This is an archived article.

March 19, 1998

Cost, use of health services is not affected by physician compensation: a study of Washington state medical groups/managed care organizations

Whether by productivity or by salary, the way in which primary care physicians are compensated in medical groups does not appear to affect the cost or amount of health services for patients. A study by researchers at the University of Washington School of Public Health and Community Medicine and published in the March 18 edition of the Journal of the American Medical Association, is one of the first quantitative studies to examine methods of physician compensation in medical groups to determine whether such financial incentives influence the individual physician’s behavior.

“We were surprised to find no significant differences between compensation types,” said Dr. Douglas Conrad, UW professor of health services and lead author of the study. “It’s been thought that paying individual primary health-care physicians on a fee-for-service basis would drive up the amount and costs of medical services for patients, but at the physician-patient level, this doesn’t appear to be true.”

For the study, researchers examined 60 medical groups in Washington state to identify 865 primary care (internal medicine, family practice or general practice) physicians and 200,931 adult enrollees. Each physician was associated with one or more of three managed health care plans, which provided individual enrollee data for the study. Some of the medical groups compensated physicians on a fee-for-service basis, while others did so on a salaried basis.

Through a survey of 1994 plan enrollment and utilization data, researchers identified the methods and amount of physician compensation for services. In addition, they measured the yearly physician visits, hospital days and total estimated health costs for each patient during that time period.

Results found no significant difference related to physician payment and patient costs and utilization.

“This study penetrated to the level of how the medical group compensated the individual physician,” Conrad noted. “Because of this, it helps provide a clearer picture of the amount of incentives at the level of individual doctors and their patients.”

Researchers note that such findings may or may not translate to other environments or market conditions. They add that the study does not address how physicians outside of medical groups may react to compensation methods.

“This study does provide good news to the health consumer,” Conrad notes. “Compensating physicians in ways that encourage productivity does not appear — at the physician/patient level — to be resulting in substantial differences in the level of services provided per patient. For example, we see no evidence that such physicians are ‘churning’ services to increase revenues per patient.”

In contrast to their findings on physician compensation, researchers identified several factors that did appear to affect cost and use of health services. These included patient’s age and gender, health plan benefit level and physician age. Most notable of these findings were a 78 percent increase in yearly health costs and 19 percent increase in physician visits in women compared to men. Conrad notes such figures are consistent with national statistical findings.

The research was supported by a grant from the Robert Wood Johnson Foundation Health Care Financing and Organization Initiative.