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Are your economic incentives self-defeating?

In a prior column (Long, H., "Group Practices May Ignore Economic Realities: Commingling of Rents and Returns," Physician Executive 14(5):33-35, Sept.-Oct. 1988), the author discussed the tendency of many group practices to ignore ordinary business economics. The examples discussed in that column was the inappropriate commingling of rents and returns from the various factors of production in medical practice. A frequent result of this is physicians who also have ownership interests and/or managerial responsibilities having an inflated perception of their worth as physicians because they are undercompensated for their ownership/management roles. In this column, the author addresses the inadvertent structuring of physician remuneration via income distribution or externally negotiated formulas that reward individual behavior that actually threatens the economic viability of the group.

Health Maintenance Organizations↗

Funding system incentives and the restructuring of health care.

The 1970s and 1980s were decades of rapid growth in health care services and expenditures in Canada. Numerous government sponsored reports laid our principles for restructured health services delivery. These principles included directions such as community orientation, continuity of care and health promotion. The principles were similar, and so were the results: throughout Canada there has been limited action on these principles.

Capitation Fee↗

Financial incentives for physicians: the Quebec experience.

This paper presents an empirical investigation of physician labour supply, based on a two-stage budgeting model, drawing on an analogy with consumer theory. Physicians' trade-offs between income and leisure constitute the first stage of the decision-making process. In turn, choices are made in the second stage concerning the choice of particular activities (hospital versus office care, for example) or procedures (ordinary versus complete medical examinations), given the total medical care activity chosen in the first stage. The objective of the study is to identify physicians' responses to exogenous shocks in the remuneration system. The focus of analysis is shifted away from the identification of Supply-Induced Demand (SID) to a more pragmatic analysis of some of the determinants of physicians' choices. The study uses monthly activity data on a panel of 677 Québec GPs between 1977 and 1983. Quantity adjustments and drifts to more complex (and therefore better paid) procedures are evidenced, mainly in response to a fifteen month tariff-freeze. Physicians' ability to control their own work loads is also documented, both in terms of timing and level of complexity, and expenditure caps (in the form of an individual ceiling on GPs' quarterly gross income) are found to be effective at curbing high activity rates.

Budgets↗

The structure of economic incentives in the Robert Wood Johnson/HUD Program on Chronic Mental Illness 1988.

This paper describes the financial arrangements put into place by cities participating in the Robert Wood Johnson Foundation's Program on Chronic Mental Illness. Descriptive information is given on the level of expenditure, the mix of revenues, and the terms under which local, federal, and Medicaid dollars are allocated to local programs. Data are presented on the use of state hospitals and the number of severely mentally ill individuals in treatment. These data are used to make observations on the initial stages of the demonstration.

Chronic Disease↗