Physician Quality and Payment Schemes: A Theoretical and Empirical Analysis

Physicians are expected to provide the best healthcare to their patients; however, it cannot be discounted that their practice is driven primarily by incentives. In this paper, a physician utility maximization model that links physician quality of service to compensation schemes was constructed. Results showed that relative to fixed payment, fee-for-service and mixed payment yield higher quality. Multinomial treatment effects regression of vignette scores on payment schemes also support this hypothesis, indicating that physicians are still below the best level of quality and that incentives to improve are still present.