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Paying surgeons less can cost more
1Leonard Davis Institute of Health Economics, University of Pennsylvania, Philadelphia 19104-6081, USA. orthodoc@mail.med.upenn.edu
Insights
Lowering surgeon fees may paradoxically increase total healthcare costs due to physician income homeostasis. Paying surgeons for non-surgical tasks can optimize healthcare spending.
Area of Science:
- Health Economics
- Medical Practice Management
Background:
- Physician fees constitute a small fraction of overall healthcare expenditures.
- Complementary costs, such as hospital charges for surgery, significantly outweigh physician fees.
Purpose of the Study:
- To analyze the economic impact of physician fee adjustments on total healthcare costs.
- To explore strategies for optimizing healthcare spending by aligning physician incentives with cost-effective care.
Main Methods:
- Economic modeling of physician fee structures and patient demand for surgical procedures.
- Analysis of the relationship between surgeon reimbursement, surgical volume, and complementary costs.
Main Results:
- Decreasing surgeon fees can incentivize increased surgical procedures to maintain income (physician income homeostasis).
- This can paradoxically elevate total healthcare costs due to higher complementary expenses.
- Shifting payments towards non-operative care, research, or teaching may mitigate this effect.
Conclusions:
- Physician fee policies must consider the impact on complementary costs to effectively manage total healthcare spending.
- Incentivizing physicians for non-surgical, lower-cost services can lead to more efficient resource allocation.
- Understanding physician income homeostasis is crucial for designing effective healthcare payment reforms.
Abstract:
Fees for physicians' services represent only a small component of total health care costs. Complementary costs (particularly hospital charges for surgical treatment) are a far more substantial portion of total costs, and may be 10 times larger than surgical fees. Because surgeons have considerable influence over the demand for surgery, and because the complementary costs do not cost the surgeon at all, marginally lowering surgeons' fees can, paradoxically, increase total health care costs, even if net payments to surgeons go down. This is because surgeons may respond to a decrease in their per-case reimbursements by performing more surgery to maintain their status-quo income. This phenomenon is known as physician income homeostasis. A health care payer may benefit by paying surgeons more to perform tasks that do not have high associated costs, such as outpatient nonoperative care, research, or teaching. In this fashion, faced with declining surgical fees, the surgeon will maintain his or her income not by performing more expensive surgery, but rather by doing more nonoperative work.