Posts tagged ‘Develish Details’

More on Incentives

A lot of my education was just a cover story that looked good a number of years of partying with no job look good on my resume without any real improvement in my long-term skills.  But my time in business school thinking about incentives and later at McKinsey & Co. doing the same for various employee compensation approaches has served me well through my whole life.  It's not that Congress and the media are bad at thinking through inventives -- its that they don't even try.  They accept the motivations and desires of the person proposing a plan as suffiecient gaurantee that the plan will actually reach those results.

I got a lot of mail last week on my post on incentives.  One loyal reader left me this link at Develish Details, a blog analyzing health care reform proposals.  Incentives are a frequent topic on the blog:

While it's true that paying by procedure creates the incentive to perform more procedures, some of which may be unnecessary, an outcomes based payment system has its own drawbacks. It creates the incentive for doctors to choose to treat patients who are less sick over those who are more sick. Very sick patients require a lot of attention and time, but are less likely to have a bonus-worthy outcome.

On the other hand, less sick patients are easier to treat, are likely to have a better outcome, and will offer a better bonus opportunity for the doctor. Doctors' time is scarce, so they must put it to the best use possible to provide for their families "“ and in a pay-for-outcomes system that means choosing easier to treat patients who will generate the highest bonuses. No matter how much we narrow the arbitrary measure of "outcome", the incentive for the doctor in an outcome based system, where "outcome" is defined by a third party, will always be to select the least sick patients at the expense of the sickest patients most in need of care.

Because human beings are complex organisms, defining what constitutes a "good", bonus-worthy outcome is itself a daunting, if not an altogether impossible undertaking for the third party tasked with producing and evaluating those metrics. Medical outcomes depend on many variables, including, but not restricted to the overall health of the patient (not just the condition being treated) and the patient's compliance with the treatment - a factor over which the doctor has no control.