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Pay for performance won't solve healthcare cost crisis

Posted Oct 16 2012 5:03pm

by Kent Bottles

I hate to say I told you so.

Three years ago I wrote an opinion piece questioning the wisdom of pay-for-performance programs to try to get hospitals and doctors to decrease per-capita cost and increase quality of healthcare.

The main thrust of my argument was that behavioral economics has taught us that we live in two worlds with different sets of rules: a world where social norms prevail and another world where market norms hold sway.

I described two of my favorite stories from the behavioral economics literature. In "Sway" by O. Brafman and R. Brafman, the Swiss government tried to pay villagers more money to get them to accept a nuclear waste depository near their town. The government was surprised when such a proposal decreased the number of citizens who supported the initiative.

Dan Ariely in "Predictably Irrational" cited an Israeli day care study in which imposing a fine on parents who were late to pick up their children did not have the intended effect of getting the parents to the school earlier. Instead, the parents came later and choose to just pay the fine.

In both cases, giving money destroyed intrinsic motivators such as altruism and being regarded as a good citizen (social norms) and made people do the opposite of what the policymakers wanted.

A Health Affairs article reviews recent healthcare pay-for-performance studies and concludes "researchers have failed to demonstrate that financial incentives can improve patient outcomes, and not for lack of trying."

Great Britain's large primary care pay-for-performance program documented physicians meeting the targets, but population blood pressures and hypertension complications did not decrease. There also was a disturbing quality decline for measures that were not incentivized.

In the United States, Medicare's Premier Hospital Quality Incentive Demonstration saw no difference at five years between pay-for-performance hospitals and controls. Patient outcomes also did not improve.

These findings would not surprise behavioral economics researchers and psychologists who have studied monetary rewards and intrinsic motivators in many fields outside of healthcare. An Australian Government Productivity Behavioural Economics & Public Policy Roundtable concluded :

  • Monetary rewards have a large effect in undermining motivation for intrinsically rewarding tasks
  • Symbolic rewards such as praise do not undermine intrinsic motivation
  • Monetary rewards can reduce cooperation and increase selfishness
  • Monetary rewards can spread and undermine intrinsic motivation for tasks not directly involved in the monetary rewards program
  • Surveillance, deadlines or threats and specific task performance evaluation makes crowding out stronger

There is general agreement that the United States needs to cut the cost of its healthcare delivery. Pay-for-performance programs continue to be proposed as major ways to achieve this admirable goal. Medicare and private insurers both are supporting pilot projects that utilize pay-for-performance techniques to encourage hospitals, accountable care organizations and physicians to embrace high-quality care delivered at a lower cost.

There is increasing evidence that pay-for-performance programs will not be successful in healthcare. Behavioral economics provides a scientific reason for this failure that seems contrary to conventional wisdom. It won't be the first time that conventional wisdom comes up with policy initiatives that simply do not work.

Greed got us into the healthcare cost crisis in the first place; appealing to hospital and physician greed will not get us out of it.

Dr. Kent Bottles is a Senior Fellow at the Thomas Jefferson University School of Population Health.

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