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Major Conference Themes A Climate for Change Both explicit and implicit in the conference discussions was the perception that change in physician payment practices is inevitable. Congress is increasingly demonstrating a will to insist that physicians share the burden of restraining Medicare cost increases. State Medicaid programs are exercising their new contracting ability to experiment with new forms of payment. Private f irms and health insurers are becoming more and more active in trying to limit their outlays for health services. Physicians themselves are forming Preferred Provider Organizations and in other ways seeking new relationships with health care purchasers. Ferment on this issue is apparent at all levels, and the fiscal pressures are rising. Although there is an emerging consensus on the need for change, there is not an accompanying consensus on what to do. Most participants agreed that, in the short term, changes were likely to be stop-gap measures to control costs, but that, for the longer term, more fundamental reforms would be called for. The next few years will be a period for developing a consensus around the nature of those reforms. A Need f o r Cha nge This theme was sounded by Paul Beeson in his opening remarks. Quoting f ram a letter by Arnold Relman, editor of the New Enuland Journal of Medicine, he said: The method by which most physicians are paid now seems, on a number of grounds, to be rather a poor reflection of society's objectives for health care. It offers considerable incentive for a greater use of health resources than is necessarily cost-effective. It offers little or no incentive for physicians to help restrain the growth of expenditures for health care, growth which has put enormous upward pressure on government health budgets and on premiums charged by private insurance plans. It provides large rewards for the provision of high-technology procedures and little or none for preventive and cognitive activities. While average earnings of physicians rank at the top levels in our society, earning abilities differ greatly among physician specialties. Conference participants elaborated on this theme in their discussions. Under the existing structure of physician fees, there are large disparities among payments for different services. In general, the rate of compensation per unit of physician's time is higher for surgical and diagnostic procedures than, for example, for history- taking. Fees seem to bear little relationship, if any, to the cost of

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producing services, to their medical value, or to consumer demand. Rather, they are determined by long historical precedent and by the payment practices of government programs and private insurers. Not only are there disparities in payment levels among services, but also the current system offers little incentive for physicians to be prudent in their use of health resources. At a time of rapid increase in the number of physicians and of more strenuous efforts to hold down the growth in health care expenditures, physicians have considerable financial incentive to provide more services and to choose to provide services that yield greater fees. Thus our current payment system contains perverse incentives that conflict both with cost and quality objectives. For a substantial portion of physician services that are covered by insurance (approximately 63 per cent in 1982, according to the Health Care Financing Administration), neither the physician nor the patient bears any significant financial risk for decisions about the quantity or kind of services utilized, and thus neither has reason to take into account the financial consequences of one course of treatment as compared with another. While protecting people against financial catastrophe from illness, insurance coverage also insulates them from health care costs. Non-economic Influences on Physician Behavior Physicians not only receive 20 percent of all hea 1th expenditures, but also inf luence other expenditures through their medical decisions such as ordering tests, prescribing drugs, and admitting patients to hospitals. Because of their central role in health care, physicians are seen as the key to containing costs, and payment methods as a signif icant influence on physician behavior. However, conference participants cautioned that economic incentives are not the only factors inf luencing physician behavior. They actually may be less important than other influences such as the physician's organizational environment and practice milieu, peer pressure, and educational background. Physicians also are influenced by their concern for patients and, to some degree, by fear of malpractice litigation. Conference participants felt that research is needed to sort out the complex set of factors that influence physician behavior. Small geographic area analyses have demonstrated enormous variations in surgery rates, for example, but more work is needed to explain those variations in terms of the relative influence of economic and other variables on physicians' medical decisions. Notwithstanding of the lack of firm empirical evidence on the strength of the effect oF payment levels and methods on physician behavior, most participants thought that re-examination of the current payment structure at this time is important.

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Payment Objectives One objective of reforming physician payments is cost control. However, it was suggested that a more appropriate objective is to establish payment mechanisms that provide incentives and compensation, for effective, high quality, economical care. Conference participants asserted that payment mechanisms should encompass a concern for the well-being of patients, the development of an equitable system, and cost consciousness. They criticized an approach that cuts payments in the public sector and ignores the impact of subsequent cost shifts to the private sector. A number of other, more specific objectives were articulated: o o o o o fair compensation of the physician for his time, talents, and the degree of risk involved encouragement of the most appropriate level of care encouragement of care in the most appropriate setting encouragement of cost consciousness on the part of patients and doctors encouragement of good quality medicine facilitation of equitable access to care administrative simplicity. Conference participants noted the potential conflicts and trade-offs among objectives but did not try to resolve them in the short time available. Once the desired objectives are established, the structure of incentives to attain them will have to be studied f ram the standpoint of how physicians participating in group practice receive compensation-- salary, share of net receipts, etc.--which may be different from how the patient or insurance makes the payment--fee-for-service, capitation rate, etc. Paucity of Data and Research Findings Conference participants noted that' in terms of data and research on physician payments, little is known in comparison with similar information available about hospitals. Better data on the physician components of hospital episodes are needed, as are studies linking payment levels and mechanisms to various dimensions of physician behavior. Demonstrations of the effects of alternative payment methods on access, costs, and quality are needed before major reform of physician payments is attempted.