Why fee-for-service should be abolished

Doctors should be paid by salary, not fee-for-service, argue two behavioural economists.

Outlining the problems with fee-for-service arrangements in the US, the authors say these “compensation schemes” create perverse incentives for doctors to operate in ways that are not in patients’ best interests.

Fee-for-service is the system upon which Australia’s Medicare is based and is also predominantly used in the US. However, many US doctors are now paid a salary, as are almost all those working in the UK.

Writing in JAMA, Dr George Loewenstein, a professor of economics and psychology at Carnegie Mellon in Pittsburgh and Dr Ian Larkin, an assistant professor of strategy at the University of California’s Anderson School of Management, say an expansion of salary-based systems would do much to improve the quality of patient care.

"Paying doctors to do more [as in fee-for-service models] leads to over-provision of tests and procedures, which cause harms that go beyond the monetary and time costs of getting them,” they write.

Yet, the authors note that the way doctors are paid is largely ignored in the medical literature despite the significant conflict of interest it represents.

Doctors’ remuneration schemes dwarf the ongoing debate on their relationship with big pharma, they add.

Loewenstein and Larkin argue that the simplest and most effective way to deal with conflicts caused by fee-for-service arrangements is to pay doctors on a straight salary basis.