Financial incentives may sap motivation, undermine quality: Health Affairs article

Physicians for a National Health Program (PNHP)
Press Release, October 12, 2012

A leading authority on behavioral economics has teamed up with two health policy experts in an article at the Health Affairs blog to argue that pay-for-performance (P4P) schemes in medicine may do more harm than good by “crowding out” altruism and other intrinsic motivations to do a good job.

Such P4P schemes, which are being quickly adopted by Medicare and many private insurers under the new federal health law, typically involve giving bonuses to doctors and hospitals for hitting specific, numerical targets in such matters as prescribing certain drugs or ordering screening tests.

However, despite the widespread rush to embrace P4P, a growing body of research has found no evidence that these schemes actually benefit patients, write professor Dan Ariely and physicians Dr. Steffie Woolhandler and Dr. David Himmelstein. Their article was posted to the blog late Thursday afternoon.

Moreover, it’s likely the introduction of such schemes into the cognitively complex work of medicine will backfire, they say.

“Traditionally, economists have viewed extrinsic (i.e. monetary) reward as either the only motivator or as simply additive to intrinsic motivators such as purpose, altruism, mastery, or autonomy,” the authors write.

“According to this view, higher pay induces better performance. But this simple model of reward-induced performance ignores the complexity of human drive, particularly the role of intrinsic motivation – the desire to perform an activity for its own inherent rewards.

“Offering your dinner-party host a $10 reward for cooking a wonderful meal isn’t likely to motivate future invitations.”

The authors cite multiple research studies – involving blood donors in the United States, volunteer workers in Switzerland, and Israelis with children in day care, to name just a few – that show how introducing financial incentives into the picture led to diminished motivation to do the right thing.

They also cite a meta-analysis summarizing 128 studies that show such findings are representative of a consistent body of research.

In addition, the authors warn that “crowd-out” of doctors’ intrinsic motivation may be particularly severe when contracts are more detailed and controlling.  P4P incentives may also lead providers to game the system by checking boxes or exaggerating diagnoses when they know that doing so will garner bonuses.

Pay-for-performance programs also increase administrative costs, they say, citing the extensive economics literature on the downsides of overly detailed contracts.

The authors are recognized experts in their respective fields. Dan Ariely is the James B. Duke Professor of Psychology and Behavioral Economics at Duke University. He is the author of numerous research studies and three bestselling books on behavioral economics, including “The (Honest) Truth about Dishonesty.”

Dr. Steffie Woolhandler and Dr. David Himmelstein are physicians and professors at the City University of New York’s School of Public Health at Hunter College and visiting professors of medicine at Harvard Medical School. They have published many articles in leading medical journals on health insurance and mortality, medical bankruptcy and administrative costs in health care, among other subjects. They are also co-founders of Physicians for a National Health Program, a single-payer advocacy group. PNHP provided no financial or other support for their research.

http://www.pnhp.org/news/2012/october/financial-incentives-may-sap-motiv…

And excerpts from the cited article…

Will Pay For Performance Backfire? Insights From Behavioral Economics

By Steffie Woolhandler, Dan Ariely and David Himmelstein
Health Affairs Blog, October 11, 2012

Paying for performance (P4P) has strong intuitive appeal.  Common sense and rigorous studies tell us that paying more for, say, angioplasties or immunizations yields more of them.  So paying doctors and hospitals for better care, not just more of it, seems like a no-brainer.  Yet while Medicare and many private insurers are charging ahead with pay-for-performance (P4P), researchers have been unable to show that it benefits patients.

Findings from the new field of behavioral economics may explain these negative results.  They challenge the traditional economic view that monetary reward is either the only motivator or is simply additive to intrinsic motivators such as purpose or altruism.  Studies have shown that monetary rewards can undermine motivation and worsen performance on cognitively complex and intrinsically rewarding work, suggesting that P4P may backfire.

The Science Of Performance And Reward

The quality improvement literature has pinpointed many causes of quality breeches in medical care: fatigue; poorly designed workflow and care systems; undue commercial influence; knowledge gaps; memory lapses; reliance on inappropriate heuristics; poor interpersonal skills and insufficient teamwork, to name just a few.  But “not trying” is rarely cited.  Yet P4P implicitly blames lack of motivation for poor quality care.

But even when motivation is the problem, money isn’t always the solution.  Findings from the new field of behavioral economics indicate that performance bonuses often backfire, particularly for cognitively challenging work.

Traditionally, economists have viewed extrinsic (i.e. monetary) reward as either the only motivator, or as simply additive to intrinsic motivators such as purpose, altruism, mastery, or autonomy.  According to this view, higher pay induces better performance. (Figures appear at the end of this post.)

But this simple model of reward-induced performance ignores the complexity of human drive, particularly the role of intrinsic motivation — the desire to perform an activity for its own inherent rewards.

Conclusions

None can doubt health care’s grave quality deficits and cost excesses.  As remedy, P4P suggests manipulating greed, a fuel that’s powered exponential growth in productivity in the overall economy.  But Adam Smith, who first recognized greed’s awesome power, was also a moral philosopher who believed that commodity production required a parallel public service economy driven by social duty.

Sadly, greed has caused many of the worst abuses within the current system.  Injecting different monetary incentives into health care can certainly change it, but not necessarily in the ways that policy makers would plan, much less hope for.

http://healthaffairs.org/blog/2012/10/11/will-pay-for-performance-backfi…

Many of us cringe when we see various pay-for-performance (P4P) schemes. Why should that be? After all, providing monetary rewards for improving quality and possibly reducing costs intuitively might seem like a good thing. Dan Ariely, an expert on behavioral economics, along with Steffie Woolhandler and David Himmelstein, provide us with insight. Most of us really did enter the health professions to serve patients, not to sell a commodity.