Arnold Kling  


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My review of Shannon Brownlee's new book.

Brownlee proposes the alternative of paying doctors a salary, based on the number of patients that they see. However, I would argue that this would create the opposite incentive. Under a capitation based compensation system, a doctor would want to see as few sick patients as possible, because each one takes a lot of time. You will be paid more if you have a large roster of healthy patients than if you have a small roster of sick ones.

As an economist, I believe that there is no perfect way to compensate doctors. I would like to see experiments tried with different systems than the one we use today, to see if they improve things. But I would definitely not say that shifting to a capitation based salary system would bring nirvana.

The book is a journalist's villains-and-victims story. The good news is that her ideas of villains and heroes are a bit unconventional.

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COMMENTS (7 to date)
General Specific writes:

"But I would definitely not say that shifting to a capitation based salary system would bring nirvana."

Does she say it would bring nirvana?

"As an economist, I believe that there is no perfect way to compensate doctors."

Does she say her method is "perfect?" "As an economist" are you willing to say there might be better and worse ways?

"The book is a journalist's villains-and-victims story."

I'm not sure I agree with this penchant towards creating categories (villains-and-victims, locke versus marx, etc). Creating categories and bifurcations and then dumping opposing arguments into those arguments without any real analysis. Too simplistic.

What would the requirements be for determining whether a compensation scheme is perfect?

MT57 writes:

This reminds me of a stupid investment I once observed a bored accountant in Colorado make. He bought a real estate brokerage and put all the brokers on salary. When times were bad, they stayed on his payroll. When times became good, they left for competitors who paid on commission. He always got the worst of both worlds.

Ultimately you are right. Once you create a more than two party transaction, it is practically impossible (even if theoretically possible) to design a method to compensate one of the members from one or more of the other members in a way that consistently maximizes all persons' interests in the transaction. You see this in finance all the time: e.g., how to compensate a mortgage broker so as to maximize (1) his or her interests in making the most money as quickly as possible, (2) the risk/reward interests of the lender, and (3) protecting the borrower from being fleeced and (4) protecting society from the externalities of mispriced mortgages? Inevitably in a three-party structure, two of the three participants will figure out a way to maximize their interest at the expense of the third. E.g., doctors and patients against insurers on whether a procedure is medically necessary or beneficial so as to obtain coverage of the procedure, or insurers and patients against doctors on the amount that is chargeable. Add in an employer who pays the insurer and it's even more complicated and less likely everyone will be optimized.

Doctor writes:

Ummm...novel idea...not so much. Capitation has been used by HMO's and insurers for years, typically in primary care fields. It has all of the intended benefits (saves a little money up front) and downsides (patients get less care, or increased queue time). But, by the nature of the work, you really can't extend it to specialists very well at all.
Nothing new to see here. Next.

Jenny7470WCU writes:

It appears to me that if you pay a doctor a salary based on the number of patients they see then that could have a negative effect for the patients. What happens if the doctor tries to cram as many patients as he can into a day but spends less time with each patient. Some patients may not appreciate a doctor who rushes them in and out with out really even trying to listen to why they are there. Would it be worth it to the doctor to have a bunch of patients in one day but for every ten patients he sees he loses two. What could that mean for his practice. Word of mouth is sometimes the best advertisement and if patients don't believe that their doctor cares then they will go somewhere else and everyone will know why they left.

SM writes:

I agree, I think that there really is not a perfect solution. I do feel though that if the doctors were paid per patient they saw it might cause problems. Then they could possibly be seeing patients just for the money and not the diagnosis and it would not be in the patient’s best interest to be there. Many people would probably feel uneasy around doctors like that, not knowing their true intentions. This could have and adverse effect on the economy, making people relying less on doctors and putting their money to drugs and home remedies. But there are doctors that would not just see the patients for the money, so it is hard to argue either way. Doctors being salary based paid is the traditional way. I also agree that experimenting with ideas is a good thought; overtime I feel that it could better the economy. Maybe it would improve health care, and boost the health of the people. Finding a different way to pay doctors has never really been a thought of mine. This is the first time I have thought about this and now I think finding different ways to compensate doctors is great.

kevin8803 writes:

I agree with experimenting and finding out what strategy would work best. If doctors were to cram in patients just to raise their salaries people would lose a huge amount of trust for the health system. I also agree that doctors would fill their rosters with healthy patients rather than sick ones to cut down on patient-to-doctor time. You must remember that some doctors would just be out for themselves and take advantage of the system. The modern way of paying doctors salary will probably turn out to be the best case for the economy but maybe a change would lead to a better outcome.

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