MONEY! How is the payment mechanism for the health care provider?

"When you become a doctor, you can be very rich!" This kind of statements have been made, regarding to our profession.

In fact, is every doctor rich? or it depends on the field you specialize in? or depends on what country you are working in? where there are different payment mechanism in different country. Look at the following table and diagram.

 

Internist, Surgeon and Ob-gy get highest payment in these 8 provinces.

 

Different country, different payment mechanism

Why is provider payment mechanism concerned?

Different payment mechanism will affect a doctor's performance and behavior. A doctor may:


a) provide as many treatments as possible

b) attract as many patients as possible (e.g. by prescribing many drugs, even placebos)

c) sending patients with financially unattractive or hazardous conditions to other providers, such as hospitals
d) asking patients to come back several times even when it is not necessary

e) unnecessarily using expensive equipment they have purchased (e.g. X-ray equipment) in orfer to amortize its cost.

Therefore, a good payment system must be established in order to prevent the kinds of waste and unnecessary services provision described above. besides that, it can prevent brain-drain. A good payment system can also motivate the physicians to perform well during medical practices if they get a reasonable income.

So, what kind of payment mechanism are there?

Type of payment mechanism

 Here, I would like to focus on few payment mechanisms only:

1) Fee for service. It is the fee for specific services and prices per item for drugs or appliances. It is the most common method of payment and the most market-like. For example, a physician gets paid for a consultation or an examination; a pharmacist gets paid for a pack of drugs.

 Problem of this mechanism? These fees or prices may be uncontrolled, meaning that each health service provider can charge as much as the market will pay, so it is difficult to have proper budget. The provider may: a) increase the number of acts (services), resulting in under referral and tendencies for supplier induced demand; b) reducing the quality of the services; c) delegating more acts to lower-paid personnels (eg nurses).

Solution? To solve this, devise a fee or price schedule, setting the upper and lower limit on the prices that may be charged. For instance, In German, physicians are not allowed to charge fees higher or lower than the schedule fees. Another solution is to fix tariffs if there is no compulsory fee schedule. It is important to specify the fees that the health fund is prepared to pay because it is either the health insurance company need to pay for the charges or the patient themselves.  Do utilization review.

How to calculate the fees for specific acts? by using the following: a) the factors used (eg. labour, capital costs, materials); b) the number of units of each factor used; c) the price of one unit

 Benefit? if there is competition among the providers, the quality of service can be maintained at a standard level because patient will not come to the clinic if the quality is not good.



2) Capitation fee. It covers services for one health fund member over a certain period (normally one year). The fee is paid to a nominated provider who has the responsibility to provide health care, without discrimination, for the duration of the cover period. The capitation fee is based on the pooling of risk by the provider. So, if the insured person doesn't use the health service at all during the period covered, the provider will get the profit from there.This payment mechanism is suitable for primary care providers and hospitals. The capitation fees would cover any or all services required at primary and secondary levels. In this context, the GP act as a gatekeeper, acting as a rationing device for utilization of secondary care services. This mechanism is not suitable for the specialists working alone (should apply case payment or even fee-for-service).and pharmacies.

Calculation? It consists of 2 parts: 1) the fee itself; 2) a register of providers (physicians and hospitals) and patients who have registered with each. The patient must declare to health fund which physician or hospital he/she has chosen, so that the provider can be paid. The fee is calculated by dividing the estimated cost of physician's labour, material, capital expenditures and staff by the estimated number of patients per provider.

Benefit? cost containment. Besides that, it encourages the insured person to use one physician on an ongoing basis as they can only register with one physician and hospital. In this way, the medical history of the patient will be known and hence, minor illnesses and chronic diseases can be managed effectively and efficiently.

Problem? It can reduce incentives to provide good quality service. If a provider is guaranteed a payment for each person on his/her register, there may be no motivation to provide high quality care. Therefore, doctor's attention is low and consequently, patient satisfaction is low. Underutilization may happen (supplier reduce demand). There may be excessive referral. 

Solution? The patient is allowed to change providers after a certain period (usually one year) in order to maintain competition among providers. Moreover, we can establish and apply clear standards for the provider. If the providers do not meet the standards, health fund can withdraw them from the list of providers.

3) Salary. It is normally based on a labour contract between the provider and the health fund. The provider is paid monthly The amount of paid is the same, regardless of the number of the patients to be treated. Equipments, materials, and additional staff are paid by health fund.

Problem? Emploted staff may have fewer incentives to perform well and maintain high standards than independent staff. However, the employee's motivation depends to a greater extent on the quality of management (amount of salaries, promotion prospects, the organization and responsibilities of individual units, the scope for decision making, etc). Bureaucracy, formalism, inflexibility and lack of motivation are the problems. The admistraion costs are likely to be higher.It is hard to guarantee the same performance of the providers (quantity and quality of work).

Benefit? Planning and budgeting is easier.



Comparison of performance of different payment mechanism

What are prospective and retrospective payment systems?

a) Prospective: capitation, salary

b) Retrospective: fee-for-service



Can these mechanisms be applied together?

Yes. As an example: a capitation fee as the basic payment; fees for service for certain acts (immunization, night calls); a flat rate for approved investments (eg. physicians receive a fixed budget to buy equipments); a budget for drugs and ancillary services

Reference:

1. Charles Normand and Axel Weber. Social Health Insurance: A Guidebook for Planning. WHO and International Labour Office.1997.

2. Prof Dr. Laksono. Lecture: Provider Payment Mechanisms.

3. Prof.Dr. Laksono. Lecture: Introduction of Block 4.2 and Health System and Its Outcome.