Page 1003 Gloria J. Virginia Commonwealth University Kenneth Arrow (1963: 962) discussed two forms of provider compensation that were in existence during the 1960s: fee-for-service and prepayment. Like many others before him, he recognized a problem with the former that has been the subject of much subsequent discussion in health economics. Under traditional indemnity insurance, consumers face incentives to expand their health services utilization because the effective price for their health services is less than the actual price. Fee-for-service compensation provides no ï¬nancial incentives for health providers to mitigate consumer moral hazard, but prepayment does. However, Arrow noted that physicians were resistant to prepayment for two reasons: (1) their inherent aversion to accepting ï¬nancial risk, and (2) the potential impediments to physician autonomy through the use of closed panels for referral (957). Since Arrowâs time, the U.S. health system has experienced rapid growth in HMOs, risk contracting, and a plethora of provider intermediary organizations (e.g., medical groups, Independent Practice Associations [IPAs], Physician Hospital Organizations [PHOs], Management Services Organizations [MSOs], physician practice management companies, organized delivery systems). Taken together, these developments This essay was supported in part by the Robert Wood Johnson Foundationâs Investigator Awards in Health Policy Research
Journal of Health Politics, Policy and Law – Duke University Press
Published: Oct 1, 2001
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