Physician Financial Incentives in Managed Care
Today, few would argue that financial incentives affect how physicians practice; the concept is foundational to pay-for-performance strategies and value-based payments. But no such consensus existed in 1989, when the late Alan Hillman and colleagues Mark Pauly and Joseph Kerstein published the landmark study, How Do Financial Incentives Affect Physicians’ Clinical Decisions and the Financial Performance of Health Maintenance Organizations, in the New England Journal of Medicine. The study was the first to document that, across HMOs, physician payment methods influenced enrollee hospitalization rates and rates of outpatient visits.
The study won the 1990 AcademyHealth Article-of-the-Year award, and contributed to the growing realization that all payment policy, including the fee-for-service system, influences clinical decisions. As Dr. Hillman noted in a 1990 Annals of Internal Medicine editorial:
Physicians (and patients) respond to what is in their pecuniary interests...The crucial question is not whether financial incentives affect physicians' decisions, but whether some financial incentives distort physicians' judgment.
We're still trying to answer that one.