Medicine Is a Service Business. We Forgot That.

If you zoom out and look at what physicians actually do, the reality is pretty simple. Doctors are in the service industry. We provide a service to someone else, and in return, we receive a payment. At its core, that is no different than a contractor, a consultant, or even someone working in the fast food industry. Yes, the training is longer. Yes, the stakes are higher. And yes, the prestige is different. But the underlying business model is the same.

If we stop providing the service, we stop receiving payments. And yet, many physicians operate as if that basic truth doesn’t apply to them. There is often an implicit belief that demand for our services will always be there, and that this somehow insulates us from needing to think deeply about finances, business structure, or compensation. In reality, the opposite is true. Physicians have seen this firsthand, whether through the pandemic or more general job loss, contract changes, or system-wide shifts that reduce autonomy and compensation.

In any event, what does it mean for doctors to be in the service industry? We generally just accept that our business model is the way it is. But it's actually quite different from other service industry professionals. And that results in misalignment for both doctors and patients.

So let’s break this down…

The Contractor Model

Last year, my wife and I did some work on our house. Like most home projects, it started with a contractor coming out to evaluate what we wanted done.

He walked through the space, asked questions, and then gave us an estimate. A few months later, when his schedule opened up, the work began.

As expected, things came up along the way. There were unforeseen challenges that made parts of the job more complex than originally anticipated. We also made some upgrades during the process, choosing higher-end finishes for certain elements.

Each of these decisions increased the cost. By the time he finished the project, the final bill was about $10,000 more than the original estimate.

And here is the key point: there was never any real question about whether we would pay it.

The contractor explained the additional work and the increased costs. We understood that he did more work to achieve the outcome we wanted. We paid the bill.

That is how a typical fee-for-service model works. That is the business plan for the service industry. You buy a cheeseburger at McDonald's, you pay the price. You add fries and a drink, you pay a bit more. Because they did more. The person providing the service evaluates the job, anticipates the complexity, adjusts when needed, and gets paid accordingly.

Now Compare That to Medicine

Let’s walk through a similar scenario in medicine. I’ll use an example from my own practice as a reconstructive plastic surgeon. But the same can go for any patient encounter in any specialty.

A patient comes in for a consultation. She has had prior implant-based reconstruction after breast cancer, but it has failed. She has also undergone radiation, which adds another layer of complexity. We discuss her options and ultimately agree on an autologous reconstruction using a DIEP flap.

At this point, you might expect a similar process to the contractor model. An evaluation, a discussion of complexity, and some form of agreement on pricing.

But that’s not what happens

Instead, we submit the proposed plan to a third-party insurance company. They decide whether the surgery is “necessary” and whether they will approve it. There is no clear agreement on pricing at this stage.

In some cases, the procedure is initially denied. This leads to hours or even days of appeals, often reviewed by individuals who are far removed from the clinical realities of the service provided.

Eventually, this third party grants approval and we move forward with surgery.

Now imagine that during the operation, the internal mammary vessels are severely scarred from prior radiation. Dissection is more difficult. The anastomosis is more technically demanding. The case takes significantly longer than expected.

In any other service model, this increased complexity would translate into increased compensation.

In medicine, it does not

We complete the surgery. The patient recovers. And then…we wait.

Payment may not come for months. When it does, it is determined not by the surgeon who performed the work, but by the insurance company based on pre-existing contracts and reimbursement schedules.

If you are employed, those rates were (hopefully) negotiated by your employer. If you are independent, you still operate within a system that heavily dictates allowable charges and reimbursement levels.

Either way, your influence over the final price is minimal. And if the payment feels inadequate?

You can appeal. But more often than not, you accept what they give you and move on.

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A System Built for Protection…With Consequences

This is how the service industry works for doctors. And to be fair, this system exists for a reason.

It is designed, at least in part, to protect patients from unpredictable and potentially exorbitant healthcare costs. That is an important goal. But the unintended consequence is a system that has become overly complex and bureaucratic.

Instead of a straightforward exchange between a patient and a physician, we have layers of administration, approvals, denials, and delayed payments. The people actually involved in the care of the patient have the least control over how that care is valued and reimbursed.

We have taken something that could be relatively simple and made it incredibly complicated.

Of course I am simplifying things here. But that is what is necessary in my opinion when something has become (1) so ingrained and (2) overly complicated. We need to return to thinking about what the original goal is. And that is twofold again: (1) fair pricing for patients and (2) fair compensation for doctors.

Does A Better Model Still Exist in Medicine?

There are areas within medicine where a more traditional service model still applies.

In plastic surgery, aesthetic surgery is the clearest example. In that setting, the surgeon evaluates the patient, provides an estimate, discusses potential variability in complexity, and collects payment directly. It looks very similar to the contractor model.

We are also seeing variations of this approach in other areas, such as direct primary care. In these models, patients pay a monthly fee for access to services, bypassing many of the traditional insurance barriers.

These models are not perfect, but they highlight an important point: When physicians have more control over pricing and payment, the system becomes more transparent and often more efficient.

The No Surprises Act and Other Attempts at Reform

Legislation like the No Surprises Act has attempted to address some of the issues in the current system.

In theory, it allows for an independent arbiter to determine fair payment when there is no pre-existing contract between a physician and an insurance company.

In practice, it has been a mixed bag. While it has helped in certain situations, it has also introduced new layers of complexity and dispute resolution that do not necessarily solve the underlying problem. While patient protection has been the goal, the system can be misused.

And, in the end, we are still left with a system where the value of physician services is largely determined by third parties.

Taking Back Control

So what is the solution?

I don’t pretend to have all the answers. This is a complex, system-level issue that will not be fixed overnight.

But I do think there are a few principles worth focusing on:

First, we need to reduce the burden on patients when it comes to accessing necessary care. Denials for appropriate interventions and excessive administrative hurdles do not serve patients or physicians.

Second, we need to ensure that physicians are fairly compensated for the work they do. That includes recognizing variability in complexity and the real-world challenges that arise during patient care.

And third, we need to start taking back some control over our own business model.

Why Financial Independence Matters

This is where financial independence becomes incredibly important. When a physician is financially independent, they have options.

They can push back on unfair compensation. They can walk away from bad contracts. And they can advocate more effectively for their patients without the constant pressure of needing every dollar from every case.

On the other hand, when a physician is financially dependent on their current income to meet fixed expenses, the calculus changes. The path of least resistance often wins. That might mean accepting lower reimbursement, tolerating inefficient systems, or avoiding conflict with employers or payers, even when it is justified.

Over time, that dynamic shifts more and more control away from physicians and toward third parties who are not directly involved in patient care.

The Bottom Line

Doctors are in the service industry; we are service providers. Viewing ourselves as anything different from a purely business perspective is grandiose and self-serving. But unlike most other service providers, we operate in a system where we have very little control over how our services are priced and paid for.

That disconnect has real consequences, both for physicians and for patients.

We may not be able to fix the entire system overnight. And yes, I realize that I am pointing out a problem without really suggesting a solution in this post. Which is really just complaining. However, I do think awareness is an important first step. Because we can start by recognizing the reality of the business we are in; that doctors are in the service industry. And from there, we can make better decisions, both financially and professionally, to regain some of the control that has been lost.