Paying physicians a straight salary could reduce health care costs, and stress

By John Murphy, MDLinx
Published September 10, 2018

Key Takeaways

More than two-thirds of physicians said they would prefer to be paid a salary instead of being paid by fee-for-service, according to results of a recent survey. If physicians were paid by salary rather than volume, they’d likely order fewer tests and procedures, which would lower overall health care costs—and reduce physicians’ job frustrations, researchers predicted.

The survey, The Nation’s Pulse: The Texas Medical Center’s Consumer & Physician Survey, found that only one in three physicians is currently paid entirely by salary; the remainder are paid in various combinations of salary and fee-for-service. The survey included 452 physicians throughout the nation (241 in primary care and 211 specialists), all of whom spend at least 50% of their time in patient care.

Physicians reported in the survey that volume of services accounts for 69% of their incentive compensation. For specialists, volume accounted for an even greater portion of incentives: 74%.

Payment based on volume encourages doctors to order more tests and procedures, many of which may not be necessary, researchers say. A recent study by medical professors at Johns Hopkins University and Harvard Medical School estimated that roughly 20% of all medical care is unnecessary.

Furthermore, these unneeded services account for about $210 billion of the estimated $750 billion in excess health care spending per year, according to a report from the Institute of Medicine.

“Paying doctors to do more leads to over-provision of tests and procedures, which cause harms that go beyond the monetary and time costs of getting them,” said George Loewenstein, PhD, Professor of Economics and Psychology at Carnegie Mellon University, in Pittsburgh, PA. “Many, if not most, tests and procedures cause pain and discomfort, especially when they go wrong.”

Dr. Loewenstein co-authored a JAMA article that suggested, among other things, that the conflict of interest caused by fee-for-service arrangements could be solved by paying physicians a straight salary.

The Texas Medical Center’s Consumer & Physician Survey found that 70% of general physicians and 78% of specialists said they’d prefer to be paid by salary (or paid mostly by salary with a small percentage of incentives).

Paying physicians a straight salary may not only reduce overall health care spending, but also reduce physicians’ stress and frustration.

“The high levels of job dissatisfaction reported by many physicians may result, in part, from the need to navigate the complexities of the fee-for-service arrangements,” said Ian Larkin, PhD, Assistant Professor of Strategy at University of California’s Anderson School of Management, in Los Angeles, CA, and Dr. Loewenstein’s co-author of the JAMA article. “Instead of focusing on providing patients with the best possible medical care, physicians are forced to consider the ramifications of their decisions for their own paychecks.”

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