Perverse Incentives, Perverted System
Fam Pract Manag. 2003 May;10(5):11.
In the old days of managed care, say 10 years ago, we heard a lot about aligning incentives. Incentive alignment was, for some, the holy grail. In essence, the idea was to pay physicians and hospitals and other providers in such a way that they all did the best financially when they gave the patient exactly the services he or she needed, no more and no less. When incentives are aligned, everyone does well by doing good. And theoretically, the need for bureaucratic stumbling blocks such as precertification, formulary rules and utilization review virtually disappears.
Let me hasten to add that I do not mean to insult you. I know you are motivated by the desire to help the patient, pure and simple. But think about all the others out there – the hospital that wants to boot your Medicare patient out before you think she’s ready for discharge or the limited specialist who holds onto the patient you sent for a simple consultation. Don’t you think their motives might be financial, at least in some small way? It’s the small ways I’m talking about here. And they add up.
I’m hardly nostalgic for the heyday of managed care, but I do miss all the idealistic talk about bringing the world into alignment. Of course, I don’t think any incentives got aligned, to speak of – at least not broadly or for long. Part of the problem was that managed care never quite got to the stage of being able to manage care. Before designing a system to reward giving the patient exactly the services he or she needs, we need to figure out what each patient needs, and we’re just not there. It’s not even clear that that is a realistic goal.
Another part of the problem, maybe even a bigger part, is that the payers never got and still haven’t gotten their incentives aligned with those of their plan members. They have no incentive to invest in the member’s future health because of the way members and their employers hop from plan to plan. On the contrary, their financial incentive was and is to minimize costs or, in the case of private insurers, to minimize their medical loss ratio (the portion of their income they pay for health care services) while maximizing revenue. And what about the patients themselves? Can alignment of incentives help unless everyone involved is playing?
Physician against hospital
Perhaps the most glaring example of misaligned incentives in our current “system” of health care is the one highlighted in the article by Kathryn Stewart, MD, MPH, in this issue (see page 27): Especially where DRGs are involved, hospitals have incentives to minimize the services they provide and to discharge patients quickly while you, who make the decisions governing admission, services ordered and discharge for your patients, have no such incentives. On the contrary, you’re typically paid more if you do more.
I suppose this arrangement might be defended as an elegant set of checks and balances: With the hospital encouraged to fight unnecessary expenses and you fighting to get what your patient needs, the patient ends up getting all the services needed and no more, so everybody lives happily ever after. But how well does it really work? And more than that, should medicine really be an adversarial struggle between those who are supposed to be helping patients become and stay well?
Someday, maybe, when we get a health care system worthy of being called a system, incentives will somehow align and utilization review will be a dim, unpleasant memory. Until then, I’m afraid, the only reasonable course is to continue to look for local solutions to global problems – and Stewart advocates what seems a reasonable approach to one such solution. With luck, some stopgap measures will carry the seeds of global solutions that can be built into what we would be proud to call a system, and everyone will indeed live happily ever after.
Copyright © 2003 by the American Academy of Family Physicians.
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