Ethics, economics, and physician reimbursement

There has been much debate among health care professionals over how physicians should be paid for their services. This paper addresses the topic through an economic and ethical analysis. It starts from the premise that fairness and cost effectiveness should be the goals of a good physician reimbursement system. Using the goals of fairness and cost effectiveness as measures, it examines the current market model. Finding that the current model provides neither fairness nor cost effectiveness, the paper compares the structure of the physician services market to the assumptions made by economists in the idealized market model. Two major imperfections are found in the former. These imperfections are an asymmetry in information between patient and physician, and the uneven and unpredictable distribution of health needs. These two imperfections are examined in light of the goals set out in the beginning of the paper. The paper finds that, given the imperfections, physician reimbursement as it currently exists is incompatible with the goals of fairness and cost effectiveness. In conclusion, several recommendations are made, most significantly a broadening of the interpretation of physician agency, i.e., physician as "agent," and the switch from a fee-for-service physician payment system to a salaried medical practice.