liberal or not-so liberal evaluations is huge.  So a lot of money gets paid out for wage replacement and medical care, all based on these physician evaluations that may have nothing to do with the actual extent of the injury.  It is unfathomable to me that a system cannot be created that is more objective and that eliminates the incentives which encourage doctors to either be too liberal or too restrictive.  I would suggest that one method would be to have independent evaluators, who wouldn’t have to be physicians, hired and paid by the states, working in panels of at least three doctors and using objective criteria, and only objective criteria, to decide how badly injured someone is and what the right treatment is.  Certain characteristics of physicians predict whether they will be more generous, and persons with those characteristics likely shouldn’t be involved in evaluations, particularly since there is no suggestion that outcomes are actually worse for patients evaluated by less generous doctors.  The paper suggests that adopting even modest reforms could save as much as 51% of workers’ compensation costs.  Since consumers bear these costs in the form of higher prices for products and services, it would help reduce inflation.   (NBER Paper)