Industries afflicted with Baumol's Disease have slower productivity growth.

Incentives: Should Doctors Be Paid For Performance?

by Elaine Schwartz    •    Jan 31, 2013    •    633 Views

I suspect that the incentives in New York’s doctor quality plan will have unexpected consequences.

An incentive for results, bonuses will be given to NY hospitals that they share with their doctors. Described as a reward system and P4P, Pay for Performance, for quality care, really it’s a quota system. A hospital will get higher reimbursements if goals like patient satisfaction, moving quickly through the system and using certain medical protocols are met. The NY Times says there are 13 criteria ranging from doctor communication to speedy discharges.

Sadly, the plan reminded me of the former Soviet Union, when the economy was run by government committees. With output predetermined, quotas were the rule. If you had 1,000 apartments then maybe 4000 light bulbs were the manufacturer’s lighting quota. Pajamas? Size and quantity could be the quota. 

The good news is that the quotas were met. The bad news is the unrewarded details.

If only the number of light bulbs mattered then then many did not work. As for the pajamas, the sizes might have been fine but they had neither buttons nor buttonholes. I actually had a friend who stayed in a college dormitory room where the lamps were so heavy that she could not lift one. The reason? The lamp manufacturer’s quota was expressed in weight. 

You see. When people have to meet quotas to get pay or bonuses, other non-rewarded details get ignored. The result is unintended consequences.

Problems with quotas returns me to the market system. Not ideal, still profits seem create the most effective incentives. As Adam Smith explained, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner but from their regard to their self-interest.”

Sources and Resources: Bill Keller’s insightful NY Times Op-Ed and this NY Times article were the sources for my NY hospital incentive plan.

Leave a Reply

Your email address will not be published. Required fields are marked *

« »