My Papers

Operating on Commission

I have recently finished the latest draft of a working paper titled “Operating on commission: Analyzing how physician financial incentives affect surgery rates using nationally representative household data.” It should be interesting to readers who wonder how financial incentives affect specialist care provision. Below is the paper’s abstract. Any comments regarding the paper’s contents would be greatly appreciated.

Measuring how physician financial incentives impact on medical service provision has been a preoccupation of healthcare economists for many years. While the literature has explored the financial incentives of primary care physicians in great detail, the fields in which specialist physicians work has been largely overlooked. In this paper, a theoretical model is developed in which the quantity of specialist medical services is a function of both specialist and primary care physician financial incentives. The empirical section of the paper employs the Restricted Use 1996/1997 Community Tracking Study (CTS) dataset to test the model’s predictions using surgery rates as a proxy for the quantity of specialist services. The CTS is a household based survey which includes observational data on both primary care and specialist compensation. Using a variety of econometric specifications and controlling for adverse selection, I find the financial compensation has a large effect on surgery rates. When specialists are paid through a fee-for-system (FFS) methodology rather than a capitation or salaried basis, surgery rates increase 155%. There is suggestive evidence that surgery rates fall when primary care physicians are paid on a fee-for-service basis compared to capitation or salaried payments.


  1. First off – Great site w/ great info.

    As for the article, I love these kind of studies and I found this one especially interesting. My first thought when reading that FFS raised surgical rates 155% i thought “155% of what?!”. I don’t think you can reasonably use physicians who are paid by capitation as your standard or control by which to judge a change. The “true baseline” is theoretically in the middle b/c intuitively we know that when anyone is paid fore each procedure they’ll do more, and when anyone is paid the same regardless of # of procedure, they’ll do fewer. Capitation = don’t work harder than you have.

    Did i make that point clear enough? Any thoughts

  2. Jason – i’d say the key question is how many surgeries are the right number of surgeries?

    Once that question is answered the impact of the compensation plans can be assessed appropriately.

    Joe Paduda

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