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Financial incentives based on patient insurance may have unintended consequences

Physicians in group practices often have patients insured by both health maintenance organizations (HMOs) and fee-for-service (FFS) health plans. However, the payment incentives of both plans are usually transferred to the practice as a whole. Individual providers' decisions in the organization may be unaffected by or even at odds with incentives associated with the patient's insurance. However, when a group tries to redesign its reward system so that providers know a patient's insurance and its underlying incentives, physicians may become upset, leading to unintended consequences.

Overall, it's not a good approach, concludes a study supported by the Agency for Healthcare Research and Quality (National Research Service Award training grant T32 HS00070). Ann Barry Flood, Ph.D., of Dartmouth Medical School, and her colleagues analyzed the impact of an administrative experiment by a large multispecialty group practice treating an equal number of HMO and FFS patients. It announced that each physician would be remunerated for HMO care based on a per capita budget and for FFS care based on billable services. There was no evidence that the intended impact (reducing HMO care) occurred. Instead, it caused FFS resource use to drop (thereby becoming more cost effective for this group but generating less income) and failed to lower HMO care.

At this clinic, the providers valued the fact that all providers were rewarded consistently, regardless of specialty or patients treated, and it was important to them that the clinic valued all its physicians and patients without tolerating "tiers" of care. In contrast, the new incentive system was complicated. It set up differences in how gatekeeper specialties and other physicians were paid, and it deliberately invited a differential behavior toward patient care, depending on the patient's insurance. What's more, it rewarded "non-work" for HMO care, which sharply conflicted with the clinic culture's emphasis on productivity.

For more information, see "The promise and pitfalls of explicitly rewarding physicians based on patient insurance," by Dr. Flood, David M. Bott, Ph.D., and Elizabeth Goodrick, Ph.D., in the January 2000 Journal of Ambulatory Care Management 23(1), pp. 55-70.

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