Paying Hospital-Based Doctors: Fee for Whose Service?

20 Pages Posted: 27 Oct 2013

See all articles by Ake Blomqvist

Ake Blomqvist

Carleton University; C.D. Howe Institute

Colin Busby

C.D. Howe Institute

Date Written: October 23, 2013


Canadian specialist doctors are paid mainly through fee-for-service for the procedures they perform.

Nationwide, more than 80 percent of surgical specialists’ income comes from fee-for-service payments that are negotiated collectively with provincial health ministries. Surgical specialists make up about 20 percent of all full-time equivalent physicians, and fee-for-service payments to them accounted for close to $4 billion nationwide in 2011/12. Because physicians’ decisions are the major drivers for most healthcare costs, getting the incentives right regarding the way doctors are paid is critical in ensuring Canadians receive good value for money from the healthcare system.

Whereas most hospital-based specialist doctors are paid via fee-for-service by provincial insurance plans, most hospital funding comes through a separate pipe, in the form of lump-sum amounts not linked to the number and quality of services provided. The result is a system in which neither specialists’ time nor hospital resources are efficiently used, contributing to high costs and long waiting lists. One contributing factor to waiting lists, and one reason why many recently graduated specialists in Canada are unemployed or underemployed, is a lack of complementary facilities, such as operating rooms, and the lack of complementary professionals, such as anaesthesiologists, nurses and so on. When a medical procedure requires hospital facilities as well as specialist time, the fee should be shared between hospitals and specialists in ways that give both a stake in producing high-quality care at low costs. We propose that hospital-based physicians be paid directly from hospital budgets as opposed to the current practice of paying them separately through provincial insurance plans. Hospitals would then engage doctors and pay them appropriately – either by salary, fee-for-service, or a blend of methods. This would result in stronger incentives for providers to better deploy resources but may also lead to potential side effects, such as cost shifting and lower quality of care. In this Commentary, we discuss how incentives to both hospitals and doctors could be carefully designed to avoid pitfalls and to promote more efficient use of resources.

Keywords: Social Policy, Health Policy, Canadian Health Care

JEL Classification: I18, I11, I12, I19

Suggested Citation

Blomqvist, Ake and Busby, Colin, Paying Hospital-Based Doctors: Fee for Whose Service? (October 23, 2013). C.D. Howe Institute Commentary 392. Available at SSRN: or

Ake Blomqvist

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8

Colin Busby (Contact Author)

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8

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