One change has been the shift from insurance based on paying a fee for each service to prepaid medicine as provided by hospital maintenance organizations, HMOs. In prepaid medicine the economic incentives are reversed from fee for service. The economic incentives for an HMO are to keep their patients healthy to reduce the need for expensive procedures. Ideally HMOs would practice preventative medicine and focus on early detection. The medical insurance industry reacted to the growth of HMOs by creating preferred provided organizations where a general practitioner acts as a gatekeeper for access to more expensive specialists.
Patients have economic incentives to use the providers contracted by the insurance firm.
Under pressure for large firms who have the resources to gain an understanding of medical economics, medical efficiency is beginning to improve. Hospital firms are consolidating hospitals and making them more efficient by having hospitals specialize rather than offer all medical procedures. Consulting firms are working with hospitals to make innovations in medical procedures. But the current urgency to control medical costs has created a new information problem. To control costs HMOs and PPO organizations are rationing medicine.