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I'm here with Professor Laurence Baker who's a professor here at Stanford Medical School and what are we going to talk about well we pay physicians a lot of different ways in this country and I thought it'd be useful to spend a minute thinking about the different ways that we do that the concepts organizations different practices that are out there so literally how do physicians receive their compensation yes okay yes so we can go through this in a couple of different ways but there are three ways that we can start out talking about three general ways that we organize the payment of physicians and they turn out to be fee-for-service fee-for-service let me write this fee sore for so keep going fee-for-service ketchup yes sometimes we say ffs fee first half ffs okay makes sense and second one we call capitation okay and the third one of course salary too close to decapitation for me but maybe it's an elated but okay and then salary and then salary okay and and so fee-for-service that seems to be a little bit common sense what is is that literally it like fee-for-service in a fee-for-service system physician gets paid a fee for every service that they do it's kind of like going to a restaurant you know you order the drink your salad maybe an entree a dessert this restaurant keeps a list of all the things that you ordered and at the end of the night there's a price associated with each one and you add up the price associated with each of the things you got that makes your total bill that's the fee for service I see and so this is kind of what a doctor to private practice would face well doctors and doctors can be paid fee for service in a lot of different objects so they might be in private practice paid this way some physician groups are paid this way and fee-for-service concepts come up even in large organizations like the Stanford Medical School where some people are sometimes paid for the work in the hospital of course I see what the general idea is if they're not providing service or there's a slow day then they're not going to be making money that day right right the more services they do the more expensive services they do the more obviously they do the more revenue that their practice will generate I see and we'll talk later of whether that's a good idea yeah of course has it has implications for the way right right act and the way right so what's what's capitation because that's that's I'm not familiar with that so capitation the general idea is to do something quite different than fee-for-service the term capitation comes from the latin per head oh so this really is a decapitation literally well we're going to put it yeah yes we're going to pay physicians per person that they have in their practice and the kind of building blocks of a capitation system would be one a panel of patients who are assigned to a doctor I say the doctor might have a thousand patients for which he or she is responsible we'll call that group there their members there their panel as you can call it they're covered lives second piece of a capitation arrangement is an agreement about what the physician is going to be responsible for under the agreement so we might say it's primary care services all the office visits and basic tests and follow-ups that those patients might need but maybe not their hospitalizations or their expensive surgeries right right you have some group of patients you have some agreed set of services and then you define a payment which in the jargon gets called the PMPM per member per month per member per month and who is making this payment it is the I guess the employer of the doc so this this this definitely would not be the case with a so it would be the insurance company generally it's going to pay the doctor this okay so an insurance company let's say Blue Shield Blue Cross Aetna Cigna any number of different companies that might be out there has an arrangement with a physician that they take some some number of their insured people are seen by and become part of the panel of that doctor they could arrange to pay that doctor on a capitation basis I see I saying you've got a thousand of our patients here's what we're going to pay you to take care of them I see and it seems to make a lot of sense for the insurance company because now you don't have this incentive for the doctor to you change the way the whole incentive works so now if a physician gets say $25 per member per month for taking care of their thousand patients they get 25,000 right month they've got to do what needs to be done for those patients but they don't get paid extra if they do something additional if they do a more expensive test as opposed to a poor test they get paid the same amount so you take away the incentive that exists in a fee-for-service system that tends to get people to try to do more things or at least creates a world in which it's possible to do more things and get paid for it right is what the difference is more predictable for the doctor to well it could be predictable for the doctor although in some sense it's predictable and in another sense it's not an important difference between for service and capitation we'll say in health policy is associated with risk or this right of risk and when we talk about risk here we mean financial risk associated with the health of the patients or variations in the needs of the patients in a given month so if you're a fee-for-service if you're being paid fee for service the doctor doesn't face any real risk if it's a bad month everybody's sick everybody needs lots of care they're going to get paid for delivering that care right i under kappa teh ssin the doctor does face more of that risk they're getting paid a fixed amount right got to deal with whatever I see at a high-volume month the doctor takes that takes the hit in capitation but a low-volume month the insurance company takes it so it goes both ways it kind of evens out right the insurance company well no the doctor always the doctor benefits in the low volume yes doctor right kind of averages out in a good arrangement this will be sort of even over time the doctors look like okay but these risk issues have been problems in some capitation arrangements especially if you're a small doctor practice and you got a lot of variation from month to month maybe you're not a great manager you can get out you can go out of business if you have a few bad months who decides that it will be capitation or fee for is it the doctor's choice or the insurance company says this no you will do this so over time it's been the bid and negotiation back and forth so insurance companies have preferences about how they do this and doctors have preferences about how this happens and so sometimes some of it's driven just by history the Medicare program for example got started in the 1960s when fee-for-service was the most common way for ian's to be paid and that's largely persisted in that program for historical reasons it's very worked out that way in the 1990s a lot of health plans decided the insurance companies decided that in the private market they'd like to do more capitation right I did and they started pushing these arrangements trying to get physicians to agree they were successful for a while and then lately it's been a little more physicians have said we don't like capitation so well we'd rather go back to fee-for-service that's working better so the negotiation has gone Lize the other way late have there been studies that showed when you know doctors who are competent under capitation do don't order as many services or perform as many services so the literature on this is is pretty clear that it makes a difference because you like to think that it doesn't make a difference right doctors most of them are all about the help of the patient what well that's right so there are there are hundreds of thousands of doctors in the country undoubtedly out there are some that pay close attention to the financial but I think actually you're right most of them probably don't on a day-to-day basis pay close attention you know at the end of the year they'll see that financials from their practice maybe I'll think it through if you got to pay college tuition that all of a sudden hey maybe I'm our I wouldn't hurt or a little extra this or that you know I think that's part of it but the other thing that I think is going on in the background is the general maybe almost subtle but things that you don't notice that create a system and let a system evolve in a regular way so doctors like to do things for their patients patients like to have things done for them a fee-for-service system creates a world in which everybody is fine with that you know I can do that and so pretty soon you get used to doing that right becomes the first thing you think of right do these extra things right neither party neither the doctor nor the patient has any intent of really of saying wait right well pay for that although someone else is okay and and you know it creates in the background these incentives for people who develop new products and services right develop them and for it makes it easy for a hospital say to put in a big new piece of equipment that they they're pretty sure they can pay for and once it's sitting there and you pass it every morning and right into the hospital just becomes that much easier to use it and so it sort of guides our system the elation of our system in a way that has led us to a point now where we consume a lot of healthcare maybe sometimes health care that we don't need it's often health care that's beneficial but it's all costly and so that sets us up for the kind of dynamics and the challenges we have to how common is Congress we should talk about salary before I talk about before we talk about how common they are we can yeah we can we can pick that up as we go along fee for service and capitation have been Epping and flowing frankly in at the in the u.s. at the moment fee-for-service is a very common way for people to be paid and capitation is is declining there are still a really so this is a so you know fee-for-service was where everyone started capitation kind of went a little bit in vogue and and owns the fan of it right the doctors not a fan of the doctors were less of a fan and so they've been the arrangements have been shifting more toward insurance arrangements that would use more fee-for-service these days so the u.s. is definitely I think majority fee-for-service who decides what the panel cut it sounded like the insurance companies would pay for part of the panel of a doctor would be under capitation so this these kinds of arrangements can in practice get kind of complicated right all right the concept of paying per head is clear but right there will be variations that go on so if you change the scope of services you change the arrangement if you have a primary care arrangement for capitation that's one piece but of course it leaves off right you know the MRI or the surgery and what would happen in those cases the health plan would have an arrangement for primary care services with some doctors under capitation then they'd have other arrangements with other doctors they might say have a capitated arrangement with some cardiologists I say the cardiology or they might have an arrangement with some cardiologists to pay fee for service to those crisis is the one that's big mixed-up but obviously there's an incentive if you do if you are being paid capitation you want the healthiest people in your in your in that capitation panel so there's another incentive it's in the background right that's right selection kind of excited and so you know it's again a thing I think doctors probably don't think about this right those doctors on a day-to-day basis right but it's a subtle force operating in the background if you're pink if you're getting capitation and you can take actions that would get you right healthier patient but right for that same $25,000 say you end up a little bit ahead at the end of the month and doctors don't I think like to shift patients off and there's laws that prevents or all kinds of activities but subtly in the background it helps system evolve in that drought that's right oh we probably face about 11,000 okay and salary is what we imagine I mean so most of us get paid salaries what you imagine it's agreement to be paid a certain amount per year for some amount of working but this would this also this would be from the insurance companies would it so what happens we talk about these three is being different things but when you get to the real-world interpretation or real-world looking at systems that are out there what you'll see is often mixes between these and so the one of the pieces is one of the pieces of disentangling this is multi level systems and that's where salary becomes kind of important to think about so one common thing that happens as physicians grouped together into larger practices right and that larger practice collects the activity of all the doctors that work in that practice right bills for that from an insurance company and then disseminates there distributes them right among the doctors and so what you will often see in real life and that complicates the inference here is say a large practice that build an insurance company on a fee-for-service basis right the collective activity of all the doctors takes that resulting pool of money and divides it up maybe pay some of the doctors a salary maybe pays them a salary with some sort of bonus that depends on how much work they did and does other things so sometimes the incentive that an individual doctor sitting in a room with a patient is looking at might be different than the instead of facing the mandatory practice who may then want to get the doctors to do something that's different than but the general idea is if you're the only way to get a salary so there's some organization between the doctor and the insurance companies to kind of yes insulate the doctor so the important piece one of the important pieces here that we think about is that fee-for-service works in almost any physician practice a solo practitioner one person working by themselves or two together could do this capitation almost always works in any kind of physician practice right with the exception that if you're a very small practice the rescue phase for two month depending on the sickness of your patients might put you out of business if you're not really on top of it right so we like to think capitation could work in any practice but really only larger ones and salary is a nice incentive and a lot of ways but requires you to have a big organization to be able to do this and so some of the differences you see and how physicians get paid have a lot to do with the size of the organization they work it makes complete sense well thanks for that