Physician responsibility for the cost of unnecessary medical services

Most diagnostic and therapeutic services are ordered by physicians, but physicians practicing under fee-for-service conditions have few incentives to contain the costs of medical care. Without such incentives, effective cost control through mechanisms such as Professional Standards Review Organizations have been disappointing. Several legal approaches might be used to increase physicians' responsibility for the cost of unnecessary services--expansion of tort law, implied contact, redesign of insurance mechanisms, equitable estoppel and informed consent. However, increasing physician responsibility will require uniform but flexible definitions of medical necessity, reliable means for predeterming the need for services and effective penalties or incentives. We propose a peer-review system that would incorporate the sharing of financial risk among physician, hospital, insurer and patient in the fee-for-service sector.