Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 114
the risks and consequences of various illnesses and treatments. Capitation creates an
incentive for these physicians or practice groups to emphasize preventative treatments
and primary care. 92 However, there is now a risk that some health care professionals will
“cream-skim” for the lowest risk patients, who are less costly to service. Any capitation
scheme must incorporate mechanisms to safeguard against this possibility, for example,
through mandatory pooling or risk-adjusted capitation payments, although either
mechanism is likely to entail substantial additional administrative complexity and
transaction costs. Moreover, capitation by itself may exacerbate incentives to externalize
costs to other elements of the health care system, so that encouraging the emergence of
group practices with global patient-capitated budgets may be desirable, perhaps covering
all medically necessary services other than catastrophic risks. 93
The practice of salaried remuneration simply provides a yearly income for physicians,
independent of services provided or the number of patients seen. The risk with salary is
the disconnect between payment received and services issued, creating incentives to
under-provide treatment. In addition, no incentive exists for physicians to supply the most
cost-effective service. For example, the most economical approach to an illness may
involve treatment and follow-up consultations with one doctor. However, a salaried
physician might be influenced to refer the patient to a specialist. On the other hand, if
physicians were employed in group practices, competition could arise between groups for
patients. 94 The employer of a physician group could hire specialists with a similar
approach to medicine—perhaps a focus on preventative and primary techniques rather
than more intensive and invasive procedures—if this was believed to provide effective
patient service. Incentives could be calibrated to peer reviews and promotions, with
bonuses available for performance and prevention targets achieved.
Studies show a correlation between payment methods and health care use. Physicians
paid by FFS see more patients and have higher billings than physicians paid by capitation
or salary. 95 They also exhibit higher hospital admissions than physicians paid by
capitation. 96 Salaried doctors conducted fewer tests, saw fewer patients and had fewer
referrals than those paid by either FFS or capitation. 97 Further, physicians paid by
capitation or salary tend to transfer their work to others, increasing their numbers of
prescriptions and referrals. 98
Due to the varied incentives, some systems now employ a mixture of FFS and
capitation. Britain utilizes a mixed payment scheme, under which compensation for
general practitioners is composed of capitation and basic allowances (65 percent), FFS
(25 percent) and target payments (10 percent). 99 The most innovative suggestions for
mixed payment schemes involve tying compensation to outcomes. The UK and parts of
the Ontario system use a similar blended approach tied to outcomes and measures such as
vaccination rates. 100 This sort of approach deserves further exploration.
Based on existing evidence, significant supply-side incentive gains are likely to be
realized by embracing some form of capitation system for physicians within a structure of
group practices. Capitation would encourage greater use of incentives for long-term
patient care including prevention. It would also promote a more efficient use of services,
such as the provision of 24-hour availability seven days a week through the group rather
than through higher-cost emergency hospital rooms. The incentive to cream-skim could
be avoided either by weighting capitation payments to compensate physicians for higher-