Pay me up!

There are a few physician payment approaches and incentives they create:

Capitation: The physician agrees to deliver a specified list of health services for a fixed amount per person. The physician bears financial risk. Potential incentives created:

• The physician might act too aggressively in constraining service use, eliminating some “necessary” as well as some “unnecessary” services. The result could be lower quality of care for patients especially if there is no sharing of risks or surpluses, if the capitated contract is short-term in nature and if contract renewal does not depend on measures other than costs.
• Conversely, if physician organizations reimbursed by capitation payments care for an enrolled population over a period of time, they have an incentive to provide services that maintain or improve the health of that population, as this will be financially beneficial in the long term.

Fee for service: Physician are pain for each service of unit provided. Potential incentives created:

• This form of payment contains a powerful incentive for “over-provision” of services and necessitates a substantial amount of costly monitoring on the part of the payer.
• There is a risk to patient health associated with “over-treatment,” just as there is with “under-treatment”

Salary: The physician is paid a fixed amount per time period. Potential incentives created:

• There is no incentive to deliver unnecessary services, nor is there an incentive for “under-provision,” except to the degree that physicians may “shirk” under salaried arrangements.
• There is no particular incentive under a pure salary method of payment for physicians to deliver high quality care, so there typically is a heavy reliance on enforcement of rules and procedures thought to enhance quality.
• The result could be quality enhancing or, to the degree that rule enforcement limits physician ability to bring professional judgment to bear in treatment decisions, result in lower quality of care

Budgets: Physicians must be reimbursed through a negotiated budget process at the organizational level. This method of payment is most often observed internationally in government administered health care system. Potential incentives created:

• The nature of the incentives in this payment arrangement can resemble capitation, when the number of individuals served in a given period is relatively fixed, and the organization is at risk for budget over-runs and can keep savings.
• Or, the incentives can resemble those of salaried physicians when the organization serves patients who seek care, but does not assume responsibility to provide care to a fixed number, or enrolled group, of individuals for a specified time period.

References:

1. Provider payment mechanism in healthcare: Incentives,Outcomes, and organizational Impact in Developing Countries
2. Principles for Physician Payment Reform www.abimfoundation.org