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Design and Impact of Physician Payment Incentives: Theory and Evidence

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Abstract

This article delineates a broad conceptual framework for predicting physician behavioral response to financial incentives. The framework views incentives within a two-tiered hierarchy: (1) private health plan or public program payments to the provider organization, e.g., the medical group practice, or integrated delivery system (external incentives); (2) method of compensation to the individual within the provider organization (internal incentives.

Within that framework several dimensions of physician behavior and outcomes are examined – total per capita payments for the physician’s panel of patients, quality of services, and physician productivity, in order to provide an integrated view of physician response to financial incentives. Next, a set of propositions are derived broadly from the conceptual framework. Those propositions are evaluated broadly by comparison to the extant empirical evidence. The article concludes by discussing the implications of the empirical evidence for theory and practice pertaining to physicians’ response to payment incentives.

In order to fundamentally move payment models from the dominant fee-for-service structure, public policymakers and private health plans must create a “burning platform”, in which neither providers nor health insurers perceive that continued reliance on FFS is an option. To catalyze this revolution in incentives, purchasers (public programs, employers, and other sponsors of health plans) must insist on disruptive change toward value-based, rather than volume-based, payment. Payment incentive design will influence care delivery – precisely because different delivery models (e.g., small independent practices, independent practice associations, multi-specialty medical groups, and integrated delivery systems) have distinct capabilities for assuming and managing population health risk. Those differences highlight the importance of adjusting payment levels for differences in population health risk, but should not be used as a reason to delay implementation of value-based payment reform.

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    Douglas A. Conrad

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Conrad, D.A. (2018). Design and Impact of Physician Payment Incentives: Theory and Evidence. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2867

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