As doctors studied the course of treatment of dozens of patients at Virginia Mason's spine clinic, it was clear no standard procedures were being followed. Though Virginia Mason physicians are salaried and have no direct financial incentive to run excess tests, many had gotten into the habit of ordering an MRI, though uncomplicated back pain rarely warrants one. Many patients had to wait a month for appointments and often were bounced from specialist to specialist. Eventually some patients were directed to physical therapy, and often only then began to feel relief...
Now, patients follow a more standardized path: They have an initial consultation with a physical therapist and then a doctor. Unless red flags suggest another course, the physician often prescribes some physical therapy first. The streamlining means wait times for appointments have fallen to a day. Within a year, the percentage of people receiving MRIs dropped by a third, to 10% from 15.4%. Only 6% of patients lost time from work.
...With the new approach, the spine clinic's income fell from a profit of about $100 per case to a loss of about $200, the medical center said.
Josh Hendrickson flagged the story, kindly adding that it "seems to fit with Arnold Kling’s premium medicine hypothesis."
By the way, in case you have not been following, Cato Unbound has some reaction essays to my piece on insulation vs. insurance.