Should Capitation’s Financial Incentives Be Part of Informed Consent to Treatment?

Capitation asks doctors to shoulder financial risk for their patients’ care. Capitation is defined as a flat “fee per head per time”: usually dollars per member per month. Capitation dollars are revenue, which is different from income. Income is what the doctor keeps after health care services are paid for.

Bonuses and withholds are common incentives for both salaried and capitated physicians, and also for chief executives. American Medical News recently reported that chief executive officer Norman Payson of Healthsource Inc. was paid a base salary of $387,000 in 1994. Yet performance incentives brought his income to $14,280,000. But we are doctors, not executives.

In capitated managed care, and especially in global capitation, the doctor who takes home more does so by spending less on patients. With just this conflict in mind, the Health Care Financing Administration’s new rules on incentives limit the amount of potential physician bonuses to 25 percent.

Financial incentives

Should doctors disclose to patients the financial incentives they face to limit treatment? If so, should this disclosure be part of informed consent discussions?

Financial incentives in managed care are not new. Patients have them: to stay in network, to use the formulary, to avoid durable medical equipment, to question experimental treatment, to defer cosmetic and alternative treatment. Patients who do these things usually save money.

Physicians have financial incentives too– to limit testing and treatment. Rewards go to physicians who limit referrals, stay within formularies, lessen laboratory use and reduce average hospitalization to 200, 180, and even to 150 days per 1,000 members.

Financial incentives to limit treatment that result in less care for the patient and more reward for the doctor represent an acknowledged conflict of interest, even if less treatment is better, and if the doctor’s financial reward is a coincidence. But does this conflict of interest sometimes distort sound judgment or result in patient harm?

Distorted judgment

There are plenty of reasons why financial incentives should not distort judgment. Our historic tradition as an altruistic profession is strong. Physicians in the United States have a ritualistic focus on the individual. Threats of malpractice litigation and the law loom if we do too little. Hospitals and payers police care already, and will help us if we slip. And, of course, many physicians do not know, for example, how much ten days’ worth of clarithromycin actually costs.

But financial incentives can distort judgment and sometimes do. Nearly everyone has a price for which he or she would, other things being equal, make decisions that err on the side of keeping 10 percent, 25 percent or 100 percent of income. This is not a moral flaw, but simply human behavior. Doctors are not different from other workers: We do more of what we are paid well to do.

There are at least three ways to minimize the possibility of distortion: informed consent, disclosure and regulation.

Informed consent

Informed consent is information, understanding and noncoercion. The information must be adequate for patient decision-making; the understanding must be genuine, and not simple reiteration; and the decision must be volitional. The most important reason for applying informed consent is to protect patients against any unwanted treatment and its potential risks.

Financial information is not currently part of informed consent, perhaps because conflicts of interest do not present a risk of treatment, but instead, may simply warn people about the limits of their doctor’s loyalty. Yet the risk of distorted judgment is the risk that patients take in capitation.


Disclosure to patients is difficult, and may be ineffective. The financial incentives that affect physicians’ choices depend in part on the amounts of money involved, and different patients have different ideas of how much money is a lot. The doctor-patient exchange has power and knowledge on one side, and need and fear on the other. And few patients want to choose between accepting their doctor’s prescription and pondering his motives.

On the other hand, disclosing conflicts of interest to patients may increase trust, and may meet an objective test of what a reasonable patient should know.


Regulation may also help minimize the distortion of judgment. For example, we can:

  • decrease how often bonuses and withholds are given;
  • create a large minimum for the number of physicians sharing in the reward;
  • create a large minimum for the number of patients for whom physicians are responsible;
  • increase the time between feedback reports to physicians about financial performance.

Irrespective of whether informed consent, disclosure or regulation is chosen, discussion of financial incentives to limit care should move out of the shadows into the bright light of doctor-patient dialogue.

To preserve trust, and show that we are patient advocates, we should tell patients how we are paid, and how managed care payers restrict and encourage us. We should do this because it is honest; because patients want to know; because patients believe in the goodness of their own doctors, and because the information is available in Newsweek, Vogue, and USA Today. It is also on the nightly news and the Internet.

Disclosure of financial incentives, however, is not an office procedure to be performed while examining the breasts of a 45-year-old whose mother died of cancer, or the heart of a 55-year-old whose cardiomyopathy has led to failure.

Instead, honesty should be an office policy. We can use simple, one-page handouts about what managed care is, how it works, and how our offices are reimbursed. We should emphasize our first loyalty, but note that we too have to live within the rules, and that we are learning about this new system, just as patients are. We should use appeal processes when a patient’s personal medical interest is at risk. Fortunately, not every patient will need an appeal, but it may be one of 50 or even 20, among the chronically ill. We should present cases in policy settings–in board rooms, medical director meetings, and top management forums.

It is our patients to whom a highly paid executive must respond.

It is, after all, their money.