America's Future Foundation

Matt Yglesias is frustrated with

the nutty and dysfunctional nature of “fee-for-service” medicine in which doctors are paid for doing stuff rather than for treating illness.

I feel the same way, but not about medicine. My wife is an attorney at a large firm, where the firm’s earnings depend on how many hours its lawyers bill, not whether the client’s legal illnesses get treated. It’s an extremely frustrating system, since it punishes lawyers for their efficiency. If a good lawyer can write a brief in five hours, but a less good lawyer takes ten, the less good lawyer earns more money for the firm. In fact, that second lawyer may not be less good, but more smart, since annual bonuses are handed out on the basis of hours billed, not objectives accomplished.

But is there a viable alternative to this system? Should the firm offer to defend its clients for a fixed price? Probably not. A lawsuit can go one for one year or it can go on for ten.

Is there an alternative to fee-for-service billing in medicine? Kevin Drum sympathizes with Matt’s frustration, but observes,

Paying doctors a straight salary seems like the best middle ground. But that just pushes the problem up a level: maybe individual doctors get a salary, but how do you set overall compensation for the medical group or hospital? And what about physicians in private practice? You can’t very well pay them a salary when they work for themselves, so does private practice go away? And what about bonuses? Should doctors be paid more based on some kind of formula for productivity and general wonderfulness? Would you care to propose such a formula so the rest of can all laugh at it?

Anyway: complicated.

An understatement.

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