The effect of incentives
August 30, 2014
Dr. Sandeep Jauhar offers an interesting historical review of how America's medical system evolved over the last several decades. There are many different facets to the review, but one of the prominent themes that jump out at me is the effect that incentives have on behavior. For example, I was surprised to learn how inflation-adjusted salaries for doctors grew five-fold over thirty years. This rapid rise in compensation coincides with the rise of the employer-funded health insurance. That is, as patients became increasingly divorced from the cost of their health care, health care costs rose. That sounds like it should not surprise anyone, but instead of addressing the problem directly by meaningfully involving patients via cost-sharing, the industry moved towards health maintenance organizations (HMO) to help rein in costs via regulation (e.g. insurer reviews of medical services). Likewise, the industry pricing model has largely been fee-for-service, where doctors are paid by procedure volume. It shouldn't be surprising, therefore, when doctors order unnecessary tests (lamented, for example, by a physician who posted on Sermo). This trend also seems like it would have been curtailed with consumers sharing more of the costs (e.g. "is that CT scan really necessary?").
The sustained rise in health care spending has forced the industry to push more costs onto the consumers. As painful as the transition might be, linking costs with the decision-maker (the patient) seems like one of the few viable methods of meaningfully slowing down health care costs for the long-term. As consumers make better choices when selecting among several options with differing quality metrics and prices, the overall system will become better and more affordable. For consumers to make better choices, however, they will need tools and access to data.