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Financial incentives for physicians in HMOs. Is there a conflict of interest?
1University of Pennsylvania, Philadelphia 19104-4283.
Insights
Financial incentives in health maintenance organizations (HMOs) may create physician conflicts of interest. Contractual arrangements vary, potentially impacting patient care quality due to financial pressures on physicians.
Area of Science:
- Health Services Research
- Medical Economics
- Physician Contracting
Background:
- Health Maintenance Organizations (HMOs) utilize financial incentives to manage healthcare resource utilization.
- Potential conflicts arise between physicians' financial interests and patient welfare.
Purpose of the Study:
- To investigate contractual obligations and financial incentives for primary care physicians within HMOs.
- To identify potential conflicts of interest stemming from these financial arrangements.
Main Methods:
- A survey was mailed to 595 Health Maintenance Organizations (HMOs) in operation as of June 1986.
- Response rate was 51% (302 HMOs).
- Data collected on physician payment structures, income withholding, and performance-based returns.
Main Results:
- Significant percentages of HMOs (67% capitation, 82% fee-for-service) withhold physician income.
- For-profit HMOs more frequently use income withholding and individual physician performance metrics.
- Contractual arrangements and financial incentives vary widely across HMOs.
Conclusions:
- HMO contractual arrangements exhibit considerable diversity.
- Specific financial incentives, particularly in combination, indicate potential conflicts of interest.
- These conflicts may influence physician behavior and negatively affect healthcare quality.
Abstract:
Do financial incentives used by health maintenance organizations (HMOs) to restrain the use of health care resources represent a conflict of interest between physicians' concern about their income and their concern about patients? To explore the contractual obligations of primary care physicians in HMOs, I mailed a survey to all 595 HMOs known to be in operation as of June 1986. In all, 302 of 595 HMOs (51 percent) responded. Sixty-seven percent of plans with capitation-based arrangements and 82 percent of plans with fee-for-service arrangements withhold a percentage of their physicians' income against potential deficits, but only 21 percent of plans with salaried physicians do so. Thirty percent of HMOs have other penalties in addition to this withholding. Eighteen percent of HMOs base the return of the withheld amount on the experience of individual physicians rather than on the collective experience of a group of physicians. For-profit HMOs are less likely to use salary-based payment, more likely to withhold a percentage of income, and more likely to base the return of this withheld amount on the experience of individual physicians. Most HMOs have mechanisms for sharing surpluses with participating physicians. I conclude that contractual arrangements in HMOs vary widely. Certain financial incentives, especially when used in combination, suggest conflicts of interest that may influence physicians' behavior and adversely affect the quality of care.