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Pernicious Perverse Incentives

How many people really think, "Gee, if only my open heart surgery were more like buying a dishwasher"? I'm guessing that's a pretty select group, butThe New York Times is betting that patients want an extended warranty on that new ticker.

Some hospitals are experimenting with a flat fee for surgery and recovery care, meaning that any unforeseen hospital visits will be gratis for the consumer. The theory here is that doctors have a perverse incentive to neglect patient care, since they get to bill for every extra problem that arises post-op. Under a flat fee system, that incentive vanishes, so doctors are more likely to give the best possible care.

It's an intriguing idea but one I don't think will work. First of all, the benefits are likely to be very marginal--better instructions with medications and so on--rather than structural. There's just no way that doctors are leaving sponges in people so they can later bill for their extraction (see the accompanying photo from the article). I can assure you that the fear of a malpractice suit is the only incentive an OR team needs to double check the sponge situation.

But furthermore, the article totally neglects the new set of perverse incentives created by the warranty system. To wit:

Since Geisinger began its experiment in February 2006, focusing on elective heart bypass surgery, it says patients have been less likely to return to intensive care, have spent fewer days in the hospital and are more likely to return directly to their own homes instead of a nursing home.

Call me a cynic, but I'm not surprised that fewer people are getting hospitalized when the cost of that stay suddenly starts falling on the doctors. What the Times reports as evidence of success could just as easily mean that these patients are receiving a lower standard of care than they would have if their insurance companies were footing the bill. Suddenly Grandpa's post-op pain doesn't seem so pressing--get some pills in him and get him out that door! Now maybe this is just good sense and a smart way to keep soaring medical costs down, but it's ridiculous that the article fails to mention the trade off being made at all.

Unintended consequences are a bitch.