Imagine if you will that I have a job for you to complete. I need you to paint the interior of my house. I tell you that I will pay you in one of three ways: You can be paid a flat fee to paint every wall in the house, you can be paid by the hour, or you can be paid based on how much paint you actually apply to the walls. If I’m smart, I’ll pay you a flat fee and the reason why should be obvious: It limits my expenditure and guarantees my satisfaction with the final product. In the other two scenarios, you as painter are likely to drag your feet (if paid by the hour) or apply additional unneeded coats of paint (if paid by volume of paint applied) in order to increase your earnings. It’s basic economics.
Now for the shocker: Physicians respond to economic incentives just like any other human being does. Ezra Klein reports on the conflict of interest that arises when physicians refer patients to outpatient facilities in which the physicians have a vested financial interest. Such double-dipping conflicts are easy to spot, but what about more subtle motivations?
As Jason Shafrin finds in a recent study appearing in Health Economics, physicians respond to financial incentives. In fact, if a surgeon paid on a capitation (i.e., fixed amount per patient per month) basis is switched to a fee-for-service payment system, they are likely to perform 78% more surgery. That’s a pretty sizable effect. The question that isn’t answered is this: Do fee-for-service surgeons provide unnecessary surgeries because it is profitable for them or do surgeons paid on a capitated basis fail to perform surgery in cases where it is clinically indicated? My hunch is that a little of both goes on, but that’s just a guess.