Arnold Kling  

Compensating Health Care Providers for Outcomes

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David A. Hyman and Charles Silver advocate Results-Based Compensation Agreements between patients and doctors.

Another common complaint about RCBAs is that they would encourage providers to "cherry pick" by treating patients with good success odds and excluding patients who, being seriously ill, are poor risks...

We agree that RBCAs would encourage providers to sort cases. This is one of the principal benefits of RBCAs, namely, their tendency to encourage agents to balance costs, risks, and benefits when assessing the desirability of possible actions. If asked to accept an RCBA for performing [coronary bypass surgery], a cardiac surgeon would rationally consider many factors, including the likelihood that the patient would die. If the patient’s survival odds were dismal, the surgeon would reject the offer, sending a clear signal that the small likelihood of success failed to justify the investment of medical resources.

RBCAs thus frame in cold numerical terms the reality that some medical interventions are inefficient and should not be performed. In a world laden with RBCAs, doctors would get better and better at predicting outcomes. Consequently, they would more often send the message that the cost of health care exceeds the likely gain. This would be a radical departure from current practice, where a procedure that has even a small upside potential qualifies as "medically necessary" and is likely to be performed.

My fear of cherry-picking relates to the idea for compensating physicians on the basis of their aggregate results. What Hyman and Silver are proposing is that patients negotiate with providers on the spot in individual cases. So, if my doctor and I think that the procedure I require is low-risk and straightforward, I might offer a low reward. If we think it is going to be delicate and dicey, the reward might for success might be much higher.

Thanks to Alex Tabarrok for the pointer. The paper is from 2001.

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COMMENTS (3 to date)
Matt writes:

My thought experiment would be to offer chronically ill elderly the choice of some vey large amount of money if they should to let the illness run its course.

Robin Hanson writes:

I published a related proposal in 1994: Buy Health Not Health Care.

Chuck writes:

The knowledge asymmetry here I think makes the hole thing impractical.

For example, the Dr. might know that the median survival for the procedure is rather low, say 3 months, but, because when someone does well they do real well, the average might be 2 years, even though it is only 10% of the patients that achieve it. (Think cancer treatment.)

So the Dr. might say, the average person survives 2 years or more, and of the people that survive for 2 years or more, the recurrence rate is nearly zero. You'd think that sounded great, and be ready to pay a lot for it (50/50 chance of cure! you'd think). Then, the Dr. might go on to talk you into a 3 month payoff (meaning if you survive for 3 months, you pay). For example, he might say, "I can't possibly wait 2 years to get paid for a procedure that costs $200,000 - I just got out of med school, and my loans are due now." And the patient doesn't have the background to read and understand the medical and statistical details, and signs up.

So he thinks he's paying for the average outcome of 2 years or more survival and low recurrence rates, but in reality is going to be paying for median outcome, which is 3 months and then dead.

And of course we could write things into the contract about how the doctor has to refund if the patient is dead within two years, etc, but good luck with that. Consumers get their clocks cleaned with stuff simpler than this all the time. (And who's to say Dr. is still going to have the money then anyway.)

A successful Dr. is going to be the best business man, rather than the best practitioner.

Also, I have to say that negotiating on the spot for life saving treatments is pretty unrealistic in its own right. Most people can't negotiate successfully for a car, forget about their lives.

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