A recent edition of the Orange County Register described Prem Reddy, MD, as a "medical maverick." After purchasing three hospitals in Orange County, he immediately cancelled HMO contracts and instructed the hospitals to charge more.

The article says he acquired the wealth to buy the hospitals from HMO contracts in the past, but now he chooses to challenge the HMOs. Current law seems to support his contention that--absent contracts--the health plans must pay the full charges he bills them.

Conflicts in paying for medical services relate to the terms used. Practitioners and healthcare facilities prefer to charge "usual and customary" fees for their services. Insurers and private-pay customers want to pay "fair and reasonable" prices for service. And in the for-profit environment, prices are "what the market will bear."

The contracting era of the 1980s by insurance plans promised to integrate the above three forces. Enticements by insurers--"volume discounts" and "capitated patients"--appealed to many practitioners, especially medical groups. The ability to extract profits upfront while deferring the costs of providing service attracted entrepreneurs.

With time, many entrepreneurs took their profits and let the organizations collapse. Disillusionment with the contracting model emerged, setting the stage for noncontracted providers to challenge the "fair and reasonable" fee schedule offered by insurers.

After 30 years in healthcare, I think of these payment conflicts as locomotives of varying size and power. Each train carries a different constituency.

Locomotive No. 1 represents the health plans. Thinking they drive the healthcare train, they charge ahead. Focusing on profits to maintain their stock value causes them to ignore the economics of actually paying for the care they expect from physicians and hospitals.

Locomotive No. 2 includes hospitals. They carry the EMTALA burden as best they can. Despite complaining about being underpaid, many thrive by billing high charges for basic services. Health plans ignore the hospital charges because they are contracted. The hospitals with poor payer mixes and poor contracts close their doors or sell to alleviate their burden.

Shoveling coal in Locomotive No. 3, the physicians rattle down their track. Due to antitrust rules and their own sense of independence, physicians have trouble coordinating the function of their train. With so many internal conflicts--group practice vs. solo practice, primary care vs. specialties--who has time to watch where the train is headed?

In flashy Locomotive No. 4, a scenic rail car, are the legislators. With their top-rated medical insurance and VIP status, they protect themselves from the vicissitudes of medical financial struggles by passing laws to assure themselves that all will be well. Locomotive No. 4, fueled often by the engineers of Locomotive No. 1, looks sleek and rumbles along, trying to avoid seeing Locomotive No. 5.

Locomotive No. 5 is the longest train of all, containing patients. With many classes of service, it consumes enormous energy as it moves down the track. Like No. 3, No. 5 has no focused leadership. But because of its enormous size, this train has the most potential momentum. No. 5 occupies the most important track as all the other trains exist to serve it.

If Locomotives No. 1, 2 and 3 cannot resolve "fair and reasonable" vs. "usual and customary" issues, I fear that Locomotive No. 5 will push Locomotive No. 4 into crushing the others. The resulting collision will create a force for a single-payer system. The drive for all parties to "get their fair share" may result in an oligarchy in which no one is well served. In this environment, mavericks like Dr. Reddy will surely need to look elsewhere for financial satisfaction.

Lytton W. Smith, MD, editor for the OCMA, is a physician practicing family medicine with the St. Jude Heritage Medical Group in Yorba Linda. Dr. Smith welcomes feedback on his articles and can be reached at editor@socalphys.com.