Not-so-breaking: Incentives matter

by Allan Joseph

Normally, I don’t pay too much attention to surveys, especially when it comes to the nitty-gritty of how policy changes might affect a complex healthcare system. The average poll respondent tends to have better things to do than understand the minutiae of health policy, and rightfully so. But last week, Health Affairs released a survey of hospital executives that I found particularly telling about the American healthcare system.

There’s a lot going on here — as Ezra Klein noted, hospital executives are much more sanguine about the ACA’s effect on the healthcare system than anyone else, and they see their hospitals shedding costs over the next few years.

But I wanted to highlight this chart, which you’ve seen if you follow me on Twitter:


Look at the top three items on that list. Those are things you want a healthcare system to minimize! You want people to be healthy, and not come to the hospital. When they do come to the hospital, you want them to leave healthy enough to not come back. You hope to minimize the amount of emergency care, which is expensive and often high-acuity. Those are uncontroversially good goals, and they’re the top three ways hospital executives would respond to incentives to reduce costs.

The list goes on, of course — there are a lot of worthwhile goals, even if some of them might hurt the pharmaceutical or medical device companies, but I keep coming back to those top three. Those are the things we want. If we incentivize hospitals to do them, they will. That’s utterly unsurprising, but it also prompts the question of why they haven’t been done already.

Well, hospitals make money from having people in beds. So we incentivize them to hospitalize people. If we change the incentives, we can change the results.

Now, of course there are caveats. It’s easy for a hospital executive to say that these are things they would do in a hypothetical scenario. We don’t know if they’d actually do them — maybe they’d prefer to spend their time and money lobbying against the change in payment structures instead of implementing these changes. These are also fairly varied responses. Only two of the options have about 50% support as “top three” ways to reduce expenses. That suggests we can’t exactly predict what incentivizing cost reduction would result in.

But this is the promise of ACOs. This is why economists never shut up about incentives. And this is why the phrase “every system is perfectly designed to produce the results it gets” results in 13.3 million Google hits, attributed variously to Dr. Don Berwick and Dr. Paul Batanden.

There aren’t that many hard-and-fast truths about health policy. But there is one: incentives matter.


Allan Joseph is a first year medical student at the Warren Alpert Medical School of Brown University, where he is pursuing an MD/MPP. You can follow him on Twitter @allanmjoseph.


One thought on “Not-so-breaking: Incentives matter

  1. This is exactly what my dissertation is on, but instead of saying incentives matter, I say that governance (which sets incentives) matters.

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