Australia’s Prisoners’ Dilemma: Incentives Matter in Health Care

The shortcomings of the Fee For Service (FFS) model are widely known.

During the 1800s, the British empire shipped prisoners to newly formed penal colonies in Australia (technically, these were British prisoners, but that doesn’t make a catchy title).  Ship captains were compensated for each prisoner who boarded the ship.  The financial incentive ruled over decency, each captain stuffed as many prisoners on to the ship as it could handle.  Of course, the prisoner survival rate lingered at a precarious 50%, while those who managed to survive the journey often arrived beaten, sick or starving.

Attempts were made to improve the survival rates, through what might be considered early wellness programs.  Captains were mandated to bring citrus to combat scurvy, a 19th century wellness program.  Doctors were required on each ship carrying prisoners, improved access ala concierge medicine.  I’m sure someone may have proposed it’s the prisoners responsibility to survive the trip and they ought to engage in their own survival.  Nevertheless, requiring lemons and limes and placing physicians on the ships proved equally ineffective.

In 1862, economist Edwin Chadwick suggested a change to the incentive structure.  Ship captains were no longer compensated for each prisoner who boarded in England, but, instead, received payment for every living prisoner who got off the ship in Australia.  The first pay for outcomes program in healthcare.  The survival rate on ensuing trips jumped from 50% to 98%.

The moral of the story is that incentives matter.

  • Primary care physicians are the ship captains of the 21st century.
  • American patients are prisoners of the US healthcare system.
  • Misaligned incentives are the root cause for what ails the system.

Christopher DeNoia is the Vice President of Business Development at Amplify Health, where this post originally appeared.

4 replies »

  1. It seems the moral of your story, incentives matter, tells us that fee for service might be the best modality of payment. No pay or a difficulty in collecting the fee from a dissatisfied patient. Is that not the Adam Smith model of a willing buyer and a willing seller?

  2. I don’t have details to hand and am not an historian but transportation of British convicts to Australia finished well before 1862, in the 1840s ( there was a revival of trasportation to Western Australia in the 1860s which ceased in 1868.) A variety of initiatives including regulatory requirements going to food, exercise etc and changed economic incentives were indeed succesful in dramatically reducing death rates on conviict ships; these were developed many decades before 1862 including some, from memory, in the 1790s.

  3. The political incentives do not jive with the patient’s needs or the system’s funding sustainability.

    You only need to survive until the next election.

    Bon Voyage.