The Impact of Physician Financial
By Mary R. Anderlik
Health Law & Policy Institute
Few of the recent changes in the health
care system have excited as much passion as the introduction of new methods
for compensating physicians. To keep down costs and limit medically inappropriate
care, many managed care organizations: (1) use bonuses or withholds from
base pay to reward physicians who order fewer services; and (2) change
the basic payment method from fee-for-service to salary or capitation (payment
of a set dollar amount per patient per unit of time). Several recent studies
offer some insight into the effects of these new compensation arrangements.
The November 19, 1998 issue of the New
England Journal of Medicine presented the results of a 1996 survey
of primary care physicians practicing in California. Three quarters of
the respondents were in office-based practices with managed care contracts
with the remainder in group or staff model HMOs. Over one-third (38%) of
respondents reported that bonuses were part of their compensation packages,
and findings concerning this group included:
Aspects of performance rewarded. Similar
proportions of office-based and HMO-based physicians reported incentives
indexed to productivity and use of referrals and hospital services. Incentives
linked to prescription drugs, quality of care, and patient satisfaction
were more likely for physicians in HMOs.
Extent of risk. Bonuses were based
exclusively on individual performance for 15% of these respondents. When
physicians reported their income, the midpoint was $130,000, with approximately
$10,500 of that amount attributable to bonuses. A subgroup of physicians
received more than $40,000 in the form of bonuses.
Perceived effects on practice. Over
half (57%) felt pressure to limit the number of referrals, and 17% believed
this pressure compromised the quality of care. A substantial majority (75%)
felt pressure to see more patients per day; 24% believed this compromised
quality of care. A lesser number (28%) reported pressure to limit what
they told patients about treatment options. As compared with solo practitioners,
physicians in HMOs felt less pressure to limit referrals or discussion
of treatment options in ways they felt compromised care but greater pressure
to see more patients.
The study has several limits. Use of physician
self-report is problematic given strategic bias, i.e., the incentive respondents
have to strategically shape their responses when they believe their responses
will influence policy making that may affect them. And, as the authors
themselves note, the study does not measure the actual effects of incentive
arrangements on patient care and outcomes. Still, they are likely correct
in their conclusion that "high-quality care is unlikely to flourish in
an environment that leaves physicians demoralized and leads many to believe
that the standards of care have been compromised."
Satisfaction. Just under half reported
that they were very satisfied with their practices. Incentives based on
productivity were associated with lower satisfaction ratings; incentives
based on quality or patient satisfaction were associated with higher satisfaction
The November 18 issue of the Journal
of the American Medical Association reports findings from a complementary
study. Researchers surveyed adults enrolled in indemnity or managed care
plans of a single large insurer, focusing on the relationship between basic
payment method and patient trust. Nearly one-third of respondents were
incorrect in identifying their physicianís payment method; 37.7% said they
did not know the method of payment. Most (84%) completely or mostly trusted
their physicians, but trust varied among groups: 94% of patients actually
in the fee-for-service indemnity group said they trusted their physician
to put their health and well-being above keeping down the health planís
cost, versus 85% in fee-for-service managed care, 83% in capitation, and
77% in the salaried-physician group. (However, patients of salaried physicians
who correctly identified their physicianís method of payment had higher
levels of trust than other patients.) The power of perception is clear.
On the other hand, analysis revealed a statistically significant difference
in trust between the capitated patients and fee-for-service indemnity patients
even after controlling for patientsí perceptions of how their physicians
Among the lessons learned from these two
A small number of physicians receive a large
amount of income (more than $40,000) in the form of bonuses. These physicians
may be particularly susceptible to the temptation to cut corners. At the
very least, managed care organizations should carefully monitor the practice
patterns of these highly "incentivized" physicians to ensure that patient
care is not being compromised.
Incentives linked to quality of care and patient
satisfaction are associated with higher physician satisfaction. These criteria
for reward are also consistent with the goals of health care and should
be encouraged. Incentives linked to productivity and referrals stand in
need of strong justification given their association with physician dissatisfaction
and perceived deficiencies in care.
Stepping back, one may question whether the
present preoccupation with pay is serving us well. Stanford Business School
professor Jeffrey Pfeffer warns that a focus on extrinsic rewards such
as money undermines intrinsic motivation, distorts judgment, and may actually
diminish performance. Less tinkering with financial incentives and more
attention to the fundamentals of health care might be in the interests
of physicians, patients, and managed care organizations.
Physician incentives are difficult to study.
Many policy analysts favor salary as the most neutral method of payment.
The finding that patients of salaried physicians report the lowest levels
of trust is startling. Of course, an analysis of base method of payment
alone does not account for other pay features such as bonuses or equity
stakes, let alone non-pay-related contextual factors that may influence
physician behavior and patient trust. Also, because the JAMA study
was confined to a single insurer operating in the Mid-Atlantic states,
it would not have included members of established staff/group model HMOs
that tend to use salary, such as Kaiser or Harvard Pilgrim.