Paying Physicians More to Do Less: Financial Incentives to Limit Care

Abstract:     
As the explosion in health care costs has led to serious efforts at cost containment, concerns have been raised that some of the methods used to contain costs may cause more harm than good. In particular, many commentators have criticized the practice of giving physicians personal financial incentives to limit the provision of care to their patients. These critics have argued that, if physicians are paid more to do less, patients will suffer harm from undertreated illness, and patient trust in the patient-physician relationship will be seriously compromised. Accordingly, it is argued, financial incentives for physicians to limit care should not be used and should even be prohibited.

In this article, I argue that the opposition to financial incentives is ultimately misguided, that it gives insufficient weight to the benefits of financial incentives and to the broader context in which financial incentives are used. While personal financial incentives to limit care raise important ethical concerns, they also have important benefits for cost containment that alternative methods do not have. Moreover, the alternative methods are either insufficiently effective or raise their own equally troubling concerns. Accordingly, while the government should place limits on the extent to which financial incentives can be used, it should not prohibit the incentives entirely.

Number of Pages in PDF File: 44

Keywords: health care, cost containment, managed care

JEL Classification: I18

Accepted Paper Series