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Let's Put the Incentives in the Right Place

June 11, 2009
by richard
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For every complex problem there is an answer that is clear, simple, and wrong.

H. L. Mencken

As we get closer to healthcare reform one question on many a law-maker's mind right now is how are we going to pay for all of this expanded access to healthcare?

Here’s an idea. Look for the medical conditions that are responsible for the largest numbers of readmissions and withhold payment for all those that are unnecessary. That will save money.

Sounds good.

How do we decide which ones are unnecessary?

Simple math.

We’ll line all the hospitals up in a row from highest to lowest and we’ll draw a line at, say, the top 25%. Those hospitals must be readmitting too many patients; why else would they be in the top 25%? Then anytime someone is admitted to one of these hospitals for one of these conditions, we’ll assume the hospital is guilty until proven innocent and we’ll withhold 20% of the payment we would ordinarily pay. True, most hospitals would consider themselves lucky if they had a 4% margin, but we’ll make it 20% - that will get their attention. If the patient doesn’t come back for 30 days, we’ll give the 20% back. Needless to say, we will not be paying any interest.

This plan is not as far-fetched as it sounds. It is precisely a component of the plan put forth by the Senate Finance Committee last month.

Anyone who has spent some time around patients knows that they can come back to the hospital for any number of reasons. Some might have failures in their treatment, like patients who get an infection after a surgery – clearly something we need to address. Some might have been admitted by a physician whose discretion errs on the side of what we might say is overutilization – also something we want to address. But what about the patient with a chronic diseases who has a worsening of his or her condition and need to come back? What about patient who lives in a community where there is simply no place else to go? What about the patient who gets admitted to a nursing home on Thursday, and needs to come back on Sunday because there is no physician on-site when the patient’s condition changes. And what about those patients who don’t want to, or can’t afford to take their pills?

A better and easier plan might be to start with conditions we know might have been complications – infections or deep venous thrombosis, for example. If a patient is admitted to any hospital with one of these conditions, we could look back over a number of days - say seven - and see if they had been admitted to a hospital for an agreed upon list of elective procedures. You can deduct a portion of the payment you would ordinarily give the first hospital. This puts the incentives in the right place and begins addressing things few would argue represent high quality care.

As we begin revising the healthcare payment system, we have an opportunity to tie payments more closely to quality, or at least to line up the incentives correctly. Let’s hope we don’t instead do more harm than good by imposing policies that are simple, clear and wrong.



Richard, Great post. You did get me with the "far-fetched."

I think your proposal is definitely in the spirit of real system improvement. Here's the best paragraph defining that concept:

The notion that quality is a system property may be a bit
counter cultural, but it is not hard to grasp. It is obvious that
any specific automobile has a certain top speed. That top
speed characterises the automobile. A person displeased with
his/her car's top speed is fully entitled to get angry at the car,
to give it incentives to go faster, or to put an incident report in
the car's file. But none of this, of course, will matter the car
will still never go faster than it is inherently able to. A driver
who wants to go faster is going to need a different car. So it is
with variations in the quality and results of care. The
mortality rate of a specific hospital, the preservation of
FEV1 in a specific group of children with cystic fibrosis, or,
indeed, any other outcome at all is a property of the existing
system at work. As I have written elsewhere, ‘‘every system is
perfectly designed to achieve exactly the results it gets’’, a
statement I have called the first law of improvement.6 If we
want a better result we will have to change the system.

Qual. Saf. Health Care
D M Berwick
(free download with required free registration)

Thanks for responding with the terrific quote from Don Berwick, a master of making difficult concepts clear. He's right on so many levels. For example, we tend to think that reaching a theoretical rate of zero is impossible for something like ventilator associated pneumonia. Of course it is impossible given the CURRENT systems, but we tend to forget that these systems too are subject to change.