The impact of hospital compensation strategies on physician practice behavior under the case payment system: The case of a regional hospital

Objective: Hospital physicians do not have incentives to decrease the intensity of services because many hospitals have implemented physician fee policies and compensate physicians based on their guantity of services. This study analyzes how hospital doctors respond to a different physician fee policy that gives them incentives to control health care resources under the case payment system. Methods: This study analyzes how health care resource utilization has changed after the implementation of a new physician fee policy for eight case payment procedures at a regional hospital. The data covers the period from 1998 to 2001. Dependent variables include length of stay (LOS), the amount of savings (defined as the difference between the case payment price and fee-for-service (FFS) expenditure), and the FFS expenditures of nine service categories. Results: The regression results show that after the new physician fee policy was implemented, the LOS had decreased for four types of cases: total hysterectomy, hemorrhoidectorny, herniorrhaphy, and prostatectomy; the amounts of savings had increased for all six types of cases with the exception of vaginal delivery and myomectomy. Except for the special materials of appendectomy, the study found that the FFS expenditures for drugs and special materials had decreased across all types of procedures. However, this study could not confirm whether or not physicians decreased services selectively to increase their physician fee income. Conclusion: Physicians have responded to the new physician fee policy by decreasing the utilization of health care resources. However, the extent to which health resources could be reduced varies among different procedures.