Fee-for-service payment is not the (main) problem

Objective To understand the effect of physician payment incentives on the allocation of health care resources. Data Sources/Study Setting Review and analysis of the literature on physician payment incentives. Study Design Analysis of current physician payment incentives and several ways to modify those incentives to encourage increased efficiency. Principal Findings Fee-for-service payments can be incorporated into systems that encourage efficient pricing - prices that are close to the provider's marginal cost - by giving consumers information on provider-specific prices and a strong incentive to choose lower cost providers. However, efficient pricing of services ultimately will need to be supplemented by incentives for efficient production of health and functional status. Conclusions The problem with current FFS payment is not paying a fee for each service, per se, but the way in which the fees are determined.