Paying doctors a fee for each service they perform — the way many Ontario doctors are paid — has long been seen as an imperfect and sometimes wasteful way to spend public funds.

In other parts of the world, doctors are often paid according to their number of patients. The system encourages concentrating on the patients’ health rather than their illnesses.

Compensating doctors for individual acts, known as fee-for-service, provides an unintended incentive for doctors to perform more procedures and order extra tests. It also pays more to doctors who cram the maximum number of patients into a work day and penalizes physicians who take extra time to answer questions and explain issues.

The billing information revealed by the Star in its continuing Operation Transparency series has shown how a small number of doctors in Ontario bill far more than others, mostly because they see a large number of patients each day, work long hours and take few days off.

Fee-for-service is largely restricted to North America, where physicians are considered owners of small businesses, said Dr. Rick Glazier, a family doctor at St. Michael’s Hospital. When Canada socialized health care in the 1960s, doctors simply stopped billing patients and started billing the government, said Glazier, who is also a researcher at the Institute for Clinical Evaluative Sciences.

Many who study doctors’ compensation say a superior method is to base pay on the number of patients a doctor takes on, even if they do not provide treatment, in a method called capitation. Such alternative payment models have the advantage of offering incentives to doctors to perform preventative medicine.

And unlike fee-for-service, where the only tweaks that can be made are raising or lowering the fees for individual treatments, alternative models provide many ways to reward doctors for achieving better patient outcomes.

“A lot of really high-performing health-care systems in the world are mainly salaried or (use) capitation and often have accountability, bonuses and other ways that the system is constantly measured and tweaked and organized so that they achieve the level of productivity and quality that they want,” said Glazier.

Ontario, as most provinces do, employs a mix of compensation models, with 64 per cent of the $10 billion in payments to doctors during 2016 to 2017 coming from fee-for-service and 36 per cent from alternative payment programs, according to the Canadian Institute for Health Information (CIHI).

For decades, OHIP paid almost all doctors by fee-for-service — which was appropriate for the time, said Glazier, when the system treated lots of individual injuries or diseases. As the population ages, many people live with multiple chronic health conditions, and new technologies often require teams of health-care professionals to co-ordinate. Doctors and academics who study physician compensation now view billing for each procedure as obsolete.

“The fee-for-service system, which is really meant for one-off acute problems, has difficulty supporting things like care co-ordination, team care, conferences and quality improvement,” said Glazier. “The fee system hasn’t kept up with any of that.”

There are some advantages to fee-for-service, including improving access to health care by encouraging doctors to see as many patients as possible. Transparency is another plus.

“It’s very clear: You see X number of patients and perform Y number of procedures, and this is the amount you’ll be paid. So there’s nothing mysterious about the payments or how they’re made,” said Glazier.

Alternative methods are difficult to evaluate because it’s not clear which services doctors are performing and how often they’re doing them.

The movement away from fee-for-service started in the 1990s and continued apace with alternative payments in Ontario increasing more than tenfold between 1999 and 2013, according to CIHI data.

“The wave sort of started with family medicine and has moved also to certain specialties,” said Geoff Ballinger, manager of physician information at the CIHI. “But there are still some specialties in some provinces that are paid predominantly, if not entirely, by fee-for-service.”

Nova Scotia is farthest along the road to alternative payments, with almost half of payments to all physicians determined by alternative methods.

Alberta has the smallest percentage of alternative payments, which represent only 13 per cent of doctors’ payments.

In Ontario, more than half of the payments to family doctors take an alternative form, but there are specialties, such as dermatology, where more than 96 per cent of payments are fee-for-service, that use very little in the way of alternative payments.

The overall shift toward alternative payments across Canada, however, has plateaued and even reversed slightly in recent years.

“It almost seems like we’ve sort of reached that sweet spot in terms of the blend of between fee-for-service and alternative payments,” Ballinger said. “And perhaps this is a slight adjustment backwards to fee-for-service.”

Glazier sees other forces at work: The Ontario government originally gave doctors the choice on which system to use. Everyone picked the system that would pay more. This produced skewed statistics that make it appear that alternative compensation is more expensive than it would be if all doctors used it, he said.

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Now, the province has made it much harder for doctors to switch to alternative payment, he said.

Alternative payment methods, such as capitation, also have drawbacks. There’s a theoretical incentive to not take on sick patients because doctors would have to work more for the same amount of pay. Glazier says there’s no evidence this has occurred and no scientifically rigorous studies of which compensation model is better.

“We know that there are incentives in each one. Some of those incentives are good, and some of them are bad. From a health system perspective, we know that blending them seems to be advantageous. But there’s no magic bullet here,” he said.

Pierre Thomas Leger is a professor of health economics at the University of Illinois at Chicago. He has studied different models of physician compensation and concluded that blending is the best way to balance out the different incentives.

“Fee-for-service incentivizes doctors to be available and provide lots of care, while capitation pushes doctors to control costs and avoid unnecessary procedures,” he said. “Blending the two provides the best of both worlds. It’s the right mix of quality and cost management.”

One way a blended system could work is to pay doctors a yearly fee for every patient they take on, and then reimburse doctors for some, but not all, of the cost of each procedure they provide. This would encourage doctors to provide high-quality care to attract patients but also to keep their patients healthy to minimize the need for costly care.

But such incentives are difficult to establish and require constant monitoring, said Glazier. This is something the United Kingdom’s National Healthcare System does well.

“They’re constantly redesigning and they’re constantly tweaking,” said Glazier. “They pay performance incentives to encourage doctors to treat underserved populations and people with chronic conditions.

“They vastly overpaid doctors in the first go. Then they changed the system, and they did it right away, and everybody agreed on different thresholds and different limits because the first time they weren’t appropriate.”

In Ontario, the adversarial relationship between the Ontario Medical Association (OMA), an organization that acts as a union for doctors, and the ministry of health means that tweaks must be individually negotiated. And, as they will always affect some doctors more than others, there is always resistance, said Glazier.

“In Ontario, we found out that what we were doing wasn’t appropriate, but it was too hard to change that so we didn’t.”

The amount doctors are paid for each procedure is negotiated between the province and the OMA and is supposed to cover overhead costs, such as rent and equipment, in addition to take-home pay.

But exactly how much doctors spend in overhead remains a point of contention when the fee schedules are negotiated. No one tracks how much doctors actually spend on overhead, which can vary widely between different specialties. However, the OMA estimates that doctors spend an average of 30 per cent of their billings on overhead.

In Scotland, a new contract that came into force in 2018 will have the government assume the rent that family doctors — or general practitioners (GPs), as they’re referred to there — pay for their offices. If a doctor owns their office, the government will provide interest-free loans to help cover maintenance. This takes some of the guesswork out of including overhead costs in doctors’ pay.

The idea, according to the Scottish government, is that “no GP contractor will need to enter a lease with a private landlord for GP practice premises,” according to a copy of the contract posted online. It’s part of a “long-term shift that gradually moves toward a model which does not presume GPs own their practice premises.”

One of an ongoing series of stories.