Question

Explain how the fee-for-service practice of medicine led to uncontrolled utilization.

Answer 1

Cost of medicine fixed by pharmaceutical company is too high because they add their research & development cost in price short term basis. Therefore, the price of medicine is more than ten times higher than manufacturing cost.

Further, fees charged by hospital are also high because they claimed through the insurance company. Therefore, they fix more charge and it will not affect the patients if it is claimed through health insurance.

In the fee for service, the service provider may bill distinctly for every services offered and they often set their costs at irrationally higher fees.

Insurance firms had few incentives to cost control, so they merely raised the premiums of subsequent year.