Abstract
In this paper, we investigate in a controlled laboratory experiment physician behavior in the case of payment heterogeneity. In the experiment, each physician provides medical care to patients whose treatments are paid for either under fee-for-service (FFS) or capitation (CAP). We observe that physicians customize care in response to the payment system. A FFS patient receives considerably more medical care than the corresponding CAP patient with the same illness and treatment preference. Physicians over-serve FFS patients and under-serve CAP patients. After a CAP payment reduction in the experiment we observe neither a quantity reduction under CAP nor a spillover into the treatment of FFS patients.
Highlights
Physicians’ financial interests might conflict with the best service to patients
For each physician, looking at the relative deviation of their profit from the maximum achievable profit, averaged over all patients of the same payment system, we find the relative deviation under CAP significantly larger than under FFS (S1, S2: p < 0.01; Wilcoxon signed ranks test (WT))
Analyzing the relative patient benefit loss averaged over all individual treatment decisions under the same payment system and sequence, we find in each sequence that FFS patients fared considerably better than CAP patients, despite the higher proportion of optimal treatment decisions for CAP than for FFS patients (Section 3.1)
Summary
Physicians’ financial interests might conflict with the best service to patients. It is essential to gain a thorough understanding of the effect of remuneration systems on physician behaviour. Health care spending constitutes a significant share of GDP. In 2018, it amounted to about 17% in the USA, 11% in Germany, and 9% in OECD countries [1]. A large share of this money goes to the payment of health care providers. Since physicians’ financial interests might conflict with the best service to patients [2], it is essential to understand the effect of financial incentives on physician behaviour. There is extensive literature on this issue. Ellis & McGuire [3] demonstrated that FFS leads to an over-provision of medical services, whereas
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