Abstract:
It has been observed that specialist physicians who work in private hospitals are usually paid by fee for-
service while specialist physicians who work in public hospitals are usually paid by salary. This paper
provides an explanation for this observation. Essentially, fee-for-service aligns the interests of income preferring
specialists with profit maximizing private hospitals and results in private hospitals treating a high
proportion of short stay patients. On the other hand, salary aligns the interests of fairness preferring specialists
with benevolent public hospitals that commit to admit all patients irrespective of their expected length
of stay.
