Will paying for quality in Medicare backfire?

October 16, 2012

The health-care law has numerous programs that make higher quality care more lucrative for doctors. That's not how our system works right now: Doctors are paid on a fee-for-service schedule, with little regard to the care they deliver.

If doctors had a financial incentive to deliver better care -- bonuses, for example, for keeping their patients happy -- the logical next step for physicians would be focusing on quality.

Doctors, like the rest of us, aren't always logical creatures. Steffie Woolhander, Daniel Ariely and David Himmelstein sound a note of caution in Health Affairs, looking at how previous efforts at pay for performance efforts, in other sectors, have backfired:

Among frequent (presumably highly motivated) blood donors, an incentive payment (about $55 in today’s dollars) decreased donations in an RCT [randomized controlled trial].  In contrast, payments increased donations among those who hadn’t donated for years.  A Swiss study of volunteer work reached a similar conclusion; unpaid volunteers worked, on average, four hours more monthly than those offered a small payment.

Financial incentives also had untoward consequences in an RCT in Israeli day care centers.  In centers that imposed fines on parents for picking up children late, tardiness increased, and remained high even after the fines were eliminated.  Fines had transformed promptness from a moral duty to a market transaction governed by price.

Moreover, RCTs have shown that upping the rewards may not overcome motivational crowd-out.  In an experiment carried out among MIT students (at semester’s end, when many were cash-strapped) those offered up to $300 for solving mathematical puzzles performed much worse than students offered only $30.  (In contrast, the highly incentivized students did better on simple tasks requiring only manual effort.)

The evidence on pay-for-quality in the health-care sector is decidedly mixed. Health-care systems in Massachusetts have shown significant savings using these kind of models. Other experiments have gone less well: When Medicare tried to tie hospital payments to rates of hospital-acquired infections, it did not seem to have any effect on eventual outcomes.

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Dylan Matthews | October 16, 2012