Hospitals Pay Doctors to Reduce Costs

The use of financial incentives to improve performance in healthcare is expanding from hospitals to doctors.

I previously discussed and supported Medicare’s decision to stop paying for “never events” – mistakes that should never happen, such as operating on the wrong patient – which gives hospitals incentives to avoid the mistakes in the first place.

According to an article in Philadelphia Business Today, a dozen hospitals in New Jersey have launched an experiment to change the way doctors are paid, recognizing that, like hospitals, doctors also respond to financial incentives.

Hospitals, for example, are usually paid a flat fee for treating a patient with, say, pneumonia. The payment is the same no matter how many days the patient stays. The hospital's profit is higher when stays are short. But most doctors are paid on a fee-for-service basis, so they make more money when the patient gets more care.

Doctors that choose to participate in the three-year pilot project will be paid the same way by Medicare, but their hospitals will give them bonuses of $100 to $300 per patient if they reduce costs and improve quality.

They can do that in a variety of ways, said Alan Pope, vice president of medical affairs at Our Lady of Lourdes Medical Center in Camden, one of the 12 hospitals. They can start surgeries on time, order needed tests quickly, schedule rounds in the morning so they can write discharge orders early, think about price when ordering supplies such as artificial knees, and do everything possible to prevent infections…

Asked if Lourdes doctors even know what supplies cost, Pope said, "many of them do not or haven't had an interest in it. This [new program] will help increase their interest in it."

Most people would support the idea of a lean strategy of eliminating waste and focusing just on the steps of a process necessary to add value. But if the financial incentives are not aligned with that strategy, it won’t work. This kind of approach can help achieve the proper alignment.