It's not a surprise that medical practices might try to avoid sick patients

The New Zealand Herald reported yesterday:

Some GP clinics which are nearly at capacity say they are selecting which patients they enrol, raising concerns they could be discriminating against some groups or excluding difficult patients.

A survey of 220 general practice staff in New Zealand found four out of five had stopped or limited their enrolments over the previous three years.

Some staff reported they had selectively enrolled patients by refusing those with high health needs - a practice known as “cream-skimming”.

Associate Professor Mona Jeffreys, an epidemiologist at Victoria University, said previous studies had focused narrowly on how many practices were open or closed, without considering how many had limited their enrolment and how...

“Some are only taking family members, some are taking people who are new to the area. But some are making decisions based on health, which means that people who have … poorer health are less likely to be enrolled because practices know there is a greater burden.”

The research that this article was based on, published in the New Zealand Medical Journal, is here (gated). Now, medical practices making a decision to exclude patients with poorer health might seem a bit surprising. However, it is quite rational behaviour on the part of those practices. That's because, as this Bay of Plenty Times story from yesterday notes:

[Pāpāmoa Pines Medical Centre’s co-owner and partner Pamela] Sheahan said government funding for GPs through the capitation model was “not fit for purpose” and needed to be “significantly overhauled”.

Capitation-based payments are based on the numbers of people enrolled with individual general practices who belong to a primary health organisation population, the Te Whatu Ora website says.

“We’re paid for four visits per year per patient. If you get children and older people, they come to the GP far more than four times … sometimes up to 20 times a year,” Sheahan said.

“We just don’t get paid for any of those visits so we have to claw that back by charging patients over the counter the additional fees.”

Sheahan said the only way the business made money – apart from government funding – was charging patients.

A rational (and profit-maximising, or at least loss-minimising) medical practice will take on a patient as long as the benefits (to the practice) of that patient exceed the costs. The benefit the practice receives is the government capitation funding plus any patient fees. The capitation funding covers the cost of the first four visits for any patient. The practice will break even if every patient visited exactly four times per year (and the practice charged no fees). The practice will make a profit from patients that visit fewer than four times per year (typically the most healthy patients), and from patient fees charged to those that visit four or fewer times per year.

However, patients that visit more than four times per year pose a problem. Patient fees might be enough to ensure that the practice breaks even on patients visiting maybe six times per year (as an example). Patients that visit more times than those (typically the patients in the poorest health) will be a net loss to the practice. For those patients, the cost of providing care exceeds the benefits that the practice receives (in terms of capitation funding plus patient fees).

A rational and profit-maximising medical practice would therefore make an assessment of each potential patient, and take on only those patients that are likely to visit four or fewer times per year (or maybe six or fewer times). They would reject any patients that would be likely to visit more often than that. This is the 'cream-skimming' that the first article mentions.

Fortunately, medical practices are not quite that cold-hearted. There will certainly be some cross-subsidisation, with the profits that the practice receives from some patients covering the shortfall on the care provided to other patients. However, there are limits to the amount of cross-subsidisation that can occur. Eventually, the profits from the healthy patients are overwhelmed and at that point the medical practice has few options left. They can raise the patient fees, they can limit their exposure to patients in poor health (as noted above), or they can shut down.

It would be easy to blame the medical practices here, but it really isn't their fault. The health system, and in particular the funding model and funding level for general practice, are the real problem (see here and here, for example). If the government continues the chronic underfunding of general practice, then we will simply continue to see more of this rational behaviour from medical practices.

[Update: More evidence of cream skimming from the New Zealand Herald]