Physician Reimbursement

Physician Reimbursement

We all like that doctors get paid. However, beyond picking up their bi-weekly paycheck and grumbling about how many taxes have been taken out, many doctors don’t take time to ponder the economic theory behind different methods of physician reimbursement. This really is a shame, because financial incentives have been shown to drive physician behavior. Below I have covered three of the most common ways of paying doctors – salary, fee-for-service, and pay-for-performance – and how these methods can impact the way doctors practice medicine.

Salary
A salary is a fixed, regular payment made by an employer to an employee. In some ways a salary represents a good-faith agreement on the part of the employee to work a certain number of hours at or above a set level of productivity. In medicine, a salaried physician may agree to see a certain number of patients a day, or to be responsible for a patient list or population.
One criticism of salaries is that they give a perverse incentive for the employee to do as little work as is possible to do without getting fired or demoted. After all, the payment will not vary based on the productivity of the employee. In medicine, professional values such as hard work and service to the patient may supersede this perverse incentive. Peer pressure from physician partners can also override a salaried professional’s inclination to under-produce in his time at the office.

Fee-for-service
Whereas salaries do not increase according to physician productivity, under fee-for-service (FFS) reimbursement, only measurable production is rewarded. Physicians are paid individually for each appointment, test or procedure they undertake. This gives a strong incentive for physicians to optimize production in the time they spend in the office, which can increase their efficiency.
FFS causes problems when physicians shift their practice toward reimbursable services and begin to provide medically unnecessary care – this can lead to large amounts of inefficient care. FFS payment has helped create a culture of medical practice in America that is largely dominated by procedures, prescriptions and tests. Medicare pays on a FFS basis.

Pay-for-performance
Pay for performance (P4P) is a relatively new movement in physician reimbursement that attempts to pay physicians more for high quality, appropriate care. This type of payment is tied directly into problems with measuring quality in medical care. P4P models based on patient outcomes give an incentive for physicians to take on only the healthiest patients and simplest cases. P4P models based on evidence-based procedures (such as a yearly retina screen for diabetics) may shift care away from individualized services toward those that are reimbursed.