The Singapore Medical Council (SMC) fears that third-party administrators (TPAs), who charge a percentage of doctors' fees for their services, can drive up healthcare costs.

Its new Ethical Code and Ethical Guidelines (ECEG), which come into effect on Jan 1, recommend what doctors should and should not agree to in their contracts with TPAs.

The SMC feels that paying third parties a percentage of the patient's bill could constitute fee splitting - something that doctors are prohibited from doing. It wants doctors to pay based on the actual work done by the TPA.

In an advisory on Dec 13, the SMC added that paying TPAs a percentage of the bill could "inadvertently promote cost escalation".

The SMC says that payment to TPAs should not be so high that it becomes an "incentive to charge patients high fees or over-service patients" and enables TPAs "to profit at the expense of patients".

Doctors should also ensure that after they have paid the TPA, their own portion of the fees is not slashed to the extent that either patient care gets compromised or the practice stops being financially viable.

In principle, the argument appears logical and sound. But it makes two assumptions that need to be scrutinised.

One is that it is wrong to pay a percentage but all right to pay a fixed fee, because a formula based on a percentage reflects the work done by the doctor and not the TPA. This, in turn, could push up healthcare costs.

The other assumption, obliquely, is that TPAs make profits to the patients' detriment.

First, let's look at what TPAs do. These are companies that have agreements with clinics to which they send patients.

They usually have rates that doctors abide by, and these rates usually are the same or slightly lower than what the doctors would charge their other patients.

TPAs are able to get these preferred rates because of the volume of business they bring to a clinic.

These patients are generally clients of insurance companies or employees of companies that offer medical benefits. So the ones who pay are usually large companies.

The TPA typically collects money from the companies to pay the doctor's bill, while retaining its own portion of the pie. Patients pay either nothing, or co-pay a portion of the bill.

For the services it provides, it is only fair that the TPA makes a profit. It is, after all, a business it is in. TPAs also need to bear the risk of the companies not paying them. Indeed, some TPAs have gone under in the past.

Without TPAs, employee medical benefits would be more difficult to administer.

Now, there are different ways the TPAs could be paid. In some countries, clients pay the TPA a dollar value per head. This is on top of the doctors' bills and, as such, does push up costs.

Three medical bodies here have suggested having a multi-tiered fee structure to cover different levels of bills. These are all possible alternatives.

In Singapore, for historical reasons, the TPAs collect a percentage of the bills. They find this most equitable because it does not penalise doctors with small bills. A $5 to $10 fixed fee, for example, would be a hefty cut from a $20 to $30 bill.

But no matter what the formula, the TPAs are going to make sure that they turn in a profit. So changing the way TPAs charge is not going to end up in reduced healthcare costs.

Furthermore, the ones who pay the bulk of the bills are not the patients, but the companies that use the TPAs' services. If these companies did not feel that they were getting good value for their money, they would not be using the TPAs.

For patients, this arrangement is more convenient than first paying a doctor and then seeking a reimbursement for the bill from their company.

Doctors, too, have a choice on whether they want to be part of a network and which TPA they want to work with. They are not forced to become part of a scheme.

If the companies, the TPAs, the doctors and the patients are not complaining, why is the SMC trying to upset the apple cart?

What's so wrong with the current model where TPAs charge a percentage of the total bill? Most charge between 10 and 15 per cent, though some are known to go as high as 25 per cent. Again, a TPA is able to charge such a high fee only because there are doctors willing to pay that rate.

Charging a percentage of the total bill is common practice. Restaurants levy a 10 per cent service charge while credit card companies take a cut of the transaction value.

There is a reason for charging that way.

Let's take credit cards as an example. Today, you can go to a supermarket, pick up a small item that costs less than $1, and still pay with your credit card. This is possible only because the card companies charge the same percentage, regardless of the size of the transaction.

If they were to charge a flat fee, smaller transactions could become unreasonably expensive and a buyer would be deprived of the convenience.

Card companies also bear the risk that someone could default on the payment. They need to be compensated for this.

Since the use of credit cards is so widespread, it would appear that all parties are happy with the arrangement.

To a certain extent, what the TPAs do mirrors this. They bear the risk of non-payment and delayed payments.

The bigger the bill, the higher the risk. They help their clients ensure that there is no over-servicing or overcharging of patients. They ensure that doctors are paid promptly, even if their collection from their own clients is delayed.

So the amount a TPA is paid should not just reflect the work it does, as stated in the ECEG, but also the risk it bears. Which means that the fee has to vary according to the size of the bill.

However, it might be fair to put an upper limit on the fee, should bills be very big.

Which brings us back to the root of the problem - how to stop healthcare costs from escalating?

According to the recently released Health Insurance Task Force report, the biggest driver for spiralling healthcare costs is surgeon's fees - not the cost of hospitalisation or TPA fees.

Perhaps the SMC would be better off concentrating on how to keep doctors fees from pushing up healthcare costs.

Dr Susan Lim, whose high fees made headline news as they were disputed in the Supreme Court, is unlikely to be the only specialist to levy such hefty fees.

Just looking at the range of surgeon's fees released by the Ministry of Health (MOH) shows that for the same procedure, the fees charged can vary greatly.

Take a total hip replacement for example. One in four surgeons in private practice charges less than $8,560. Another one in four charges more than $16,050. This is merely what the surgeon charges for his work and does not include the hospital cost or the services of an anaesthetist.

Now that the prices are made public, with no guidelines on what surgeons' should charge, those offering more reasonable rates might ask themselves why they are charging so little.

This could push up healthcare costs even further.

It is issues like this that the SMC should be addressing, if it really wants to keep costs in check. Don't fix what ain't broke.