Paying surgeons less can cost more.

Fees for physicians' services represent only a small component of total health care costs. Complementary costs (particularly hospital charges for surgical treatment) are a far more substantial portion of total costs, and may be 10 times larger than surgical fees. Because surgeons have considerable influence over the demand for surgery, and because the complementary costs do not cost the surgeon at all, marginally lowering surgeons' fees can, paradoxically, increase total health care costs, even if net payments to surgeons go down. This is because surgeons may respond to a decrease in their per-case reimbursements by performing more surgery to maintain their status-quo income. This phenomenon is known as physician income homeostasis. A health care payer may benefit by paying surgeons more to perform tasks that do not have high associated costs, such as outpatient nonoperative care, research, or teaching. In this fashion, faced with declining surgical fees, the surgeon will maintain his or her income not by performing more expensive surgery, but rather by doing more nonoperative work.