Financial Rewards for Health Care Program Outcomes and Why They Can and Do Lead to Undesired Results (WP-25-09)
Burton Weisbrod
The operations of heath care programs and organizations today rely heavily on the measurement of performance and outcomes. This includes a variety of stakeholders— private firms such as pharmaceutical manufacturers, government health care providers and insurers including Veterans Administration (VA) hospitals, and private hospices that depend on the Medicare payment system. In varying ways, all view their expenditures and revenues as being tied to systems of incentives, rewards, and penalties that are linked to performance and outcome measures. Not surprisingly, that can and does trigger stakeholder responses to maximize specific metrics and their associated financial rewards. The result is unintended and often unforeseen distortions in behavior that can lead to undesired outcomes. This paper examines the history of U.S. public policy regarding federal health care programs and payments, and through a series of case studies it shows how and why strong financial rewards tied to simplistic health care performance measures lead to these results. It delves into the economic concept of how and why measurement itself leads to changes in behaviors, and the rationale behind behaviors of ”gaming” health care performance measures systems to enable the appearance of better outcomes. Finally, it points the way to more sophisticated measurement of health care performance with use of “weaker” rather than “stronger” financial rewards as a way to better achieve desired results.