Building a Better Health Care System: The Incentive Cure

Every day, millions of health care workers wake up and get ready to offer one of the noblest of services – to try and heal and bring comfort to the sick. They do valiant work, day in and day out, even as they confront extrinsic incentives that chip away at their mission and souls.

What are “extrinsic incentives?”

Consider this scenario. You’re driving a year-old car, and the engine light pops on. The car is under full warranty, so you bring it into the dealer. The problem is fixed quickly at no charge. This simple interaction between the buyer and provider of a service illustrates the broader and essential role of extrinsic (external) and intrinsic (internal) incentives.

Intrinsically, most of us want to do the right thing for ourselves, personally and professionally. You want to maintain the car well, so it retains its value and gets you safely from one place to another. The dealer wants to do the best possible job to keep you happy, so you’ll buy from him again. If the car is serviced well and doesn’t need extra repairs, he does well and so do you.

Often, however, it doesn’t work this way. You may ignore that engine light, especially if your warranty has run out. Maybe you don’t know much about cars, and you’re concerned the dealer will take advantage and do unnecessary work. In fact, you may be right. The shop makes money on any repair, however small. It may indeed find something else to fix, as long as it’s broadly within the bounds of reason. In any case, you don’t want to risk it. And so a small problem festers and eventually grows into something much worse.

You can substitute pretty much any other product or service, and the core issue is the same: extrinsic incentives can get in the way of intrinsic incentives. The solution is to avoid the misalignment as much as possible. It’s a difficult balance, one that sociologist Frederick Herzberg worked through in his theory on motivation. His premise is simple: Minimize the factors that lead to bad/negative behaviors, and the positive motivators will assert themselves. Indeed, when applied to health care, the basic principles are almost absurdly simple, at least in theory.

Need to reduce waste? Remove the financial and legal incentives for providers to perform as many tests and procedures as possible, and financially engage the patient in health care services purchasing decisions.

Need to make the sickest, costliest patients healthier? Remove incentives for physicians to ignore one another, so patients with chronic conditions receive the coordinated treatment proven to deliver better results. And remove the incentives for patients to delay getting needed care or taking the steps to improve personal health habits.

Need to make hospitals safer? Remove incentives to ignore the problem by collecting and publicly displaying safety records. Restaurants and workplaces are often obligated to post their safety ratings on the front door. Why not hospitals?

Need to build a real functioning market? Remove incentives for sellers to keep the actual costs of medical goods and services hidden, so consumer-buyers can compare prices and make informed choices.

Freed from these types of negative incentives, there’s no question that clinicians, consumers and other industry players would assert their positive behaviors.

Of course, if the principles are correct, it begs the question: Why haven’t the solutions been widely implemented?

Again, the answer is simple. The agents of the status quo, who profit massively from the inefficiencies and waste of health care resources, don’t really want clinicians and consumers to change their behaviors. They don’t want anyone to administer a cure because they’re reaping substantial benefits – $750 billion worth – by keeping the system as it is, sick.

After all, if behaviors changed, if the negative extrinsic incentives were neutralized, fewer pills would be bought, fewer unnecessary procedures performed, fewer devices implanted in bodies, smaller premiums paid. And those who sell all that stuff would be unhappy. You can’t “unbloat” an industry of this size without someone losing out. But here’s the important point. The American consumer would win, and so would every business struggling to pay health insurance premiums, and so would the nation at large. And billions of dollars in wasted resources could find a more purposeful use.

Ignoring this basic truth is the same as believing that doctors and hospitals in this country can’t offer better value than their peers in every other country in the world, and that we really are incapable of doing better.

And that’s nonsense. We can do better; we must do better. Americans used to do big things together. We squared our shoulders and met our challenges. Now it’s time to mobilize for a new national project: Fixing our health care system once and for all by administering the incentive cure.

Francois de Brantes executive director of the Health Care Incentives Improvement Institute (HCI3), a non-profit focused on accelerating the transformation of the health care industry into delivering greater value. He’s also the author of the new book, The Incentive Cure; The Real Relief for Health Care.