Via Ezekiel J. Emanuel, Neera Tanden, and Donald Berwick in their Wall Street Journal Article from Tuesday, September 25, 2012:
Instead of paying a fee for each service, providers should receive a fixed amount for a bundle of services or for all the care a patient needs.
The article, here is the link, is called The Democrats' Market-Friendly Health-Care Alternative. After the title the three authors proceed to give a list of changes to healthcare that are the opposite of market friendly.
The quote above is noteworthy. Imagine a doctor that knows he will get $10,000 for attending to a patient's care. The patient comes, the doctor gets $10,000, and now the doctor starts to perform a variety of wellness checks, treatments for allergies, illnesses, or more serious conditions. At what point does the doctor feel like he or she has done $10,000 worth of service? It will depend on the doctor, of course. But, with fixed fees every doctor has the incentive to get the maximum amount of return-on-investment. That is, how can the doctor provide the least amount of care for that $10,000? Is this evil? Should we punish physicians? No, it's human nature. When you charge a flat fee you incentivize the doctor to find the most practical way to earn that $10,000 plus $10,000 from others, which means they will minimize their effort toward each patient, maximize the number of patients they have, and avoidi more complicated and sophisticated treatments in favor of easier ones.
When you remove fee for service, you lose track of the actual value of services. If all services are included under an umbrella, the services begin to lose their discernible market value. Doctors will say that they have provided $10,000 worth of service. Patients will claim that the doctors avoid more advanced treatments to make greater profits. The government will have two options. First, they could try to control exactly what doctors do and how they provide service, at which point we're not really living in a free society. Second, they could somehow try to determine the market value of each type of service provided by the doctor and then charge accordingly....which is what we have now.
Some may say, "This is a slippery slope." If you believe that human beings rationally respond to incentives, then you cannot look at the proposed health-care system as providing anything other than a strong set of perverse incentives.