The Effect of Reimbursement on Medical Decision Making

The question of whether physicians alter their treatment behavior when presented with financial incentives has not definitely been answered. In this article, author Lori Melichar addresses the question of physician response to financial incentive by looking at survey data from the National Ambulatory Medical Care Survey (NAMCS). Melichar specifically looks at capitated and noncapitated physicians.

Capitation is a financial arrangement wherein physicians receive a set fee per enrolled patient each month that is meant to reflect the actuarial cost of care the patient is expected to require. If economic theory predicts physicians are profit-maximizing and responding to financial incentives, then physicians should be observed to spend less time with capitated patients than with noncapitated patients. The author avoided previous literature’s pitfalls by using panel data techniques to control for physician-specific variables that may influence physician behavior but are not recorded in the data set.

The article shows that capitated patients have statistically significant shorter visits with the physician by 1.14 minutes than noncapitated patients. Regression results suggest specific incentives embodied in capitation and HMO status affects length of physician/patient interaction. Capitated managed care contracted physicians make treatment decisions not inconsistent with profit-maximization. Due to great physician efficiency, halting of unnecessary procedures or skimping on care, this article shows that capitation is affecting the practice of medicine.