When You Give Doctors Incentives To Get It Right, Rather Than To 'Do Everything', People Get Better Care For Less

from the economics-in-action dept

One of the biggest problems in trying to fix our insane and out of control healthcare system is the fact that the entire system has totally screwed up economics. The incentive structures are a disaster. The deeper you look at healthcare economics, the more horrific it is. Now, there are some very legitimate reasons how it ended up this way, because there’s a strong argument that a purely “free market” healthcare system leads to very poor healthcare for many people who cannot afford it, and that basic healthcare is something that should be provided much more widely both because of basic human compassion and common sense, but also because there are carryover effects to an unhealthy population that effect us all broadly.

But, when you set up a system that has the incentives totally screwed up, what you end up with is what we have: a system where everything is insanely expensive for no other reason than it can be, and where the quality of healthcare is simply not that good, because there’s no incentive to make it that way. Instead, there’s incentives to simply add up bills as high as possible, with doctors ordering every test imaginable, and focusing on doing more, not doing what’s best.

The folks over at Planet Money have an interesting podcast about some pilot programs that have come about because of Obamacare, that seek to realign the basic incentives of doctors to treat patients in the best way, rather than piling as many charges on them as possible. No matter what you think about everything else in Obamacare, it seems like these little-discussed pilot programs are an unquestionable step in the right direction.

In the Planet Money podcast, they talk about one simple way that the pilot program is having an almost immediate effect: by paying doctors a lump sum for overall treatment of a condition, and actually dinging them for errors, rather than rewarding them by allowing them to add more fees for fixing those problems, significantly fewer problems occur. The program also goes further in including the shocking idea of giving doctors feedback on how they’re doing, using actual data, rather than letting them do whatever they want without consequences.

In theory, you’d hope that doctors are always seeking to do what’s best for the patients, rather than what earns the most money, but it seems clear in practice that when doctors are given a little incentive to do their job better, rather than just do more, they actually do, in fact, do their job better, meaning that not only are people healthier, but the cost of the healthcare goes down. More of that, please.

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Comments on “When You Give Doctors Incentives To Get It Right, Rather Than To 'Do Everything', People Get Better Care For Less”

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Anonymous Coward says:

Yes. In our current system of employer-funded insurance, the two parties who could actually do cost control on routine expenses have no incentives to do so.

As the article says, doctors get paid for “piece work” and make more with more pieces.

And the insurance company is basically a middle-man who gets a percentage markup on the doctors’ take. Pre-Obamacare, insurance company “cost control” primarily consisted of trying to boot out the tiny fraction of people with catastrophic illness; they didn’t give a rats ass about routine predictable charges that are far higher than they need to be because they can mark up the premiums to cover the cost AND thereby make more profit. Post-Obamacare, the “lose your insurance because you need it” problem is fixed (as long as the employed party stays employed, at least), but real cost control is not yet happening generally, yet, though the experiments mentioned have promise.

The folks paying the bulk of the bills, the employers, OUGHT to be managing the costs, but they (quite properly) are fire walled off from the details of the expenses; they only see the overall rate. And since switching insurers is such a pain, most employers won’t change over a moderate cost difference with a competing plan, and in many areas there were very very few competing plans. (In theory, Obamacare is supposed to increase choices and competition; we’ll see in a few years.)

The New York Times has a pretty good article about it:

Anonymous Coward says:

Re: Re:

Part of the problem is also the incentives to catch mistakes for overbilling.

My older brother had cancer many years ago when he was a teenager, and my mother used to be a nurse, so she could actually read the medical bills and understand them. The hospitals were frequently engaging in ‘creative billing’ when treating him for cancer, by billing for things that my brother never got, which is insurance fraud.

You’d think the insurance company would be eager to catch this insurance fraud and save money right? Nope, it’s like pulling teeth whenever my mother tried to get the insurance company not to pay bills for care my brother didn’t have. Among the problems at the insurance company.

1) Most of the people at the insurance companies have little to no medical knowledge, which makes it easy for hospitals and doctors to trick them.

2) The employees themselves, and the patients, have little incentive to catch insurance fraud. Employees don’t get bonuses for saving the company money. And unless the patient has a deductible or co-pay to pay for the insurance fraud bill they don’t save anything either by catching it.

All that insurance fraud helps increase the cost of health insurance.

Among some of the insurance fraud we’ve caught over the years.

-Billing for blood transfusions we didn’t have, but NOT billing for a blood type test (something required Every time you give someone blood, to make absolutely sure you don’t kill them by giving them the wrong blood type. To anyone with medical knowledge that makes this a dead giveaway that it’s insurance fraud).

-Billing for expensive medical tests we never had.

-Billing for seeing a doctor when we only saw a CRNP (Certified Registered Nurse Practitioner) in an office visit (CRNP visits pay only 75% as much as doctor visits).

art guerrilla (profile) says:

Re: Re: Re:2 ... and patents

thank you, i have been agog at this factoid for a along time, and repeat whenever it is appropriate: as you mention, Big Pharma spends MORE ON MARKETING, than they do on R&D…

that’s ALL you need to know to realize their bellyaching and crybabying about how much it costs them (read: US, as they write off that shit) is a fuckton of crocodile tears and bullshit…

and the marketing vs R&D costs are also massively skewed because they include idiotic MARKETING bullshit as “R&D”, such as ‘research’ on the color of the pill, the form (caplet, capsule, pill, powder, etc), etc…

all those things have essentially NOTHING to do with the efficacy of the drug, and are solely for how much joe/jane sixpack will LIKE taking their crappy meds if it is in this or that form or color…

Big Pharma are slime…

John Fenderson (profile) says:

Re: Re: Re:3 ... and patents

AND, the vast majority of R&D funds the pharmas spend are for the drugs that have the highest profit potential. This means dick stiffeners, fast-acting heartburn medicines, etc.

Research into the types of drugs that are desperately needed but won’t result in billion dollar profits is nearly nonexistent. Things like antibiotics, etc.

Just Sayin' says:

Interesting but not without risks

There are always pluses to cost control and making the doctors aware, such as not ordering extra tests that are not needed or selecting the most expensive process or procedure to get things done.

However, there is a risk of a doctor trying to save a few dollars and skipping a test that might have changed a diagnosis, or perhaps not referring certain cases to specialist and handling themselves or with their own in house people. Cost controlling can get out of hand, and must be monitored in both directions.

The real issue will be finding a balance. Anyone who lives in a place with social medicine knows it’s not a solution either, no matter how hard the liberals try to promote it. On the other side, there are no “death panels” coming as the Republicans tried to sell, the real middle ground needs to be health care that we all can actually afford.

Paul Nash (profile) says:

Re: Interesting but not without risks

“Anyone who lives in a place with social medicine knows it’s not a solution either”

Oh? I live in Canada, where our health-care is paid for by the government (using our money), and health-care here is superb. Trivial issues (like cardiac scans for insurance) end up waiting for a l_o_n_g time, but anyone can walk into a hospital or clinic and get top-notch treatment for $0. Or go to their family doctor or paediatrician for $0.

We do have to pay our dentists ourselves, though.

I am self-employed. If I lived in the US, I would not be able to afford health insurance, and would be either dead or bankrupt if anyone in the family had a major incident.

So please explain to me the downside of social medicine?

Anonymous Coward says:

"Greed is good"?

Why does almost every story about the USA sounds like the whole country is focused solely on money? People getting screwed so others can make more money. Commenters saying that the “free market” will fix everything. Complaints about the cost of medical insurance. Savings accounts. And so on.

As some philosopher said a long time ago, “the love of money is the root of all evil”.

Anonymous Coward says:

Re: "Greed is good"?

Not the whole country, just a few crazed sociopaths.
…Unfortunately, those sociopaths bribed, blackmailed, and backstabbed their way to the top of basically every major corporation. And the government.
So now we’ve got stupid laws that exclusively benefit the people who wrote them (to the detriment of the general public), hospitals that charge people $5 for a band-aid, and any amount of economic trouble.

Pragmatic says:

Re: "Greed is good"?

Ohai, AC.

The free market is a mythical entity along the lines of unicorns and fairies. There’s actually no such thing as “The free market” because it’s not actually free. Big companies, cartels and monopolies effectively stifle and distort it, then pretend we have a choice. Since these people also have control of the mass media, they are able to influence the pretentious and foolish among us, who don’t think for themselves, into believing they’re self-made because they have a job, not because they’re successful entrepreneurs, etc.

These deluded folks are the ones who blather the most about the free market and how we can vote with our feet if we don’t like the company we’re dealing with. I’d like to know what the free market options are for Kristen A. http://www.techdirt.com/articles/20140107/11223825788/remodeler-sues-woman-over-negative-reviews-helps-force-another-critic-out-her-own-home.shtml

It seems she can’t just vote with her feet or take them to court.

Mention that to someone who believes in the free market fallacy and watch them change the subject. But they’re so in love with the idea, they reject all evidence to the contrary as an anomaly.

And that is why free market economics doesn’t work, friends and neighbors. In a market that isn’t free, it can’t. And in a socio-political climate where the golden rule (he who has the gold makes the rules) applies, good luck with actually making it free.

Pragmatic says:

Re: Re: "Greed is good"?

That’s why we need a left wing. We don’t have to agree with them, but left + right creates a middle ground between them.

The middle is where I sit, agreeing with those policies that benefit we the people, wherever they derive from.

What we’ve got is a paranoid right that eschews engaging with the political system and advocates violence as a solution, and an ineffective liberal-left coalition that has been marginalized by the corporate sellouts and Blue Dog Dems.

Vote for the person, not the party, and avoid the petty partisanship that’s been poisoning political discourse for so long in this country. The reason we’ve become so crazy is because we’re afraid of the people we disagree with. That needs to stop. Liberal socialists may be somewhat misguided at times but they’re often right, and we do need them to provide balance. As it is, the whole country has lurched sharply to the far right and that’s bad news for all of us.

Gerard Pierce says:

“by paying doctors a lump sum for overall treatment of a condition, and actually dinging them for errors, rather than rewarding them by allowing them to add more fees for fixing those problems, significantly fewer problems occur.”

My first reaction is that this is one of those situations where “for every complex problem there is a simple solution – which is wrong”.

Under this version, the doctor makes the most money by taking the lump sum and by pretending to deliver service. That already happens more often than it should under both medicare and private insurance.

Dinging them for mistakes is a great idea once you have decided what a mistake is. Of course much of the profit in medicine now becomes evaluating mistakes and if you are lucky, there might still be some money left for providing some actual medical care.

Like any system, the suggested one works perfectly if you have perfect people.

Ninja (profile) says:

Obamacare is actually a very good thing in many fronts (though truth be said there are some glaring failures from what I’ve seen about it). However I’d say it has terrible enemies to face before becoming a better thing for Americans. First there’s the partisan brainless fight, then the lobby of companies that will make less money and the disinformation… I do think it’s one of the few good things Obama has done in his entire mandate.

John Fenderson (profile) says:

Re: Re:

But the one big bad thing is it’s central purpose: to entrench and enrich insurance companies — the very entities who are mostly responsible for the health system being broken in the first place. The second big bad thing is that it makes the actual solution to our health care problem (single payer) much more difficult to attain.

Obamacare not only throws us all to the wolves, it requires us to pet them.

Anonymous Coward says:

The problem with government run healthcare

The real problem with government run healthcare is this government, and especially the current administration, has proven that it can’t run anything effectively. Why would healthcare be any different?

Also, before you think about how great other countries healthcare is, check out their outcomes. My wife had thyroid cancer a few years ago. In the US, it is 99% curable. In Canada, it is in the 50% range. This is due to long delays in getting the initial diagnosis and long delays in treatment. I don’t care how cheap healthcare is if I am dead.

Niall (profile) says:

Re: The problem with government run healthcare

And in the US, those who can’t afford insurance (or can’t get it) are just as dead. Most Western countries still have better outcomes at a fraction of the price compared to the US. The better outcomes you do have are still subject to massive inefficiencies and cost a lot more than elsewhere.

madasahatter (profile) says:

Re: Re: The problem with government run healthcare

Obamacare is not really affordable for the chronically ill due to the its financial structure. The deductible/co-pay/premium balance is idiotic. Affordable premiums with assistance have ridiculously high co-pays and deductibles while ones with more reasonable co-pays and deductibles have idiotically high premiums. The overall situation for the chronically ill has not really improved; just got screwed a new way.

Paul Renault (profile) says:

Re: The problem with government run healthcare

“In Canada, it is in the 50% range.
Citation needed!

…oh, almost forgot, Anonymous (can I call you Anonymous? Or do you prefer Mr. Coward?)…Bullshit!

Quoting The Unique Cancer By Rita Banach, B.Sc., DCS, President, Thyroid Cancer Canada
“Although only 21% of new thyroid cancer patients are male, women have an overall five-year survival ratio of 99% whereas it drops to a 94% cure rate in men(4)”

And if you don’t believe Canadian sources:
“Available studies suggest that health outcomes may be superior in patients cared for in Canada versus the United States, but differences are not consistent.”

If there’s one way that politicians in Canada can ensure that they won’t ever get elected, it’s to announce that they’ll do away with Medicare.

crade (profile) says:

Re: Re: The problem with government run healthcare

U.S.ers like to use Canada as an example because our health care is currently has some problems (it’s not as bad as the U.S. imho, but certainly could use some tinkering).. But it’s not like there aren’t tons of other examples of public healthcare out there that are blowing both our systems out of the water.

Anonymous Coward says:

Re: The problem with government run healthcare

Facts and figures do not back up your assumptions.

You have the highest cost (per patient) of any healthcare system in the world and yet you do not have the longest life expectancy.

In fact if you look at the USA life expectancy you are doing very badly. Something needs to change (aside from your waistlines) and it starts with culling your healthcare system.

Vincent Clement (profile) says:

Re: The problem with government run healthcare

“The 5-year relative survival for thyroid cancer is 98%. This means that, on average, people diagnosed with thyroid cancer are 98% as likely to live 5 years after diagnosis as people in the general population.”

Read more: http://www.cancer.ca/en/cancer-information/cancer-type/thyroid/prognosis-and-survival/survival-statistics/?region=on#ixzz2puPR9en4

Richard (profile) says:

Re: The problem with government run healthcare

this government, and especially the current administration, has proven that it can’t run anything effectively.

Unfortunately the one thing that the government is even worse at than running something is procuring said something from a third party.

Once you add the fact that certain things are inevitably the responsibility of government then it becomes clear that the involvement of the private sector only makes things worse.

The key here is this – if something is essential then it is part of the government sector – even if it appears to be private – e.g. the banks.

The only way that helathcare can truly be private is if you regard it as non-essential – in which case the result is that the poor will die unnecessarily. That is a possible political position – but those who take it should admit it.

John Fenderson (profile) says:

Re: The problem with government run healthcare

The real problem with government run healthcare is this government, and especially the current administration, has proven that it can’t run anything effectively.

This is provably false. The government runs many things, including a major single-payer healthcare service, very effectively.

Also, before you think about how great other countries healthcare is, check out their outcomes.

I have. The US is one of the worst in terms of outcome amongst modern western nations.

For sure, it’s possible to get the best health care on the planet in the US. The problem is that you have to be wealthy. If you’re poor (which is most of the population), then the care you get is very substandard.

Here’s a little anecdote to balance out yours. A friend of mine broke a crown when in Taiwan, and had to have it repaired there. The service he got, and the quality of work and materials, was the best he’d ever experienced in his life. And it cost him a bit less than 1/4 what it would cost in the US. And the dentist apologized for having to charge him anything at all — he wasn’t a citizen and so he wasn’t covered by Taiwan’s health system and had to pay out of pocket.

After he crunched the numbers, he determined that if you have to have two crowns done, it’s cheaper to get on a plane, fly to Taiwan, and have it done there than to get it done stateside. In addition, you’ll get much better care.

cryophallion (profile) says:

Why do they order so many tests

This is completely overlooking one of the major issues with US healthcare, and its costs.

Drs. order a ton of tests… but you fail to realize why. They have to, or else if something happens, they get sued. For a lot of money. In fact, look into how much of a practices income goes to malpractice insurance a year. The number is astonishing. Tests are how they try to cover their butts in case of a lawsuit.

If you REALLY want to reign in health care costs, simple tort reform where people can’t sue human beings who can and will make mistakes for exorbitant amounts of money would be a huge step.

Drs are humans. They do their best. However, like most of us, they will not always do everything perfectly. I wish it were otherwise, but it’s true. Taking 25-35% of their income to protect against lawsuits is a ton of money tied up in the insurance companies treasure chests.

(Then again, tort reform where people aren’t getting millions from McDonalds for coffee is hot would go a long way towards helping everyone, not just the lawyers and the people who win the lottery of being hurt and cash in)

Anonymous Coward says:

Re: Why do they order so many tests

Sigh, another person who believes that tort reform is the answer.

Millions of dollars for spilling coffee. Ok, the back story here is:
The particular MacDonalds in question was serving a lot of coffee in the morning, but did not want to spend the money to purchase another coffee machine, so the manager turned up the temperature on the coffee machine, but it still wasn’t brewing fast enough. So MacDonalds CORPRATE sent out a technician to disable the temp control on the machine, allowing it to serve coffee at ~211 degrees. when the predictable thing happened (someone spilled coffee on themselves), instead of being minorly hurt, they ended up with 3rd degree burns.

The jury heard this, and awarded ~10,000 in medical expenses. This was also not the first time this had happened, there were multiple instances of this happening, with the last jury award being 250,000 in punitive damages, so this jury upped that to 1,000,000 to punish MacDonalads and try to get them to stop.

Now, for the classical ethics questions on how much one should be compensated for some sort of mal practice.

Due to entirely forseeable actions on the part of my doctor, i have lost my left hand. You are the jury, and have decided to award me medical expenses, and some compensation for the loss of my left hand. You and you alone get to decide how much money i get.

Here’s the catch, if i decide that you have not awareded me enough money, i can give you the money, and have your left hand removed.

So, how much are you going to award me.

Tort reform is much more complicated than you think.

Anonymous Coward says:

Re: Re: Why do they order so many tests

For those who may labor under the impression that this was a relatively modest injury, perhaps they should take a look at many of the photos shown at:


Hers was not the first injury of this type…but it was certainly one of the most, if not the most, extreme. And to think McDonalds had settled almost (or so it was reported) 500,000 such cases and still did not alter its practices. No, this case was not the poster child for the need to enact tort reform legislation. Perhaps other cases? Maybe. This one? No way!

John Fenderson (profile) says:

Re: Re: Re: Why do they order so many tests

Interestingly, when you dig into all of the high-profile “examples of the need for tort reform”, those cases that seem ludicrous on first blush always seem to end up being entirely reasonable.

I can’t think of a single such case where that didn’t end up being true. On the other hand, there are clearly bogus lawsuits — but they tend to get kicked out of the court system pretty quickly and so they don’t become example cases.

Jim Herd says:

best and cheapest

Solution is for people to take responsibility for their own health and learn what they need to know to manage it themselves.

It is surprising just how far a little knowledge of how to improve your nutritional status will take you and how relatively little it costs.

I imagine visits to the doctor will become incredibly cheap when we don’t really need them most if the time.

Bengie says:

Re: best and cheapest

Around here, the average income is about $20k/year and the hospital bill to give birth is about $30k. It will take near a lifetime to pay off the cost of one child.

I’ve known some people who had near $50k bills for giving birth because it didn’t go perfectly smooth, but was otherwise “simple”.

What does this tell me? The cost of entering this world is about $30k, so that destroys your entire theory of “it’s a nutritional issue”.

Anonymous Coward says:

Re: best and cheapest

Dear god, you’re seriously suggesting that that everybody – including those folk in the bottom third in intelligence and those folk working three jobs and still so poor they don’t have Internet access – to “just suck it up” and become their own doctors?

I think we have the reincarnation of Marie Antoinette here! “Let the eat cake”, indeed!!!

Chris ODonnell (profile) says:

That colonoscopy article was especially interesting as I just had one last month and I got the bill yesterday, The surgery center billed me about $5000 for the hour I was there. I’m lucky to have great insurance through my wife so my financial responsibility was $68. However, the insurance only paid about $700, the rest of the bill was written off. If I didn’t have insurance the surgery center would expect to collect $5000. Because I have insurance they only collected about $768. I can’t imagine that colonoscopies are a loss leader so I have to assume they at least cover their costs at $768.

It makes absolutely no sense.

Anonymous Coward says:

Re: Re:

It makes plenty of sense when you consider that the insurance company is writing off percentages like that for every bill. Hospitals and doctors charge high because insurance companies are basically forcing them down to bargin basement prices. Depending on what insurance company you have, it’s entire possible the hospital did not cover their costs on that test.

Anonymous Coward says:

How to Fix!

Seriously, the ONLY way to fix this is to simply rid ourselves of the Insurance game! Keep in mind that I said the game, not specifically Insurance itself.

The game insurance plays is all about delaying, minimizing, or outright refusing to pay the Dr’s their due. This means a Dr provides services to their patients long before they see compensation. There are a lot of Medical facilities that knock off 15~40% if you flat pay cash.

Congress should only be involved enough to ‘regulate’ the market but NOT control it Obamacare style. Obamacare is nothing more than solution to screw up a market to allow government to go to single payer systems.

Clownius says:

Re: How to Fix!

As one of the many people living in a single payer system all i can say is

PRAY BLOODY HARD they get what they want then.

Single payer systems work damned well all over the world. the outcomes are better and the costs much lower. Those are the facts. Ideology says this must be wrong but i live in a world that isnt ideologically pure. Its called reality.

go with what works

Anonymous Coward says:

Incentivise health

Even the OP’s suggested route still rewards doctors for intervention. Not for health. If a US family doctor kept his/her flock so well that none of them ever needed treatment for anything, he/she would be bankrupt.

Until a system rewards investment in public health, it will always incentivise intervention which will lead to excessive / unnecessary intervention.

That One Guy (profile) says:

Re: Incentivise health

Just tossing the idea out, but how about a ‘retainer’ system, with bonuses for each patient cured?

Basically treat healthcare as a public utility, doctors are paid a set wage whether they’re treating someone or not, paid for via taxes like just like public roads and police/fire departments.

As an added incentive to give good service, you could make it so they get a small bonus for successful treatments and good service, and the bonus reduced for bad service, with the two able to cancel each other out, so a bonus is nullified by lousy service, though the bonus/penalties would never be able to reduce the base wage, which would be paid regardless as long as the doctor was practicing.

Anonymous Coward says:

Re: Re: Incentivise health

Who defines “bad service”.

The thing a lot of these discussions forget is that plenty of people are stupid or ignorant, or just don’t want to do the healthy thing. Of those only ignorance can be corrected by the doctor.

The end results being that you can get more than a few people who think they got bad service because the doctor didn’t give them what they wanted, or families that think their family member got bad service despite the family member not taking the doctor’s recommendations and having a bad outcome because of it.

Similarly, who defines the base wage? There are a lot of parts in Virginia where the allowed billing rate for Medicare will let the doctor pick two of three options: pay their staff a fair wage, pay the expense of their practice, or pay themselves. All three are kind of important, and that current baseline of what the doctor should be paid is not enough to meet all three. Which contributes to overbilling as doctors and/or billing staff attempt to make up the difference somewhere.

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