Unintended Consequences Of Paying Doctors for Outcomes

In June, during an hour long speech to doctors in Chicago, President Obama said that “we need to bundle payments so you aren’t paid for every single treatment you offer a patient with a chronic condition like diabetes, but how well you treat the overall disease…We need to give doctors bonuses for good outcomes, so we’re not promoting just more treatment but better care.” Sounds good. Rewarding doctors for quality instead of quantity seems like the right thing to do. The difficulty lies in standardizing good outcomes so that the appropriate bonuses may be paid, and the incentives such a system creates for doctors.

While it’s true that paying by procedure creates the incentive to perform more procedures, some of which may be unnecessary, an outcomes based payment system has its own drawbacks. It creates the incentive for doctors to choose to treat patients who are less sick over those who are more sick. Very sick patients require a lot of attention and time, but are less likely to have a bonus-worthy outcome.

On the other hand, less sick patients are easier to treat, are likely to have a better outcome, and will offer a better bonus opportunity for the doctor. Doctors’ time is scarce, so they must put it to the best use possible to provide for their families – and in a pay-for-outcomes system that means choosing easier to treat patients who will generate the highest bonuses. No matter how much we narrow the arbitrary measure of “outcome”, the incentive for the doctor in an outcome based system, where “outcome” is defined by a third party, will always be to select the least sick patients at the expense of the sickest patients most in need of care.

Because human beings are complex organisms, defining what constitutes a “good”, bonus-worthy outcome is itself a daunting, if not an altogether impossible undertaking for the third party tasked with producing and evaluating those metrics. Medical outcomes depend on many variables, including, but not restricted to the overall health of the patient (not just the condition being treated) and the patient’s compliance with the treatment - a factor over which the doctor has no control.

Imagine the costly government bureaucracy that would be necessary to set outcomes for chronic diseases, sift through every case to determine which outcomes qualify as “good”, evaluate the specific circumstances of treatment, and decide bonus size and merit. Such a bureaucracy is unlikely to be cost-efficient, and would have to be created exclusively for this purpose as it is currently nonexistent.

An outcome-based system providing incentive for doctors to reduce treatment to the sickest patients and requiring an additional giant government bureaucracy is likely to increase costs for everyone while reducing the quality of care for the sickest patients. That’s exactly the opposite of President Obama’s intention and the stated goal of health care reform.