FIGURE 8-1 Sources of waste and excess costs in health care.

SOURCE: Data derived from IOM, 2010b.

clinicians who are paid for each service tend to recommend more visits and services than clinicians who are paid under other methods (Gosden et al., 2000; Helmchen and Lo Sasso, 2010; Hickson et al., 1987). In one study, when primary care physicians began to be paid for each procedure and encounter, the number of procedures increased, and the number of encounters increased from 11 to 61 percent depending on the specialty (Helmchen and Lo Sasso, 2010).

As with many other aspects of the health care enterprise, a variety of financial incentives and payment models are currently in use. Some are modeled on a fee-for-service structure and some on a capitated or global payment system; other models exist as well. The most common models for both public and private plans tend to pay clinicians based on the volume of individual procedures and tests. Higher-quality care rarely is rewarded by payment and contracting policies, so there is little relationship between the cost or price of care and the quality and outcomes of the care provided (Fisher et al., 2003; Office of Attorney General of Massachusetts, 2011; Yasaitis et al., 2009). One study found, on average, only a 4.3 percent correlation (as measured by a coefficient of determination) between the quality of care delivered and the price of the medical service; indeed, higher prices often were associated with lower quality (Office of Attorney General of Massachusetts, 2011).

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