An internet television program that explores the intersection of medicine and the law.

Fee-for-Service vs. Outcome-Based Models and the Effect on Healthcare Costs

By Anupam B. Jena, MD, PhD to Defensive Medicine


Fee-for-Service vs. Outcome-Based Models and the Effect on Healthcare Costs

Our guest on Healthcare Matters is Anupam B. Jena, MD, PhD, one of the authors of the study Physician spending and subsequent risks of malpractice claims: an observational study, which was published in The BMJ in November 2015. Dr. Jena sat down with Healthcare Matters to discuss the study's results, methods and limitations as well as its implications for research on defensive medicine and healthcare spending. Dr. Jena details how the study shows a correlation between increases in physician spending and a lower likelihood for that physician to be subsequently sued for malpractice. Though the study has several limitations which are addressed during the interview, it helps to shed light on important aspects of healthcare spending, the doctor-patient relationship and the difference between appropriate healthcare spending and defensive medicine. In Part VII of our interview, we discuss how the switch from the current fee-for-service model of payment to a more outcome-based model may effect healthcare costs and physician spending. This is the seventh and final part of our interview with Dr. Jena. To see the full interview, click here. To view each portion of the interview separately, please use the links below.

  1. Does Defensive Medicine "Work"?
  2. Greater use of Resources vs. Defensive Medicine: What's the Difference?
  3. The Link between Physician Spending and Medical Malpractice Claims
  4. Medical Malpractice Claims and the Doctor-Patient Relationship
  5. Physician Spending, Patient Outcomes and Future Research
  6. How can we differentiate between defensive medicine and “good” medicine?
  7. Fee-for-Service vs. Outcome-Based Models and the Effect on Healthcare Costs
  8. Could Defensive Medicine Actually Lower Medical Malpractice Claims?
This interview is brought to you by Cunningham Group, the Medical Malpractice Insurance Specialists.


Mike Matray: A little earlier we talked about how perhaps one of the drivers behind a physician’s greater use of resources is that he or she is compensated for that care. As The Affordable Care Act moves us out of a fee-for-service towards an outcome-based reimbursement model, do you see driver being weaned out of the overall cost of the healthcare delivery system?

Dr. Jena: So I think that the various healthcare reforms that have been enacted in the last few years and that will continue to be enacted, for example through paying physicians for the value of care that they provide, as opposed to the volume of care that they provide, I think all of these reforms do act to mute the impact and financial incentives on positions. But none the less, I think that the impact of the fee-for-service system is not as great as we think it is, and what I mean by that is the following. If you look across the U.S., among doctors who are paid the same way, meaning they’re paid by Medicare on a fee-forr-service schedule, you see that there’s tremendous variation in healthcare spending for a similar medicare beneficiary. And what that tells us is that doctors who are paid the same way respond very differently in terms of how much care they provide. So could it be that this all is driven by differences in “greediness” across areas? Yeah, that’s possible.

I don’t think that’s what it is. There is an important black box in physician behavior that we have really not begun to even think about, much less touch. And one component of that is how is a physician’s level of risk tolerance? For instance, I might be more willing to take risks than a colleague of mine, and that might mean that I’d be less likely to order a CT scan, whereas they’d be more likely to order a CT scan. There are differences in education, there’s differences in where a physician’s trained.

So there’s a lot of things that go into a practice style in a way of delivering care that are completely separate from how a doctor’s paid. I think most healthcare economists and policy makers would agree that paying physicians for the value of care that they provide as opposed to on a fee-for-service basis would be an improvement. I think few people would disagree with that. But I would say that that’s not the only driver, it may not even be the main driver of why physicians differ in their practice styles.

Mike Matray: What are some of the conclusions that you would like a physician to take from your study as far as practicing defensive medicine or trying to reduce the overall expense of the healthcare system? What is your number one overriding goal that you would like to impart on the United Sates physician community?

Dr. Jena: I think that the overarching goal is to view this evidence in a fair light. And what I mean by that is the following. It makes complete sense that lawsuits could be related to the relationship between a physician and a patient. Makes complete sense. And physicians shouldn’t look at the study and say that, “Wow, I got sued not because of how I treated the patient in terms of respect and apologizing for a mistake occurred, but I got sued because I didn’t order a test.”

That’s not what I think physicians should take from this. What I think physicians should take from this is that yes, it’s certainly possible that ordering an additional test or a procedure could lower your risk of being sued because you detect something that you couldn’t detect before. And I think as long as people are open to that possibility and say, “Look, it’s not the case that all the healthcare spending is necessarily wasteful,” which is something that we hear often, but it could be the case that in some instances, it actually is beneficial in terms of improving patient outcomes, and there may also be this tangible benefit to physicians of being sued less often. I don’t think physicians should run and change their behavior because of the study, but what I think it should do is at least open up that conversation on a national policy level and certainly in their minds that this is something that we should consider, something that we should watch out for as we start to implement other reforms of healthcare.

Mike Matray: Dr. Jena, it was a fantastic conversation and very insightful. I’d like to thank you for coming out today’s program.

Dr. Jena: Thank you for having me. I appreciate it.