Browsing the subset of medical literature that deals with policy reveals a campaign against fee for service in medical care and typically recommends using a bundled payment model in its place as one of several purported ways to improve health care financing and quality.
What are the arguments against the fee for service (FFS) method of medical care payment?
The issue of asymmetrical information is often raised in the argument that physicians know so much more than their patients that they can make recommendations for tests or treatment based more on the economic gain to the docs that the benefit to the patient and the information challenged patients don't know enough to protect themselves from the rapacious docs.
Harold Dementz introduced the term Nirvana fallacy. quoting Dementz:
"The view that now pervades much public policy economics implicitly
presents the relevant choice as between an ideal norm and an existing
'imperfect' institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements."
At times the less vigorous versions anti FFS argument blend (morph) into a version of the Underware Gnome economics.
Step 1.eliminate fee for service in medical care
Step 3.Achieve less expensive,higher quality care.
Attempts to avoid the Gnome paradigm can be avoided by actually proposing an alternative payment system .In that regard a often discussed method is the bundled payment system (BPS).Some have described the BPS scheme as being somewhere between fee for service and a capitation plan. I have had some experience with a plan promoted by Dr. Denton Cooley and his Texas Heart Institute.In this Texas Heart Institute offered various cardiac services and procedures at a pre agreed upon price to various corporations who self insured.As the employees then had no co pay and the company costs per procedure seemed cheaper- it appeared to be a win win situation. I have not seen the books of Texas Heart but it seems reasonable that that arrangement may have increased their volume even if the charge per encounter was decreased. However, it is not clear how the purported asymmetrical information problem was abrogated. Would not a cath cardiologist not have the same incentive to recommend a procedure as he would under a straight FFS arrangement?
The anti FFS information asymmetry dates back perhaps to the often quoted article by Nobel prize winning economist Kenneth Arrow. However, to the extend that the asymmetrical argument is salient in regards to medical care, does that not increase the stakes for the patient to have her physician acting as her fiduciary and not as a part time patient advocate and part time steward of society's medical resources which is what the New Medical Ethics seems to advocate..If medical ethics were the protection for patients against the more knowledgeable physician,does not weakening that ethical imperative by imposing a co duty to to society to the physician's obligations leave the information challenged patient even more vulnerable.
Taking a wider view we see that for the most part what passes as fee for service -as least as it applies to Medicare and Medicaid is really a system of price controls the negative effects of which are well explained in Eco 101.