Health economists frequently examine the effect of physician payment method on the provision of medical services. It is often found that patients whose doctors are compensated via capitation or salaried schemes receive fewer services than patients whose doctors are compensated through a fee for service mechanism. This finding is robust to a variety of medical settings and holds even after controlling for the possibility of patient adverse selection in insurance plans.
Fred Hellinger (1996) shows that there are other potential biases to worry about. The first is physician selection. It is possible that physician who practice a more conservative (i.e.: less input intensive) brand of medicine will decide to work under capitations or salaried schemes, whereas doctors who prefer a more liberal style (i.e.: a higher quantity of service provision) may choose a fee for service. It is possible that physician preference and not financial incentives are the cause of the above findings. One small trial (Hickson, et al 1987) randomly assigned eighteen physicians (residents) to either a capitation payment scheme ($20 per month per patient) or a fee for service scheme ($2 per patient visit). The study found that residents reimbursed on a per-visit basis scheduled and attended 22% more visits per capital than residents on a per month capitation scheme.
A second source of bias analyzed by Hellinger is that of unmeasured plan characteristics. When conducting a regression analysis, using dummy variables such as ‘HMO’ or ‘fee-for-service’ is likely too crude a categorization. Ideally, one would like to have information on 1) benefit structure (copayments, deductibles), 2) use of guidelines, 3) method of physician reimbursement, and 4) utilization review. Without this information, a researcher’s evalution may not be fine enough to produce any revealing conclusions regarding the state of healthcare in this country.
Hellinger, Fred (1996) “The Impact of financial incentives on physician behavior in managed care plans: A review of the Evidence,” Medical Care Research and Review, vol 53(3), pp. 294-314.
Hickson, G.B.; Altemeier, W.A.; Perrin, J.M. (1987) “Physician reimbursement by salary or fee-for-service: effect on physician practice behavior in a randomized prospective study,” Pediatrics, vol 80(3), pp. 344-350.