| Managed care created great changes in the American health care financing system. Physician compensation structures also changed dramatically. More physicians began to be paid a salary basis or with a blended payment method rather than fee-for-service. The changes of financial incentives have come to affect physician productivity in medical groups. Few empirical studies have addressed the impact of financial incentives on physician productivity in the managed care setting. This dissertation, taking advantage of two national surveys of medical groups and creating a panel data, examines how compensation methods and organizational characteristics affect physician productivity in medical groups. A flexible trans-log production function is used to model the production of individual physicians as well as the production for the group as a whole. Productivity is measured in terms of number of patient visits per physician per year.;The results demonstrate that physicians respond to financial incentives. Changing the payment methods from base salary to 100% productivity creates an increase in physician productivity of 28%. The effect on physician productivity does not differ between payment on a 100% productivity basis and the blended payment method that pays physicians more than 50% but less than 100% on productivity. Physicians in large and small medical groups do not respond differently to financial incentives. The analysis obtains similar results with different models, at both the individual physician level and the medical group level, and in the two independently collected datasets.;In sum, physicians respond to financial incentives. Payment based on productivity boosts output compared to base salary payment. These results highlight the importance of financial incentives in determining physician behavior. It also provides medical group administrators evidence with which to improve the financial incentives designed to increase physician productivity and achieve the most efficient intra-organizational structure. |
