So let's talk some about how physicians are paid. And just to be clear about it here we're going to focus on money, leaving the intermediary, and ending up with the physicians. And we'll focus less for the time being on out of pocket payments that might come from the patients to the doctors directly. One model we should talk about is what we call fee-for-service, sometimes we just write or say FFS. In this model, a doctor is paid for each service that she provides. If a patient has an office visit with the doctor, then the doctor makes up a bill for that service, sends it to the insurer, and the insurer hopefully pays the doctor. If the doctor also does a test or a procedure, then each of those services also gets on the list, boom and billed. In the end, all the services used by the patient are enumerated by the doctors that provide them and billed to the insurers for reimbursement. In this model, physicians get paid for each thing they do. The longer the list of services, the higher the price of each service, the more the physicians get paid. Sometimes you'll even hear this referred to as pay for volume. The more volume of services, the higher the pay. We've been using fee-for-service in healthcare systems around the world for many, many years. And the specifics have varied over time and from from place to place. Current fee-for-service systems have evolved to incorporate quite a bit of structure, which we should take a look at. Most of the time, fee-for-service today uses something called a fee schedule. In a fee schedule, all of the services a physician could possibly provide and be paid for, that's a long list, are enumerated and the payment amounts associated with each one are listed. Fee schedules are essentially very long lists of services with listed payment amounts. Intermediaries using fee-for-service payment will generally have a fee schedule that provides what's called the allowed amount that they're willing to pay for each given service. Or you might hear a reference to the negotiated rates, the agreed upon amounts that an intermediary would pay a practice, for each service under their agreement. So in a common interaction with this structure, a patient might see a physician for an office visit. The physician or the practice would note the item on the list, that corresponds to the office visit, and send a bill to the insurer with the amount the physician would like to charge for that. The insurer then looks up the procedure indicated, goes to their allowed charge or negotiated rate on the fee schedule. And then will send the lower of the charged amount or the allowed amount to the physician. It's worth noting that these bills can be really detailed, and therefore quite interesting and helpful for understanding healthcare systems, and doing research and projects. They often include not just the service or the procedure, they might include information about the diagnoses or the health conditions that the patient has. Maybe they have dates of service, maybe they have the location of the services, and other things that can be quite informative. We can introduce one piece of terminology here. One thing you sometimes hear with respect to fee for service is the phrase or retrospective payment system. In that the amount of payment is set after the services are delivered, and the amount of payment responds to which services are delivered. The more services, the more the payment. I should also point out here that there's often a difference between what we call charges and payments, which can be important for understanding how systems and payments work. It's common for physician practices to have their own list, their own set of amounts that they charge for given services, sometimes we use a phrase charge master to refer to this. They might include the charge amount on the bill they sent to the intermediary. I did an office visit and here's how much I want to charge. With a fee schedule, the arrangement is usually that the payer will pay the physician, the lesser of the amount the physician charges and the allowed or the negotiated rate. One lesson, is that if you're studying health systems and you're thinking about tracking funds flows. And you see charges on some bills, you should be aware that sometimes those are very different from the actual amounts that are paid in the end. Of course, there are lots of variations out there in the real world, so you'd have to investigate whatever is relevant for the situation in which you're working.
