Against Physician Pay-for-Performance
This guest post is from Sylvia Brandt, an assistant professor at the University of Massachusetts, Amherst.
During the Great Health Care Debate, a great deal of attention has been focused on the issue of physician incentives. Atul Gawande's article in the New Yorker on discrepancies in per-insured Medicare spending, which President Obama made required reading in the White House, highlighted the economic incentives that physicians have to order additional tests and procedures - especially when they can order those services from for-profit companies of which they are owners.
One proposed solution, reportedly favored by Peter Orszag and Obama, is to shift toward paying physicians for performance. The basic concept is simple: physicians' compensation would be linked to their patients' health outcomes, and therefore they would have the incentive to do what is most likely to produce a successful outcome at a reasonable cost. This idea seems obvious to many economists and policymakers. But when you look closely at the dynamics of illness, health care and household behavior, the picture becomes murkier.
Pay for performance faces some major drawbacks, especially where the treatment of chronic illness is concerned. Childhood asthma, an important chronic illness that has been the subject of my research for several years, is a good example.
From a medical perspective, asthma is straightforward to manage, and with correct management patients should rarely suffer any symptoms. However, correct management depends much less on the physician (although it is possible for a physician to prescribe an inappropriate management plan, such cases are relatively rare) than on the family - taking preventative medications appropriately, making risk-reducing investments such as air filters and mattress cases, avoiding risk-increasing activities and situations, etc. (The idea that people do not always do what they should do to take care of their health should be a surprise to no one; how many readers ate seven servings of fruits and vegetables yesterday?)
Whether a family takes these necessary steps depends not on the physician's instructions, but on that family's subjective perceptions of asthma and, perhaps most importantly, the resources available to it. It is one thing for a middle-class, suburban mother with a washer and dryer to wash her child's sheets on hot water weekly; it is another thing for a mother who has to walk to a laundromat in a unsafe neighborhood after a day of earning the minimum wage. In addition, for a large group of illnesses, it is increasingly clear that environmental factors beyond the control of families and physicians alike play a determining role. A child living next to a diesel bus terminal or rail station is likely to have worse respiratory health outcomes regardless of individual household behavior.
As a result, whether a child requires repeat hospitalization for an asthma exacerbation - something that should rarely happen, given proper medical care - is a function less of the behavior of the physician than of the behavior of the family and of environmental factors. This, in part, is what makes the problem of childhood asthma so difficult to solve; it is not simply a matter of inventing a new drug. In this context, a pay-for-performance plan could penalize physicians who are doing the best job they can. In addition, it would actually discourage physicians from serving those low-income populations that have the highest incidence of childhood asthma, precisely because they are less likely to be able to manage asthma appropriately (among other reasons, because caregivers have less time and money available). The end result could be even fewer medical services where they are needed most.
This problem is not confined to asthma, but is common to many chronic illnesses whose proper treatment is no mystery to modern medicine. Obesity, for example, has been estimated to produce $147 billion per year in direct health care costs, yet physicians have only limited influence on health outcomes. Of greater importance are neighborhood characteristics – such as parks or sidewalks - that make it easier or harder to get exercise. Diabetes is another example. For this class of common, widespread, expensive illnesses, pay for performance risks creating exactly the wrong incentives.
Many chronic illnesses, including asthma and diabetes, afflict poor people much more than the rest of society. Universal health insurance coverage will certainly help combat these illnesses, since it will at least ensure that people have access to the basic medical care that they need. But simply seeing a doctor is not enough; families need the money and time to make necessary health care investments – or to move to a non-polluted environment for their children.
The only comprehensive way of improving outcomes for people suffering from these illnesses is to combat poverty itself. Unfortunately, poverty seems to have slipped off of the national political agenda sometime in the 1980s. In the meantime, a simpler solution to the problem of physician incentives, at least for management of chronic illnesses, is to pay doctors a good salary, with additional financial assistance to repay student loans and therefore reduce the pressure on medical students to go into high-paying, procedure-driven specialties. This will eliminate the incentive to order unnecessary tests and procedures, which is one component of the health-care cost problem.
When it comes to the primary-care physicians who treat childhood asthma, my experience and research lead me to believe that they do not need any additional monetary incentive to do the best they can, and monetary incentives could have perverse consequences. For other types of medicine, of course, it is possible that pay for performance could have beneficial effects.
--Sylvia Brandt is an assistant professor in the Department of Resource Economics and the Center for Public Policy and Administration at the University of Massachusetts, Amherst. Her research focuses on the economics of health and household behavior.
Disclosure: Brandt is married to James Kwak.
July 30, 2009; 1:42 PM ET
Categories: Health care
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