Paying Hospital-Based Doctors: Fee for Whose Service?

Canadian specialist doctors are paid mainly through fee-for-service for the procedures they perform. Nationwide, more than 80 percent of surgical specialists’ income comes from fee-for-service payments that are negotiated collectively with provincial health ministries. Surgical specialists make up about 20 percent of all full-time equivalent physicians, and fee-for-service payments to them accounted for close to $4 billion nationwide in 2011/12. Because physicians’ decisions are the major drivers for most healthcare costs, getting the incentives right regarding the way doctors are paid is critical in ensuring Canadians receive good value for money from the healthcare system. Whereas most hospital-based specialist doctors are paid via fee-for-service by provincial insurance plans, most hospital funding comes through a separate pipe, in the form of lump-sum amounts not linked to the number and quality of services provided. The result is a system in which neither specialists’ time nor hospital resources are efficiently used, contributing to high costs and long waiting lists. One contributing factor to waiting lists, and one reason why many recently graduated specialists in Canada are unemployed or underemployed, is a lack of complementary facilities, such as operating rooms, and the lack of complementary professionals, such as anaesthesiologists, nurses and so on. When a medical procedure requires hospital facilities as well as specialist time, the fee should be shared between hospitals and specialists in ways that give both a stake in producing high-quality care at low costs. We propose that hospital-based physicians be paid directly from hospital budgets as opposed to the current practice of paying them separately through provincial insurance plans. Hospitals would then engage doctors and pay them appropriately – either by salary, fee-for-service, or a blend of methods. This would result in stronger incentives for providers to better deploy resources but may also lead to potential side effects, such as cost shifting and lower quality of care. In this Commentary, we discuss how incentives to both hospitals and doctors could be carefully designed to avoid pitfalls and to promote more efficient use of resources.