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Health Care Costs and Financing

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Physicians view some financial incentives as encouraging and others as discouraging services to patients

Physicians often face a complex and cascading set of financial incentives from health plans, physician groups, and others. Incentive structures can differ in how strongly they apply to an individual physician and can sometimes have contradictory influences on physicians within the same practice. Physicians vary in their perceptions of how these incentives motivate an increase or decrease in services to individual patients, according to a study supported in part by the Agency for Healthcare Research and Quality (HS10803).

The Community Tracking Study Physician Survey of over 12,000 physicians revealed that 70 percent of physicians considered that their financial incentives had a neutral effect on the quantity of services they provided. However, 7 percent of physicians believed that financial incentives prompted physicians to reduce services to patients, whereas 23 percent stated that they encouraged increased services. Productivity was the factor most often cited by physicians as affecting their compensation.

Working in a practice with capitated revenue and, for primary care physicians, participation in gatekeeping arrangements, were associated with incentives to provide fewer services. Physicians also felt that incentives to reduce services lowered their ability to provide quality care.

Physicians with financial incentives incorporated into physician compensation through adjustable salaries, bonus payments, or through partial group ownership, were more likely to report incentives as encouraging more services to patients. Full ownership of groups, productivity incentives, and perceived competitive markets for patients were associated with incentives to both increase and reduce services. Physician group owners receive a share of the residual profits and are more likely to be aware of and internalize incentives from contractual arrangements with heath plans than employee physicians. Nearly 44 percent of surveyed physicians were employees, 24 percent were part owners, and 32 percent were full owners of their practices.

More details are in "Effects of compensation methods and physician group structure on physicians' perceived incentives to alter services to patients," by James D. Reschovsky, Ph.D., Jack Hadley, Ph.D., and Bruce E. Landon, M.D., M.B.A., in the August 2006 HSR: Health Services Research 41(4), pp. 1200-1220.

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