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Payment Mechanisms and the Composition of Physician Practices

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Victoria Barham discusses the explicit account of the way in which the supply of physicians and patients in the economy affects the design of physician remuneration schemes.

Image courtesy of interviewee. March 21, 2024

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This video video discusses a theoretical paper focused on the impact of physician compensation schemes on their decisions regarding patient volume and care quality. It emphasizes the differences in physician decision-making in systems with an abundance of patients compared to those with a physician shortage, like Canada. The author critiques traditional literature that primarily views these dynamics from a scarcity perspective, arguing that it neglects contexts where physicians can accept as many patients as they wish.

The paper posits that in environments with limited physicians, like Canada, fee-for-service payment models can lead to efficient care delivery as physicians are not pressured to over-provide services. It indicates that this model minimizes financial risks for doctors compared to capitation models, which can encourage group practices to mitigate individual risk.

The author advocates for reevaluating fee-for-service systems, particularly in underserved areas, to ensure physicians are compensated fairly for their work. It concludes by stressing the importance of understanding risk-sharing in healthcare and determining the level of care that effectively meets public health needs while encouraging sustainable physician practices.

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That particular paper is really a theoretical paper,

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as opposed to one where we do a lot of actual auditing

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or something of the like, of, of, of physician practices.

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But it is trying to understand how the way in which

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as we design different, physician compensation schemes,

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this affects physicians' decisions about, the number

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of patients to put in their practice, in the, and,

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and sort of, and what sort of care to give to each patient.

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Um, one of the things that we believe is really important is

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that there is an enormous difference

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between the way in which physicians take those

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sorts of decisions.

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Uh, if there are lots and lots and lots

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and lots of patients available versus,

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when they are competing with other physicians,

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for patients.

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And traditionally, much

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of the literature has been framed in sort

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of essentially the American world,

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or I would argue the traditional French healthcare world

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where there were lots of physicians

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and not necessarily as many patients.

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But, you know, in Canada it's where

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for a long time there has been a shortage of physicians.

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It's clear that there is absolutely no

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pressure on physicians to over provide services.

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In fact, it is the, we actually arguably deal

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with the opposite problem.

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Um, and, and so

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when we think about payment mechanisms in a context in which

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there are, you know, physicians can have as many, they know,

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they can have as many patients as they want.

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The, the, the results of

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that analysis are really different from thinking about it

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in, in a context in which it's the patients who are scarce

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relative to the number of physicians.

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I have to admit that I am sufficiently far from

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that particular paper.

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Now that I, I'm not gonna go

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and unpack all of the literature,

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but there are fantastic, chapters in all of,

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you know, handbooks in health economics,

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on physician payment schemes, et cetera, that do, you know,

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provide excellent, excellent, excellent surveys

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of this traditional literature on, on, on physician payment

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and, and what happens in terms of, the number of,

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of patients they're gonna have.

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But all of that literature without exception

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is taking the view.

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It, it's, these are, these are based on imperfect models of,

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you know, not exactly monopoly,

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but essentially, you know, a, a situation

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where patients are scarce.

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And so you are deciding whether

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or not you're going to give, you know, what sort of level

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of service are you going to give the patients

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that you can attract and how pricing is related to that.

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So this was truly a very different approach

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because this is the only paper I am aware of,

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where you start from the notion that

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actually the physician can have

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as many patients as they want.

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Um, and, and

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therefore, doesn't have

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to think about over providing services if they,

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and, you know, they can decide to provide a higher level

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of care or to, or to, to fewer patients

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or to, to see more patients,

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and provide a different, you know, a lower level of care

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and, and they don't have to worry about any sort

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of trade off in terms of their overall income.

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Um, and, and then the issue becomes, so whether

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or not, when you think about the different schemes,

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like fee for service versus, for example, capitation,

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what are the consequences for the physician of going

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with a smaller number of patients, providing them

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with a higher level of care possibly, or just getting stuck.

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I mean, the, with the capitation model, it's the physician

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who is, who is bearing the risk, of, whereas

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with a fee for service model, there is an incentive to just

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like you're working full time,

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but with the fee for service model,

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when you have an abundance of patients, you don't have

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as a physician, any risk about not being paid for your time.

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So this leads to,

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I think I believe the right outcomes, oddly enough.

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So it is absolutely a theoretical paper.

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So we didn't use a data set in that paper.

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There's another paper I wrote with, some people,

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Roseanne, Devlin and Simon, et cetera.

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Where we were compare, we,

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where we did was an empirical paper,

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where we were looking at, the different models

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of funding primary care in Ontario.

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Um, and that paper,

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did have a dataset which was drawn from chart

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audits, et cetera, et cetera.

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And that paper showed that, so

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and so it was a DEA, but it was a DEA model.

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And that paper found that fee for service

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was providing slightly less high quality care

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than a community, healthcare center approach approach,

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sort of a team-based approach.

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But the cost of the improvement in the quality of care was

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very, very small.

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Uh, the, the, the improvement in the quality

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of care was very, very small,

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and the cost of that was very, very large.

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So again, essentially found that fee for service, you know,

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in the context in which we live in, in a,

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in a community in which patients are abundant,

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actually was a very cost efficient way

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of providing high quality care.

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The key result is that it's time

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to have another look at fee for service.

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Um, because the problems with fee, the rise with fee

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for service in a mark in, in a healthcare setting in which,

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patients are scarce

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and where doctors are, you know, trying to make, you know,

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generate income from scarce patients are very,

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are completely different from what we expect

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in a context in which, it's difficult for patients

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to find a doctor who will take them.

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And that in the context,

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so in the context in which we function in Canada, where,

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doctors are scarce, fee for service

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reduces the risk to doctors,

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the public sector is much better able

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to take on risk than an individual physician.

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I mean, we do see with, you know, what are the responses

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of physicians to the higher risk that they have to bear

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with sort of capitation pay based payment schemes is

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that they form group practices

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because that reduces the risk born

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by an individual doctor.

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Um, but if, if we are wanting

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to get the best return on the public health care dollar

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in an environment in which we don't have enough doctors

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to go around, we should probably reexamine fee for service

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because then doctors know that they will be paid

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for the work they are doing.

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You can you, you already see where this heading is heading.

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I mean, I, I think we absolutely need to

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think about the risk, the how we share risk efficiently,

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as well as at the quality of care that we want

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to incentivize doctors to provide,

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in care.

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Like we, we need to be very careful about,

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making sure that doctors are getting paid

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for the work that they do.

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I mean, very much we need to reexamine fee for service,

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but more fundamentally what we need to think about is how

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to share risk efficiently in the sector, making sure,

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and then think carefully about what is the level of care

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that we want to encourage to be provided,

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because better care is always available.

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Um, the question is making sure that we're providing

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encouraging physicians to provide the, the level

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of care we believe is socially optimal,

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rather than necessarily the very best possible level

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of care which is ave which could be imagined.

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Um, so, so thinking about risk, making sure that

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you know, the, since, since the,

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the public sector is better able

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to bear risk than an individual physician, trying

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to make sure that we think about that. I think this

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Is particularly important in the context of wanting

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to make sure that physicians locate

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in more remote communities,

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because those are in those sorts of communities.

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This issue of am I actually gonna be paid for the work

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that I'm doing is particularly acute

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because there are fewer people with whom

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to share a practice.

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So your opportunities for, for risk pooling are reduced.

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Um, and so

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therefore the importance of making sure

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that in those communities, doctors will, will,

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will not be asked to bear risk is, is important and

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therefore fee for service is actually bizarrely,

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a really good way of, of making that happen.

Physician Compensation and Patient Care Dynamics

00:00:00 - That particular paper is really a theoretical paper, as opposed to one where we do a lot of actual auditing or something of the like, of, of, of physician practices. But it is trying to understand how the way in which as we design different, physician compensation schemes, this affects physicians' decisions about, the number of patients to put in their practice, in the, and, and sort of, and what sort of care to give to each patient.
00:00:38 - that there is an enormous difference between the way in which physicians take those sorts of decisions. if there are lots and lots and lots and lots of patients available versus, when they are competing with other physicians, for patients. And traditionally, much of the literature has been framed in sort of essentially the American world, or I would argue the traditional French healthcare world
00:01:10 - and not necessarily as many patients. But, you know, in Canada it's where for a long time there has been a shortage of physicians. It's clear that there is absolutely no pressure on physicians to over provide services. In fact, it is the, we actually arguably deal with the opposite problem. and, and so when we think about payment mechanisms in a context in which
00:01:44 - they can have as many patients as they want. The, the, the results of that analysis are really different from thinking about it in, in a context in which it's the patients who are scarce relative to the number of physicians. I have to admit that I am sufficiently far from that particular paper. Now that I, I'm not gonna go and unpack all of the literature, but there are fantastic, chapters in all of,
00:02:13 - on physician payment schemes, et cetera, that do, you know, provide excellent, excellent, excellent surveys of this traditional literature on, on, on physician payment and, and what happens in terms of, the number of, of patients they're gonna have. But all of that literature without exception is taking the view. It, it's, these are, these are based on imperfect models of,
00:02:43 - but essentially, you know, a, a situation where patients are scarce. And so you are deciding whether or not you're going to give, you know, what sort of level of service are you going to give the patients that you can attract and how pricing is related to that. So this was truly a very different approach because this is the only paper I am aware of, where you start from the notion that actually the physician can have as many patients as they want.

Understanding Physician Care Levels and Payment Models

00:03:14 - therefore, doesn't have to think about over providing services if they, and, you know, they can decide to provide a higher level of care or to, or to, to fewer patients or to, to see more patients, and provide a different, you know, a lower level of care and, and they don't have to worry about any sort of trade off in terms of their overall income. and, and then the issue becomes, so whether or not, when you think about the different schemes,
00:03:51 - what are the consequences for the physician of going with a smaller number of patients, providing them with a higher level of care possibly, or just getting stuck. I mean, the, with the capitation model, it's the physician who is, who is bearing the risk, of, whereas with a fee for service model, there is an incentive to just like you're working full time, but with the fee for service model, when you have an abundance of patients, you don't have
00:04:25 - So this leads to, I think I believe the right outcomes, oddly enough. So it is absolutely a theoretical paper. So we didn't use a data set in that paper. There's another paper I wrote with, some people, Roseanne, Devlin and Simon, et cetera. Where we were compare, we, where we did was an empirical paper, where we were looking at, the different models
00:04:54 - and that paper, did have a dataset which was drawn from chart audits, et cetera, et cetera. And that paper showed that, so and so it was a DEA, but it was a DEA model. And that paper found that fee for service was providing slightly less high quality care than a community, healthcare center approach approach, sort of a team-based approach.
00:05:27 - very, very small. the, the, the improvement in the quality of care was very, very small, and the cost of that was very, very large. So again, essentially found that fee for service, you know, in the context in which we live in, in a, in a community in which patients are abundant, actually was a very cost efficient way of providing high quality care. The key result is that it's time to have another look at fee for service.
00:05:59 - for service in a mark in, in a healthcare setting in which, patients are scarce and where doctors are, you know, trying to make, you know, generate income from scarce patients are very, are completely different from what we expect in a context in which, it's difficult for patients to find a doctor who will take them.

Reevaluating Physician Payment Models in Canada

00:06:28 - so in the context in which we function in Canada, where, doctors are scarce, fee for service reduces the risk to doctors, the public sector is much better able to take on risk than an individual physician. I mean, we do see with, you know, what are the responses of physicians to the higher risk that they have to bear with sort of capitation pay based payment schemes is
00:06:58 - because that reduces the risk born by an individual doctor. but if, if we are wanting to get the best return on the public health care dollar in an environment in which we don't have enough doctors to go around, we should probably reexamine fee for service because then doctors know that they will be paid for the work they are doing.
00:07:31 - I mean, I, I think we absolutely need to think about the risk, the how we share risk efficiently, as well as at the quality of care that we want to incentivize doctors to provide, in care. Like we, we need to be very careful about, making sure that doctors are getting paid for the work that they do.
00:08:01 - but more fundamentally what we need to think about is how to share risk efficiently in the sector, making sure, and then think carefully about what is the level of care that we want to encourage to be provided, because better care is always available. the question is making sure that we're providing encouraging physicians to provide the, the level
00:08:33 - rather than necessarily the very best possible level of care which is ave which could be imagined. so, so thinking about risk, making sure that you know, the, since, since the, the public sector is better able to bear risk than an individual physician, trying to make sure that we think about that. I think this Is particularly important in the context of wanting to make sure that physicians locate
00:09:02 - because those are in those sorts of communities. This issue of am I actually gonna be paid for the work that I'm doing is particularly acute because there are fewer people with whom to share a practice. So your opportunities for, for risk pooling are reduced. and so therefore the importance of making sure that in those communities, doctors will, will, will not be asked to bear risk is, is important and