Volume 71 Number 4 September 2004	back to contents

Address all correspondence to Mary Ann Baily, Ph.D., Associate for Ethics and Health Policy, The Hastings Center, 21 Malcolm Gordon Road, Garrison, NY 10524.

Presented at the Issues in Medical Ethics 2001 Conference on “Medicine, Money and Morals” at the Mount Sinai School of Medicine, New York, NY on November 2, 2001, and updated February 2004.

ABSTRACT
There has been much debate among health care professionals over how physicians should be paid for their services. This paper addresses the topic through an economic and ethical analysis. It starts from the premise that fairness and cost effectiveness should be the goals of a good physician reimbursement system. Using the goals of fairness and cost effectiveness as measures, it examines the current market model. Finding that the current model provides neither fairness nor cost effectiveness, the paper compares the structure of the physician services market to the assumptions made by economists in the idealized market model. Two major imperfections are found in the former. These imperfections are an asymmetry in information between patient and physician, and the uneven and unpredictable distribution of health needs. These two imperfections are examined in light of the goals set out in the beginning of the paper. The paper finds that, given the imperfections, physician reimbursement as it currently exists is incompatible with the goals of fairness and cost effectiveness. In conclusion, several recommendations are made, most significantly a broadening of the interpretation of physician agency, i.e., physician as “agent,” and the switch from a fee-for-service physician payment system to a salaried medical practice.

KEY WORDS
Medical economics, medical markets, imperfect information, need, medical ethics, fee-for-service, reimbursement, physician-patient relations, insurance, salaried practice.