Tuesday, February 24, 2015

Forced Ranking Payment Schemes to Hurt Healthcare Ethics


Healthcare payment reforms purport to reward providers delivering better care and punish those not doing as well.  They start off by requiring providers to submit data or face payment reductions of 1% or more.  The data is then used to rank providers on a continuum.  Often it's a Bell Curve, where providers are divided into subgroups, frequently quartiles.

The organizational equivalent of healthcare pay for performance is forced rankings of individual employees.  It's the same motivational theory with a similar statistical foundation.   People need to be financially incentivized to do a good job and those below average should be punished.

GE's Neutron Jack Welch eliminated the bottom 10% every year in their forced ranking system. A WSJ piece on the topic stated:

“Forced ranking crushed morale, stifled innovation, and let to unscrupulous competition among workers”.
Extrinsic motivation schemes cause people to lie, cheat and steal.   This has been seen repeatedly in education, financial markets, and executive suites where 30% of stock options were backdated. 

Healthcare pay for performance will lead to widespread lying and cheating within organizations.  The government's practice is a direct imitation of corporate incentive schemes.  In that world CEOs blame bad workers, thus avoiding responsibility for implementing pay schemes that destroy ethics. 

The financial world has a prime example of such.  Fortune described

What do you do when the CEO is part of the problem rather than part of the solution?

That’s the question for HSBC Holdings Plc after weekend disclosures that its current boss, Stuart Gulliver, stashed away millions in an anonymous account in Panama, while he was running the company’s operations in Asia.

The Guardian reported:

Stuart Gulliver, the HSBC chief executive who has vowed to reform the crisis-hit bank, sheltered millions of pounds in a Swiss account through a Panamanian company and remains tax domiciled in Hong Kong.

Leaked files show that the Derby-born Gulliver, who is due to present HSBC’s annual report on Monday in the wake of the international controversy over its Geneva-based private bank, was also one of its clients, holding about £5m in a Swiss account.


Healthcare is about to get much dirtier, ethics wise.  The focus will be achieving payment, not service.  In many cases service data will be complete fiction.  I expect U.S. healthcare to look like China, where companies keep two sets of records.  Only one is for show.

We'll see if doctors and nurses are as smart as CEO's.  Will 30% of them cheat to garner the prize and avoid punishment? 

Update 6-3-22:   Former General Electric chief executive Jack Welch takes the blame for much of what's wrong with businesses today.  Bad management theory remains widespread but Welch is getting his due. 

Update 6-5-22:  Welch's firing employees when things were going well was his contribution to selfish, greedy management which got outsized rewards.  His cost cutting ways were imitated by other CEOs and that led to the Boeing 737 Max and other disasters (BP Texas City Refinery explosion and Gulf Oil Spew).  Welchism led to offshoring and economic wastelands in the U.S.  That aided the rise of Donald Trump, who only thought of himself while in the White House.  

Update 6-6-22:  WaPo reported a Medicare Advantage medical reviewer "discovered 90% of diagnoses for cancer were invalid, as were 96% for stroke and 66% for fractures" at one California health system.:

Several doctors interviewed by The Washington Post said it was common practice for insurance companies and medical systems to search or data-mine the histories of patients covered by Medicare Advantage. Health systems were known to advise doctors on the most lucrative billing strategies, cajole them to document the maximum number of illnesses, and grade and rank them among their peers based on how they coded patients, they said.

"The emphasis is on how to code for more. It's not ethical coding, it's how to code for more money. That pressure is there."

Update 6-11-22:   Management followed Jack Welch instead of Dr. W. Edwards Deming and our world is much worse off for it.  Ignorance and selfishness are widespread.  

Update 11-26-23:  Jack Welch lives on in Amazon's "performance management system."  Forced rankings and eliminating bottom x percent of workers.  Can you say morale killers?  What's a lazy, ignorant manager to do?