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?