Fee-for-service payment is not the (main) problem

Objective: To understand the effect of physician payment incentives on the allocation of health care resources. Data Sources/Study Setting: Review and analysis of the literature on physician payment incentives. Study Design: Analysis of current physician payment incentives and several ways to modify those incentives to encourage increased efficiency. Principal Findings: Fee-for-service payments can be incorporated into systems that encourage efficient pricing – prices that are close to the provider's marginal cost – by giving consumers information on provider-specific prices and a strong incentive to choose lower cost providers. However, efficient pricing of services ultimately will need to be supplemented by incentives for efficient production of health and functional status. Conclusions: The problem with current FFS payment is not paying a fee for each service, per se, but the way in which the fees are determined.