Paying surgeons less has cost more.

The Balanced Budget Act of 1997 mandated reductions in physician reimbursement. This reduction in payments could be envisioned to limit expenditures on 2 counts: first, individual fees would be lower, producing inherent savings. Furthermore, reducing fees should depress the incentive to work, thereby generating additional savings from reduced output. A rival point of view holds that lower fees might paradoxically lead to greater spending because surgeons compensate for per-case reductions by performing more cases. If this income-targeting hypothesis is correct, lower per-case fees leads to increased volume. Increased work output has particularly sizable economic effects in fields like orthopedic surgery because the total cost of orthopedic interventions is usually many times larger than the physician's fee (largely owing to the cost of implants). As such, increases in work volume more than negate the potential savings from lower surgeon's fees.This phenomenon was studied in the context of total knee arthroplasty. In the decade spanning 1996 to 2005, inflation-adjusted physician reimbursement decreased by approximately 5% per year, leading to a cumulative drop in reimbursement from $2847 to $1685. Nonetheless, because the number of procedures performed increased from 253,841 to 498,169 and because payments to hospitals far exceeded payments to surgeons, total expenditures for total knee arthroplasty increased dramatically: more than $7.1 billion additional was spent on hospital payments. Continuing to pay surgeons less is apt to continue to cost more. Counter to intuition, the best strategy for controlling overall spending might be higher, not lower, surgical fees.