How to Fix Bad Incentives in Healthcare

When talking health policy, I hear the word “incentive” a lot. “Incentives are perverse.” “We need to realign incentives.” “Let’s provide an incentive for quality through payment reform.” Bla bla bla.

Let’s drop the ambiguities and actually talk specifics for a second. I promise you’ll learn more about healthcare incentives in the next 1 minute than you’ve ever learned in your life.

I can only think of two different kinds of incentives in healthcare: cultural and financial.

Our culture has expectations of healthcare organizations to put the patient first, to find ways to reduce errors, etc. I think we’ve done a pretty good job of getting the cultural incentives right in healthcare, but they can only take us so far without . . .

Financial incentives! A financial incentive works like this: If you do ____, you’ll make more money (i.e., profit). How are we doing on financial incentives? Well, we pay providers more for doing more (especially if it’s invasive); we pay providers more for making mistakes and then fixing them; we pay providers more if they band together to increase bargaining power; we pay providers the same amount even if their quality is poor. So . . . we haven’t done so well with the financial incentives.

But here’s how to think about what financial incentives are needed in any situation:

  1. Decide what job you want the organization/industry/whatever to perform
  2. Make it profit from doing that job

I, personally, think a healthcare system’s job is to get/keep us healthy (weird, I know). So that means healthcare organizations need to profit from getting/keeping us healthy; in other words, “profit from wellness” (that’s how they say it in The Innovator’s Prescription).

If we can find ways to get healthcare organizations to profit from wellness, it would solve all kinds of problems! They would be going nuts trying to provide preventive care. They would be spending lots more time with us training us how to manage chronic diseases so we don’t have ED visits and complications. They would be counseling us on weight loss and smoking cessation. And they would be working like crazy to reduce costly errors! (Quality problem: solved.)

So the government can either (1) try to fix bad underlying financial incentives through regulating the healthcare system to death or (2) focus on finding ways to help healthcare organizations’ underlying profit motive be patients’ wellness. One is the bariatric surgery approach, the other is a real solution.

UPDATE: I’ve been thinking more about this, and I should probably mention a few caveats. First, profit from wellness doesn’t work for end-of-life care, for obvious reasons, so a different incentive is needed then. Second, profit from wellness doesn’t work if the payer has a short time horizon because it won’t reap the savings from providing preventive care now to avoid more costly care later. Third, quality problems might not be completely solved just from profiting from wellness because I don’t know if better quality is always cheaper in the long run. Honestly, why do you people let me get away with this stuff by not posting scathing comments?

UPDATE 2: I think the definition of the healthcare industry’s job to “get/keep us healthy” isn’t quite specific enough. The job should really be defined as to get/keep us healthy over the long term, since I’d like to be healthy now and in the future. Thus, profit from long-term wellness. This time horizon issue is a key piece to the foundation on which we will build our future health system.

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5 thoughts on “How to Fix Bad Incentives in Healthcare

  1. I am on the same page as you except for one troubling question; there are always going to be people who are chronically and seriously ill. Hopefully fewer of such people as we improve quality and incentives, but there will always be such people. How can your incentive package keep these patients from getting dumped because caring for the chronically ill and difficult to manage is not longer profitable?

    • Jessie: Yes! Very valid, and it’s a concern I have as well. So here’s your answer:

      If we think of the three problems in healthcare–cost, quality, and access–this incentive only fixes the quality problem and part of the cost problem. Ensuring access, as far as I can tell, only comes from government, so that’s where the government would have to come and find a way to buy those people into the system. Savvy? (savais?)

  2. What about a system that helps patients identify what wellness is for them and then manage the chronic conditions based on patient percieved quality (utilizing some sort of quantifiable scale) This goes for EOL care as well.

    • I agree–patients are the ones who need to be determining definitions of key terms like “wellness” and “value.” My understanding of incentives needed in healthcare has been clarified a lot since I wrote this post, so I’m sure one of my next posts will address that, including how patients can actually be the ones defining those terms.

      The one hard part about chronic condition self-management is when poor management now doesn’t result in immediate complications. The threat of probable future complications sometimes isn’t enough to motivate people, sadly. Maybe we shouldn’t worry about that and say it’s their own fault. But, I think we can actually help them if we can pair financial incentives with good management, which would lower systemic spending. It wouldn’t be hard to do that if insurers had longer time horizons and found that a little investment now for good management ended up being cheaper than paying for complications later.

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