There is abundant evidence that doctors, like everyone else, respond to the incentive structure they face. Depending on how doctors are paid, they behave differently. From what health economists know about the effects on care of how physicians are paid, I believe that a change in methods of remuneration could go a long way towards solving the problem of the two-tier system of care for Irish hospital patients.
Problems arise when a physician is paid according to different principles for different classes of patient. Irish consultant specialists are paid what amounts to a salary to treat public patients and by fee-for-service for private patients. Such hybrid systems are full of mischief and tend to produce a bias in care.
International evidence supports the view that physician behaviour profoundly differs under three basic types of remuneration.
Under fee-for-service (FFS), doctors are paid (by patients, the government or insurers) according to services performed: so much for a consultation, an obstetric delivery, etc. In the US, at one time almost all attending physicians were paid in this manner, though in recent years there have been profound changes.
Under the capitation method, patients are registered with one physician, who undertakes to provide all needed care within his speciality for a flat amount per time period, for every patient, regardless of how much he treats the patient during that period.
In Ireland, general practitioners are paid by capitation for medical card holders. In the British National Health Service, GPs are paid by capitation. In the US many Health Maintenance Organisations (HMOs) pay primary care doctors by capitation, and some pay specialists in the same way.
The third method is salary remuneration. "Staff model" HMOs in the US - those which hire doctors as paid employees - often pay physicians by salary.
Doctors paid by FFS systematically tend to provide more services than doctors paid under either of the other two methods. A doctor who sees a patient will be paid for a return visit under FFS, but not under capitation or salary.
IN HEALTH economics there is an international research literature pointing to "supplier-induced demand" by some physicians under FFS, who use their authority to get their patients to use more of their own services.
HMOs opt for capitation or salary in order to discourage utilisation. It is a well-known and sometimes controversial device to control expenditures. Patient advocates argue that these methods of remuneration encourage physicians to under-provide care.
The way doctors are paid also affects their referral behaviour. Primary-care doctors paid by FFS are known to be more reluctant to refer their patients to specialists. They often prefer to treat them themselves, in order to continue to receive a revenue from them.
Doctors paid by capitation or salary are more keen to refer their patients elsewhere, when they continue to be paid in respect of those patients. These effects have been shown to exist in country after country, in a variety of healthcare systems.
Clearly, no method is perfect. If there is evidence of overutilisation, one might want to consider capitation or salary. If there is evidence of inadequate provision of care, one might want to try FFS. A problem arises when a physician is paid according to different principles for different classes of patients, as occurs in Ireland.
If a doctor is paid by FFS for one group of patients and by capitation or salary for another group, he or she is being given economic signals to increase treatment of the first group and reduce treatment of the second group.
Ireland appears to have created such hybrid systems in two circumstances. First, Irish GPs are paid by capitation for medical card holders and by FFS for private patients. One would expect a consequence to be that GPs would favour private patients whenever time or resources are inadequate to treat both in a timely fashion.
If this bias exists, I have to take some responsibility for it. My 1985 ESRI study, Irish Medical Care Resources - An Economic Analysis, recommended shifting remuneration from FFS to capitation for medical-card patients. However, I know of no evidence that this bias exists.
Similarly, Irish consultant specialists are paid by what amounts to salary to treat public patients, and by FFS for private patients. A health economist would predict the consequence of this unhappy combination would be that consultants would favour private patients.
The extent of this bias doesn't really depend on the levels of salary and fees. Even where a doctor is paid a handsome salary, the incremental revenue for treating one more public patient is nothing.
OF COURSE, one could try to combat these strong incentives through a system of careful monitoring of consultants' use of time. Trying to overcome economic incentives with regulation is often unsuccessful.
Unlike the case of GPs, the case of consultants provides abundant evidence of exactly the biased behaviour the theory predicts. There is some research and there are numerous anecdotes to support the following picture:
Private patients have shorter waiting periods for care than public patients.
Private patients are more likely to be treated personally by a consultant. Public patients can move up in the queue by becoming private patients, paying the physician by FFS. Many people report that they buy VHI indemnity insurance specifically for the purpose of reducing the waiting period and increasing the probability that they will be treated by the consultant.
This pattern can be explained by reference to remuneration alone. There may be many other problems in the Irish healthcare system, but one apparent to me is the unhappy combination of salary remuneration for public patients and FFS for private patients. The Labour Party has proposed rectifying this by buying insurance for public patients. Paying specialists by FFS for all patients is a simpler reform which could achieve the same results.
The same amounts currently used to pay salaries could be instead used to pay physicians according to fee-for-service. Use of FFS runs the risk of increased supplier-induced demand. No method of remuneration is perfect. An all-FFS specialist service would require careful evaluation to limit the tendency of this method of remuneration to yield excessive care.
This seems today to be an acceptable risk, given the urgent need for a system which does not discriminate so much between public and private patients.
Dale Tussing is professor of economics at Syracuse University, New York, and has been a research professor at the Economic and Social Research Institute. He has written influential studies on Irish education and health