ECON 440 Lecture Notes - Lecture 19: George Bernard Shaw, Physician Supply, Health System
13 Jun 2018
School
Department
Course
Professor
Context
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Who determines price, quantity, and quality?
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Physician agency
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Efficiency vs selection
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Physician payment methods and associated incentives
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Payment methods used in the US and Canada
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Outline
Hospitals remain the largest source of spending
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A large component of overall healthcare spending (16%) in Canada are spent on drugs and physicians
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RAMQ spends $7 billion on MD (in and out patient) services, 62% of total spending
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$384 million to specialists, $33 million to GPs
▪
$416 million more than expected to MDs (2010 - 15)
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QC Auditor General's report, 2015
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If we pay physicians more to do more, we won't have long waiting lists, etc.
▪
But, concern about where is that money going, and what are we getting for it?
▪
High productivity? Valuable services? Allocatively efficient (MP and MB)?
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Anytime we see higher spending than what was budgeted we have to ask:
•
CIHI National Health Expenditure Trends Report (2015)
Recent report: QC physicians have had their payments increase, but there's no clear improvements in
quality or efficiency
▪
Overtime, physician income increases greatly (around the early 2000s)
○
Historically - argument that physicians are underpaid in Canada
•
Within these specialties, there are some specialist that are earning even more than others
▪
Specialists are earning more than GPs
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Distribution of payments to physician across and within specialties
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Physicians are 7% of the workforce, but earn around 30% of the salary
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What Doctors Get Paid in Canada
The principal relies on the agent to make decisions and act in their best interest
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Must understand the principal's preferences
▪
A "perfect agent" would make the same choice the principal would, if the principal had the same information
(bilateral asymmetry)
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Principal-agent relationship
•
One principal is the patient, the other is the insurer (payer)
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Physicians are stuck in the position to be the best agent for two principals - these principals may have goals
that are in conflict with each other
▪
What are the principals' objectives? Are they in conflict?
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Remember that physicians are dual agents
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Physician as Agent
Physician is the agent, and also the supplier of the goods/services
•
Points out the irony in how we structure our payment systems (i.e., we create strange incentives)
▪
We do't pay physiias to rig us ak to perfet health…hat are e payig the for?
▪
George Bernard Shaw, The Doctor's Dilemma, 1909
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"That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary
interest in baking for you, should go on to give a surgeon pecuniary interest in cutting off your leg, is enough to make
o despair of politial huaity…He ho orrets the igroig to-nail receives a few shillings: he who cuts your inside
out reeies hudreds of guieas…"
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Physician Agency
Insurers provide many incentives and benefits to get physicians to behave in a way that aligns with the
▪
Physicians live in an incentivized environment
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How do physicians weigh their obligations to their various principals?
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Research and Policy Questions
Lecture 19 - Payment to Providers and Physician Agency
Wednesday, March 21, 2018
12:56 AM
ECON 440 Page 1
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Insurers provide many incentives and benefits to get physicians to behave in a way that aligns with the
insurer's goals
▪
Physicians are completely profit-maximizing < ------------------------- > Physician who is 100% concerned with
their patient's wellbeing
▪
Maximize income? Patient benefit?
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How do they affect the quantity and quality of services provided?
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What about their own objectives?
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High-quality (structure-process outcome)
▪
Accessible, continuous (people with ongoing health conditions have coherent access to care),
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Effective care (maybe even cost effective)
▪
…that aitais ad iproes the health of idiiduals ad populatios effiietly…
▪
We at series that are…
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Remember those high-alue series…
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How can payment mechanisms and other policies be used to achieve society's goals (maximize social welfare)?
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This was the dominant mode of payment in the 1970s - 1980s (around when Health economists were thinking about
how physicians behave)
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Fixed payment per service (exam, surgery, etc.)
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Physician's cost: time, effort, office rent, nursing time, etc.
▪
Pays physicians cost + margin (their profit)
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How much are physicians doing relative to what's optimal?
▪
Rewards volume of services, not quality of services or patients' health outcomes
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Fee-for-Services (FFS)
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Conversely, in prospective payment systems, the amount providers are paid doesn't explicitly reflect their cost
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In some sense, FFS explicitly covers the cost of providing the service
•
The services on this list are determined via explicit negotiation processes between the Physician's Union and the
Health Ministry
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Payment Scheme for Physician Services
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"Traditional" MD Payment
Positive utility from net income (profit) and leisure (want to minimize time/effort)
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Use of unnecessary services, reduced access
▪
Disutility from not acting in patients' best interest
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Physicians are utility-maximizers
•
Higher wages increase labor supply, up to a point, after which physicians prefer to trade additional income for
more leisure time
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Backward-bending labor supply curve
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Income and substitution effects
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Additional income from disutility from inducement of services
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Physicians' response to a change in fees paid for medical services depends on the relative strength of:
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Must analyze empirical data to draw conclusions
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This model does not give us a clear prediction
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When the profit rate (i.e., fee per service) increases, inducement may increase or not change, depending on cost
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FFS > Cost of inducement
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The psychic costs of inducement have to be outweighed by increased profit
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Benchmark Model of Physician Behavior (McGuire and Pauly 1991)
The Backward-Bending Physician Labor Supply Curve
ECON 440 Page 2
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Document Summary
Lecture 19 - payment to providers and physician agency. Payment methods used in the us and canada. A large component of overall healthcare spending (16%) in canada are spent on drugs and physicians. Ramq spends billion on md (in and out patient) services, 62% of total spending. million more than expected to mds (2010 - 15) million to specialists, million to gps. Anytime we see higher spending than what was budgeted we have to ask: If we pay physicians more to do more, we won"t have long waiting lists, etc. Historically - argument that physicians are underpaid in canada. Overtime, physician income increases greatly (around the early 2000s) Recent report: qc physicians have had their payments increase, but there"s no clear improvements in quality or efficiency. Distribution of payments to physician across and within specialties. Within these specialties, there are some specialist that are earning even more than others.
