How Much do Financial Incentives Matter to Physicians?

In this experiment, medical students were paid under fee-for-service and capitated payment to treat hypothetical patients. Here is Austin Frakt on the study:

Oh, before I get to the results, one more cool thing about the experiment. The physician (student) participants actually earn the money they generate from treatments prescribed in the experiment. Since there are no actual patients, the researchers included an incentive for the physicians to take patient concerns seriously by converting patient benefits into contributions to a charity that cares for real patients. Given the constraints of experimenting on actual people, I think this is a very cool design. Still, one might wonder how things might be different in the presence of real, flesh and blood patients.

  OK, about the findings:

  1. Payment systems matter. More services are provided under FFS than CAP. On average, patients receive more services than are optimal under the former and fewer than optimal under the latter.
  2. Patient health matters. That is, physicians do respond to how much treatment benefits patients. Still, under FFS, patients in good and intermediate health are over-served. Under CAP, patients in poor and intermediate health are underserved.
  3. Payment systems affect health (or patient benefit). Patients in good and intermediate health suffer losses under FFS due to overprovision. Patients in intermediate and poor health suffer losses under CAP due to under-provision.

Comments (5)

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  1. Devon Herrick says:

    This experiment confirms what we have assumed for years. FFS induces physicians to provide more services than are needed because additional services are subsidized at the margin. CAP encourages physicians to provide fewer services than would be beneficial because it penalizes physician cares at the margin.

  2. Virginia says:

    Incentives. Incentives. Incentives.

  3. Bruce says:

    Interesting. And I think consistent with our perceptions of real world care.

  4. Jeff says:

    This is an interesting experiment. And I agree that the results seem very realistic.

  5. Julie says:

    This is not applicable to real world. I resent that someone who just analyzes for a living can tell a doctor that he/she cares for patients based on incentive pay. It is as wrong as the assumption that physicians prescribe a drug just because he/she gets a lunch from a drug rep. By the way, most physicians don’t gain a dime of the tests they order anymore because they work for a large corporation that pays their CEO in the millions. Go to the source of the problem, the administrative and beurocratic burdens that are killing us! And one other thought, do a real study on actualhysicians and not in training physicians who were likely incented because they don’t have any money!