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Incentives and Capabilities

The idea that we have to “change incentives” for physicians is all the rage. Oceans of ink are being spilled over the transition away from the traditional fee for service payment model to a menagerie of value-based ones. At the core of much of the discussion about how to make the transition is figuring out how risk-bearing organizations like large physician groups, health systems, ACOs and the like are going to provide appropriate incentives to the individual, front-line physicians who are providing the clinical care. It is not a trivial problem to solve.

The usual explanation of the challenge goes something like this: In the old days, when organizational success was defined by the number of “heads in beds” in hospitals or patient encounters in the clinic, it was pretty straightforward to “share” that success with physicians. The more patients they saw (or procedures they did) the better it was for everyone, and rewarding “productivity” floated everybody’s boats. Under alternative payment models, the measures of success of the organization are different and more complex – generally combinations of quality measures, patient satisfaction, efficiency, etc. – and translating that into new physician payment models is not so easy. If you continue to reward productivity, then it may defeat organization efforts at efficiency; make the payment model too complex by including many different performance metrics, and physicians don’t get invested in any of them; make the model too simple, and physicians will be insulated from the organizational goals.

Lost in all of the details of how to create the illusory “perfect” physician incentive program is the fact that incentives are only a part of picture. Combinations of carrots and sticks only work where the capability to respond exists. It is not helpful – to patients, doctors, or anybody else – to implement incentive programs that reward or punish physicians when the systems of care in which they work have not been redesigned to achieve the new goals. For example, tying a physician’s compensation to cancer screening rates in a primary care setting without designing a system to identify appropriate candidates for screening and facilitating the testing is just a demoralizing punishment for the physician.

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