As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH:

How did the fee-for-service model originate?

Once upon a time, legends say, if you could not afford to pay your doctor cash, you could pay him with commodities like grain, chickens, Brussels sprouts, or milk. Whatever goods or currency were exchanged, we called this model “fee for service.” For decades it has been the dominant model in American medicine, and it defines the patient-doctor interaction as fundamentally transactional: the doctor gets something in return for the advice/diagnostics/prescription/procedure she provides you. So historically the way to increase your income as a doctor was to simply increase volume: the more patients you saw, the more money you made.

Quality was generally measured, if at all, by the likelihood of a patient returning to see the doctor. In cases of possible patient harm, doctors tried to hold one another accountable by reviewing peers’ cases and participating in meetings such as “Morbidity and Mortality” (M & M) conferences to catch obvious errors. Working within a model that so rewarded quantity of care over quality of care, it comes as no surprise that doctors may miss half of indicated care, and that somewhere between a fifth and a third of the care that doctors provide may not be indicated at all.

A move towards quality over quantity

We are gradually moving away from “fee for service.” With the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), a rare bipartisan bill, doctors can earn significant bonuses or incur significant penalties from Medicare by meeting or failing to meet certain benchmarks of quality of care.

We’ve long experimented with capitated Medicare Advantage plans that seek to incentivize private insurers to find cost savings and quality opportunities. And around half of payments from private insurers are now thought to be tied to some degree of value-based payment, or “pay for performance.” The goal of this change is to incentivize not just quantity of care, but quality as well.

We’ve even seen a modest rise in doctors operating outside the insurance system in so-called “Direct Primary Care” practices. These doctors ask for a modest recurring fee—usually $50-$100 per month—in exchange for unlimited access, with the underlying assumption that by limiting their patient panels (in part by eliminating administrative overhead), quality will inherently rise.

Should specialists be paid fee-for-service?

It was in this line of thinking that investigators recently undertook an examination of costs associated with specialty care in Canada. Canadian specialist physicians seeing patients with diabetes and chronic kidney disease can be paid under an American-style fee for service system, or they can be salaried with potential benefits tied to the quality of care they provide. *Disclosure: Justin Moore, MD, is a diabetes specialist by training*

Researchers compared the costs and quality of care associated with each one, and the results were surprising: diabetic patients were 12% more likely to have a hospital admission or an emergency department visit for a diabetes-related condition if they were seen by a salaried physician rather than a fee-for-service physician, although the difference was not quite statistically significant (1.63 admissions or visits per 1000 patient-days in salaried docs vs 1.47 in fee-for-service docs).

A lazy interpretation of this might lead you to believe that the salaried physicians, having their paycheck guaranteed, simply didn’t see the patients in clinic frequently enough. But the researchers actually found the opposite: patients seen by salaried docs had 13% higher rates of follow-up visits and procedures (and their associated costs) than the fee-for-service docs, although again, the numbers didn’t quite reach statistical significance (1.74 visits per 1000 patient-days in the salaried docs vs 1.54 visits in the fee-for-service docs).

From this data–admittedly in a Canadian system that differs in many important ways from our own–editorialists concluded that “It would appear that salary-based payment does not have the same association with reduced quantity of care provided for specialist physicians who treat chronic diseases as it does in some primary care settings.”

The lesson to be taken from this study seems to be, as it so often is, that we should proceed with caution. While primary care may be in some ways best delivered in a salaried model, for now a fee-for-service payment model may remain preferable in specialty care. When designing your benefits, or when thinking of innovative ways to contain costs in your high-utilizing employees, this might be worth keeping in mind.