Doctors and HMOs

Like attorneys, doctors don’t always have appropriate incentives to serve your interests. Imagine that you are considering undergoing an expensive operation. You’re not certain if the operation will improve your health, so you consult your doctor for advice. First, assume that the doctor who would perform the operation is an independent service provider who gets paid based on how much he works. Getting the operation would increase your doctor’s salary, and so he has an economic incentive to advise you to get the procedure.

Now, imagine that your doctor works for an HMO. You pay the HMO a flat fee, and the HMO takes care of all your medical needs at no additional cost. Obviously, the HMO would like to minimize these costs. Many HMOs, understandably, provide economic incentives for their member doctors to keep expenses down, so your HMO doctor would probably have some interest in recommending that you forgo the operation.

Independent doctors and HMOs also have different incentives with regard to preventive care. It’s usually much cheaper to stop a medical problem from occurring than it is to fix a medical condition once it manifests itself. An HMO, therefore, has a massive incentive to encourage its patients to take preventive care. HMOs should also want their patients to live healthy lifestyles. Selfish, profit-hungry HMOs should desperately try to convince their patients to exercise, eat right, and not smoke, for the less medical care you need, the greater your HMO’s profits.

Independent doctors, by contrast, are actually better off when their patients become sicker, so they have negative economic incentives to give their patients lifestyle advice.