Physician Compensation

Those annoying HMO patients…

Why do HMO patients receive less care than fee-for-service patients?  Could it be that HMO patients are healthier (adverse selection) or that FFS compensation leads to increased demand for medical services (moral hazard)?  A paper by Shen, et al. (2004) finds that one reason could be that physician compensation could affect a doctor’s desire to perform discretionary care. 


The authors of the study sent out a survey to a nationally representative group of family practice physicians.  Each physician was presented with four vignettes covering a spectrum of a family practitioner’s practice.  The vignettes were:

  1. outpatient drug prescribing,
    • a 50-year-old man with arthritis for which he takes over-the-counter medication but would prefer a more costly prescription drug because it “seems strongerâ€? and is more convenient. He requests the prescription drug”
  2. diagnostic test ordering,
    • a healthy 28-year-old woman in early pregnancy desires a fetal ultrasound “to make sure things are OK … just like I had with my last child.â€?
  3. specialist referral,
    • a 5-year-old boy is brought in by his mother for a dog bite on his cheek. The mother reminds the physician that a plastic surgeon was asked to close a facial laceration on her daughter a few years earlier.
  4. the management of end-stage heart failure
    • a 61-year-old man with congestive heart failure whose only remaining therapy is a heart transplant

Physicians were randomly assigned patient vignettes in which the individuals were FFS or capitation patients.  The goal of the study was to find whether physicians treated FFS patients differently from capitation patients, as well as to investigate whether or not the doctors felt more “bothered” performing services for one of the groups.


After surveying approximately 800 family practice physicians, the authors found that doctors were more likely to provide discretionary care in the 1) outpatient drug prescribing, 2) diagnostic test ordering, and the 3) specialist referral vignettes.  Using a logit regression the authors found the results to be significant below the 1% level.  For vignette 4, the management of end-stage heart failure, there was no statistically significant difference in discretionary care between the two groups.  It was also interesting to find that the physicians felt more ‘bothered’ when treating capitation patients in all four scenarios.

Although survey data does not demonstrate what physicians will do in practice, it does seem that homo economicus does drive-at least in part-family practice physician decision-making.

Shen; Andersen,;Brook; Kominski; Albert; Wenger (2004) “The effects of payment method on clinical decision-making Medical Care, vol 42(3), pp. 297-302.