Physicians have steadily adopted new technologies from the early 19^th century stethoscope to the X-ray decades later to late-20^th century computer-tomography scans. Such rapid adoption of new technologies has been (and is) common in medicine. What is uncommon is that medical technology spurred by new ways of funding in the past half-century has come to dominate clinical practice among specialty doctors (but less so among primary care physicians whose revenue is largely generated by office visits). How come? [i]

Public and private insurers pay doctors not only for visits to offices, clinics, and hospitals but also for the diagnostic tests they order such as blood work, sonograms, X-rays, scans, and the treatments they deem best in light of an emerging diagnosis. They also prescribe medications and screen healthy patients for possible diseases including more tests since this system of payments–called fee-for-service–encourage such practices. Fee-for-service payments from private and public insurers depend upon counting patient visits, diagnostic tests, and treatments.

Surveys of physicians, in part, support this view of doctors ordering additional tests beyond what may be necessary for the patient. Consider “aggressive care.” In a recent survey of primary care physicians, 28 percent said they ordered more tests or referred patients to specialists—their operational definition of “aggressive care.”  When asked why, physicians responded that they feared malpractice litigation, had to meet clinical performance measures set by insurers, and had insufficient time with patients. Recently a group of nine medical groups of specialists laid out recommendations that would reduce diagnostic tests (e.g., imaging tests for many cases of lower back pain).

To see how fee-for-service infiltrates daily clinical practice, do the following thought experiment. Suppose you want to build a house for your family. You will need experts, expensive equipment, and materials and have to coordinate all of these. Instead of hiring a general contractor to oversee brick masons, carpenters, electricians, plumbers, and other specialists, you paid electricians for every outlet they recommended, carpenters for cabinets they thought you needed, plumbers for faucets they wanted to install, and brick masons for sidewalks they thought you should have. As an owner of the house, you would have hundreds of outlets, scores of cabinets and faucets and sidewalk after sidewalk winding around your house. The expense would be astronomical and the house would be in dire trouble a few years later.

Physicians, researchers, and policymakers say that lack of coordination and mindfulness in building such a house is what has occurred with fee-for-service dominating private and public payments to most physicians. One doctor pointed out that in the analogy the “general contractor” is what primary care physicians do in coordinating health care for patients. But family medicine and primary care practitioners are shrinking in numbers. Economic incentives through fee-for-service, however, nudge specialists to order diagnostic tests and prescribe treatments using the latest technologies.[ii]

When specialists form groups or hospitals invest in the latest equipment (e.g., imaging machines) and procedures (e.g., arterial stents), incentives to use both often multiply. For cardiologists inserting stents (cost: $30-50 thousand per procedure) to keep arteries open is a huge money-maker. As one medical researcher said: “In many hospitals, the cardiac service line [stent] generates 40 percent of the total hospital revenue, so there’s incredible pressure to do more procedures.”

Financial incentives do reshape clinical practice especially when the federal government puts its fiscal muscle behind certain medical technologies. For example, in the 1960s, a machine was invented to cleanse blood of impurities because of kidney failure. This invention saved lives but was so expensive that only the wealthy could afford it. In 1973, The U.S. Congress amended Medicare to cover full costs for dialysis of patients who would otherwise die.

Uses of technological tests for diagnosis and treatment in medical practice is, in part, a function of financial incentives–the market at work–put in place by private and public systems of funding. Whether it makes a difference in caring for patients–either in healing or extending lives–remains unclear.

Now, switch from doctors using new technologies to diagnose and treat patients to teachers and principals working in classrooms and schools. Think about school reformers who press administrators and teachers to use online instruction, blended learning, iPads, etc., etc., etc. What, if anything, can be learned from the impact of fee-for-service funding spurring greater use of high-tech tests in medical practice and how market incentives can be applied to schools and classrooms?