Third party cost containment and the physician-patient relationship: a case study.

Although third parties have tried in various ways to contain health care costs, only a few abbreviated attempts have included questioning modes of treatment of individual physicians. This paper presents an economic and medical analysis of the actions of a small third party firm, U.S. Administrators, Inc. of Los Angeles (USA), which has intervened in the physician-patient relationship to contain costs. Our case study of USA's interaction with a group of physicians over a year's period suggests that the uncertainty of medical care and the reluctance of physicians to be second-guessed can make cost containment costly to the third party firms. Further, lack of an adequate information base and the questionable reliability of third party review may affect the medical validity of individualized cost containment decisions. Some benefits may be gained, however, since health care payments can be certain cases and physicians' cost consciousness can be raised for future cases.