Threat 3: Misplaced Incentives
There is an interesting anecdote in Steven Levitt and Stephen Dubner’s book Freakonomics.1 The story begins with a daycare center struggling with a problem: Some parents are showing up late to pick up their children at the end of the day, and this is costing the center in the way of overtime charges for the staff. To solve the problem, the center elects to institute a financial disincentive: Those showing up late to pick up their children will pay a modest financial penalty.
Fast-forward to months after the policy was put in place. The result? An exponential increase in the number of parents showing up late to pick up their children.
How do you explain worsening performance in spite of a financial disincentive? The answer resides in understanding human behavior. According to the authors, there are three primary motivations in life: financial, social, and moral. As ugly as it sounds, the decisions people make in life are driven by one of these three motivations. There is nothing wrong with providing incentives for behavior; incentives work.
But the danger arises when incentives are mismatched to behaviors. For example, if a financial outcome is the goal, then financial incentives make sense. If a social outcome (people should play better as a team) is the goal, the social incentives make sense (public recognition). But when the incentives get misaligned with their respective goals, trouble results.
What went wrong with the daycare’s plan is simple—most of the parents were motivated to pick up their children on time out of moral (“I gave my word”) or social (“I don’t want to be talked about by other parents”) incentives. But once a financial incentive was offered, the daycare center had essentially given the parents a way out in absolving their social and moral obligations. The parents had essentially cost-adjusted their behavior.
If you think this couldn’t happen to the healthcare system, let me ask you this. As a hospitalist, I see all of my patients early in the morning, because I see it as part of my obligation to the hospital team to discharge patients by 11 a.m. (social motivation).
But what if the CEO released this directive: “You will see all of your patients early in the morning, or you will take a $1,000 a year pay cut.” Is it possible that I might cost-adjust the $1,000 in exchange for sleeping in a little later and not having to deal with the morning traffic? I don’t know.
When it comes to financial incentives, there is a valley in the U-shaped curve. When the financial incentive is trivial, it is disregarded and the social/moral motivations of behavior persist (the kids are picked up on time; I persist in seeing patients early in the morning). When the financial incentive is huge, the financial incentive trumps all social/moral motivations, ensuring compliance with the goal behavior (every kid is picked up on time to avoid a penalty; I see all patients early in the day to avoid a larger penalty).
But in between is the risk zone: When the person feels they are paying an appropriate penance for not complying with the goal behavior, the financial disincentive absolves any social/moral guilt.
Healthcare reform is about incentives—and there is nothing wrong with that. But as the stewards of the inpatient healthcare system, it is upon us as hospitalists to ensure that the incentives remain matched to their intended goals, and that the untoward consequences of the incentives do not adversely affect the quality and safety of a patient’s care.