How should government set payment levels for physicians and providers?

Lessons from Roberts and Hsiao about reforming health payment methods:

• Fee-for-service payment encourages health-care cost increases.  Nations would be wise to avoid this method unless there are strong reasons to do otherwise.  
• The salary-plus-bonus payment method is superior to salary only.  The former can motivate health professionals to increase productivity and improve quality of services.  This advantage is especially evident for specialists, provided they are employed by organizations such as hospitals or insurance programs. 
• Capitation payment for primary care has much to recommend it, especially when there are competing services in the same community. 
• For high- and middle-income countries, per-admission payment and simplified DRG payment to hospitals have desirable incentive effects but also create administrative complexity.  For hospitals in low-income countries, global budgets may be preferable because of their more limited administrative requirements. 

And here are recommendations for setting payment levels for physicians: 

Setting the right payment level is a contentious and sensitive affair.  Competitive bidding has much to recommend it when there are competing providers and the process can be combined with selective contracting...  Attempting to set a reasonable payment level based on cost data is also likely to be controversial; payers and providers will rarely accept one common set of data as truly objective.  

International experience shows that bilateral negotiation can produce mutually acceptable results in certain circumstances.  But once governments become involved and the situation becomes politicized, governments are likely to find themselves under substantial pressure from well-organized provider groups to devote additional resources to health-care salaries.