Question

What is the optimal way to pay physicians?  How will this method for paying incentivize too much or too little care?

Answer 1

Fee for Service- This is the traditional method used by both private health insurers and the government (Medicare and Medicaid) and is called' fee-for-service.' In fee-for-service (FFS), the insurance payer pays whatever the doctor, hospital or other health care provider charges, without prearrangement of rates, once an insurance claim is made by the care provider.
Fee-for-service compensation is also the basis for early managed care payment forms in what is known as managed care ' discounted fee-for-service.' That simply means that providers consent to provide health services at their normal fee-for-service rates at pre-arranged discounts. This is the normal practice for PPOs (Preferred Provider Organizations), which are basically a group of available services that are integrated into a network.
Fee-for-service reimbursement may be on its way out, suggesting that more complex payment systems continue to emerge.

Capitation- When a doctor, medical group, hospital or integrated health care system receives a certain flat fee each month to take care of an individual enrolled in a managed health care plan, irrespective of the cost of the care of that individual.
Since most people who are enrolled in a health plan will never use health care services within a given month, capitation policies will, of course, align the high consumers of health plans with those who use little or no health care every month.

Relative Value Units- A pay-for-performance system which takes into account the education, expertise and time spent by the practitioner to provide a particular service while setting up payment. With this model, more than the number of visits, the actual care provided by the doctor is the driving force of compensation.
With this pay structure, a doctor who looks after a handful of high-profile patients has the ability to earn more than a doctor who works with very general cases of patients. This is because a lower RVU than a specialist treatment would be applied to a simple check-up.

Bundled Payments- A payment system where an episode of treatment is followed by doctor and hospital costs to make a single fee. An ambulatory surgery would be a simple example. Most doctors are often paid for pre-op, post-op and surgery with a single payment. Bundled fees, however, can also be much wider, spanning longer time spans and various providers. Bundled payments promote value-based medicine and efficiencies mandated by the Affordable Care Act, but this structure also creates confusion and opportunities for hospitals and excludes services and procedures.

Comprehensive Primary Care- A model that encourages doctors to maintain healthy patients by setting a single risk-adjusted price for all healthcare services that a group or individual needs for a fixed period of time. Doctors were given bonuses with this model focused on quality patient care.
The primary benefit of this payment model is that healthcare providers are given greater flexibility in determining what the patient needs and the services needed to deliver them without the restriction of fee codes. The question, however, as a doctor, is how managers operate under such a payment system.