Incentivizing the Wrong Thing

Consider the chilling effect of misaligned incentives, for example, avoiding treating the sick in order to get a better grade on a report card.

Let me try and break down a fresh, yet age-old social dictum in healthcare because it continues to have great relevance. First, good healthcare policies and procedures, including incentives and rewards, are "those that support socially valued ends." The obverse of this is what we said in "Forget P4P":

Consider the chilling effect of misaligned incentives, for example, avoiding treating the sick in order to get a better grade on a report card; patient referrals as in dumping patients when they take so much time and where their care has become unprofitable or risky; over treatment (it's easier to give the penicillin for the virus than to explain why not and then get the heat of unmet expectations from the patient's family); and rewarding the status quo as in “benefiting mainly those physicians who already meet the guidelines,” etc.

The article we discuss below says we MUST do the morally right thing—always. To paraphrase, we must change from selfishness to focusing on the public good; we must recognize and reward public-spirited motives. In three words, we must "align the incentives"1 to do the morally right thing.


Full Steam Ahead; Let Our Moral Sentiments be Damned

"Behavioral experiments reviewed here suggest that economic incentives may be counterproductive when they signal that selfishness is an appropriate response; constitute a learning environment through which over time people come to adopt more self-interested motivations; compromise the individual's sense of self-determination and thereby degrade intrinsic motivations; or convey a message of distrust, disrespect, and unfair intent. Many of these unintended effects of incentives occur because people act not only to acquire economic goods and services but also to constitute themselves as dignified, autonomous, and moral individuals. Good organizational and institutional design can channel the material interests for the achievement of social goals, while also enhancing the contribution of the moral sentiments to the same ends."1

Below, some reader responses:

From: Fredrick H.

Date: June 29, 2008 1:13:19 AM EDT

Subject: Policies Designed for Self-Interested Citizens May Undermine "The Moral Sentiments"

"Policies Designed for Self-Interested Citizens May Undermine 'The Moral Sentiments': Evidence from Economic Experiments" is one of the most interesting articles I've read in a long time, and it may have major implications for public policy. Its main point is that economic incentives may (and often actually do) decrease a person's moral inclination to do the right thing.

As you know, I've long been a proponent of aligning economic incentives in medical care to encourage each class of actors to do the most socially beneficial thing; anything that undermines our moral sentiments is especially disconcerting.

Would paying doctors bonuses for the quality of their care decrease their inclination to give better care in the absence of such bonuses? But, I wonder how relevant this concept may be to contemporary American corporate society.

Would a "cap & trade" system for decreasing carbon emissions decrease the inclination of companies to decrease emissions even further? I think that question reveals the inapplicability of the findings of this article to modern American business, whether industrial or medical.

American corporations essentially are amoral. The very concept of a corporation voluntarily losing money by doing good for society is illegal in this country, since the 1919 case of Dodge v. Ford, and a long line of its descendants. A corporation that does anything altruistic is subject to suit by the shareholders for misappropriating THEIR money.

Even institutions in a fiduciary position are entirely driven by the profit motive. Trusting them is just asking to be played the sucker. And sadly, the same may hold for those subject to the corporate culture, such as doctors working for them. And, even among individuals, there are always SOME who will defect from the common good, and this self-interest will spread, as the rest of the population acts so as not to be suckered by the defectors. It needs to be seen that defectors are punished in some way.

The first example in the article is of the day-care center where a fine was imposed on parents who were late in picking up their kids at the end of the day. The result was that parents were TWICE as late! Instead of feeling a little guilty about imposing on the teachers, they now felt that they were paying for a service. Ironically, when the fine was withdrawn, they KEPT being late at the new rate!

So here, the penalty erased the moral inclination, turning it into a business transaction, and the amorality survived the lifting of the penalty.

Morality is often enforced by peer pressure, and that's what's missing in American business. So, there's nothing left but economic pressure. How could economic pressure be given some of the attributes of peer pressure?

If *I* had to design a system for day-care centers, I would give a 15 minute window after closing for picking up the child, and then hire a teacher, at a generous pay rate, to look after the remaining children until their parents arrived. The LAST parent would have to pay for the entire time that teacher had to stay late. This would start a competition among the parents not to be the last one. And even if the teacher had to stay very late, she'd be nicely compensated.

Another way is to impose Group Penalties. Religions do this effectively; as they claim their near-sighted god will punish entire communities for the sins of a few members (cf: Pat Robertson, et al). This effectively generates peer pressure for compliance with the group norms.

In the day-care case, this would make all the late parents share the fee for the entire time the teacher had to stay late. And the school would post the name of the latest parent each day. Even a modest fee would generate significant peer pressure.

And why is this so relevant to medical care? We now see this same effect in HMOs and across medical groups---pressure is put upon on doctors who spend more time or money on patients since they are diminishing the profits of all the doctors in the group. Conversely, in a salaried practice with shared workload (as with residents in a clinic) there would be peer pressure on goof-offs to carry their load.

How could such mechanisms be applied based on quality measures, rather than which doctor can be the cheapest?

Perhaps there's hope for us in medicine, but we must remember, first of all, that the business of medicine is medical business. In other words, in caring for patients, the key word is "caring."


." Science 20 June 2008: Vol. 320. no. 5883, pp. 1605 — 1609 DOI: 10.1126/science.1152110 [last accessed 10/2/08].

Policies Designed for Self-Interested Citizens May Undermine 'The Moral Sentiments': Evidence from Economic Experiments