Using Behavioral Economics to Design Physician Incentives That Deliver High Value Care
The U.S. health care system is undergoing tremendous change aimed at controlling costs while maintaining or improving quality of care. Payment reform is a fundamental aspect of the transition. Recent years have seen a major shift from fee for service (FFS) toward value based payment. Most recently, the Medicare Access and CHIP Reauthorization Act of 2015 expands pay for performance within the FFS system, but also creates a new merit based incentive payment system, under which physician reimbursement will be based on quality, resource use, clinical improvement, and use of electronic health records (EHRs) In addition, a growing number of physician groups functions as accountable care organizations, participating in programs in which savings from a calculated baseline are shared between physicians and payers. To reinforce these payment changes, the Secretary of the Department of Health and Human Services announced that by 2018, 50% or more of Medicare payments to physicians and other providers will occur via non FFS mechanisms. Replacement of volume based incentives embedded in FFS payment with value based payments has the potential to drive health care decision making. Although many organizations are beginning to assume financial risk, few have translated this risk into effective payment changes for physicians and other patient care providers. For instance, standard pay for performance programs have had little effect on physician behavior (1, 2) reflecting in part the relatively small size of the financial incentives. It may also reflect the trial and error nature of these programs. In general, efforts to reform physician payment have assumed that physicians are rational and have not incorporated principles from behavioral economics, which has documented many ways in which human behavior is not always rational (3, 4) Delivery and framing of incentives in a manner based on the science of human motivation could greatly improve response. As organizations strive to reduce costs and improve quality, incorporation of behavioral economics principles into the design of physician incentives has the potential to make these programs more effective. Because physicians will be affected by these new incentive systems, they should understand the principles of behavioral economics, the science behind them, and the different forms they may take. This guidance is inherently preliminary because there has been little use and evaluation of behavioral economics in physician payment schemes. Consequently, we offer a framework to stimulate more systematic use and testing of behavioral economics in the design of physician incentives. Behavioral Economics Principles The science of human motivation has evolved over the past 30 years. Previously, an underlying pillar of economic theory has been that rational individuals use information to make choices that optimize their well being. In this framework, the main driver of behavior in response to economic incentives is the size of the bonus or penalty relative to the effort required to achieve the goal. Behavioral economics has revealed systematic ways in which human behavior is shaped not merely by the size of incentives, but also by their design and delivery. For example, the same sized incentive could affect behavior differently depending on whether it is framed as a gain or loss, presented to people privately or in front of a group, or perceived as fair or unfair (5, 6) Because humans often make decisions that seem inconsistent with getting the most from a fixed incentive, they often seem irrational according to standard economic theory (3, 4, 7) To illustrate how behavioral economic concepts could be relevant in influencing physician performance, we discuss 9 fundamental principles of behavioral economics (Table 1) Table 1. Principles of Behavioral Economics Relevant to Physician Payment Limitations of Information Provision Information is necessary for people to understand their options and to communicate social norms but is rarely sufficient to induce behavior change, as seen in cases ranging from smoking cessation to menu labeling (8, 9) Even where changes in care will enhance value, merely providing physicians with the information regarding these options is unlikely to change their behavior. Thus, to promote high quality, cost conscious use of health resources, information on optimal practices will have to be combined with financial and nonfinancial incentives. Inertia, or Status Quo Bias When making choices, people typically demonstrate a status quo bias (10) Changing habits and settled practices usually requires explicit efforts and policies, such as implementing new defaults. Thus, it is important to structure a decision making environment that makes it easy to provide high quality, cost effective care (11) For instance, physicians with an order entry system that defaults to generic drugs rather than brand name medications order generics at higher rates (12) Similarly, when a system's oncologists agree that a specific care path is preferred, the preferred chemotherapy regimen and laboratory tests should be the default in the EHR's physician order set. Choice Overload When confronted with numerous or complicated options, people often avoid making choices (13, 14) For instance, an overabundance of performance metrics or alerts in the EHR can induce less rather than more behavior change (15) Choice overload presents a challenge to physician incentives. Incentives that are based on too few performance metrics could induce physicians to focus only on those evaluated, whereas too many can trigger inertia. Immediacy Immediacy enhances response, whereas delayed gratification dampens it. People tend to overestimate the immediate costs and benefits of their actions while discounting delayed benefits (16) Consequently, providing financial incentives or performance reports annually is usually less effective in changing behavior than doing so more frequently (17) Giving clinicians frequent interim feedback affords them an opportunity to modify their behavior and learn more quickly whether the modifications improve performance. The optimal frequency, however, is unknown. Loss Aversion Whether options are framed as gains or losses influences how people view them. For example, people feel more positively about medical interventions described as providing 90% survival rates than ones described as having 10% mortality rates. Closely related is the endowment effect. Simply owning somethinga sports ticket or a mugincreases its value to the person above its monetary value. People work harder to retain a provisionally awarded bonus than they do to receive a yet to be awarded bonus. For instance, teachers' performance improved more when they were paid in advance and asked to return the money if students did not improve sufficiently compared with when they were given year end performance bonuses (18) Similarly, the Massachusetts General Hospital employed loss aversion by giving an incentive to everyone in one year so that in the subsequent year, it would feel like a loss not to get the incentive (19, 20) Relative Social Ranking People are heavily influenced by their perception of how their performance compares with those around them (2123) Physicians' sense of competitiveness can be deployed by distributing identified rankings to physicians within one's group, or even to the general public. For example, Dean Clinic in Wisconsin found that releasing anonymous rankings had little impact on physician behavior, whereas releasing monthly performance data by name, visible to all physicians in their division, was much more effective (Mooney A. Dean Health System. Personal communication) In addition, organizational awards for outstanding performance, conferred publicly, emphasize the organization's norms and priorities while providing social recognition for physicians. Of note, social comparison approaches can recognize team based outcomes and not only individual level outcomes, potentially facilitating collaboration to improve patient care while preventing competition among team members. Goal Gradients and Threshold Effects As people approach a goal, they try harder to achieve it, but once they reach the threshold, effort may dropa phenomenon known as the threshold effect (24, 25) Poorer performers, concluding that they cannot reach the targeted threshold, may stop trying to improve. Recognition of improvements in performance as well as overall performance is important to encourage participation by those who are further away from the desired thresholds. Limits of Willpower Exerting willpower can literally be tiring and makes people less likely to expend effort on subsequent tasks (26) Thus, relying on physicians' vigilance to achieve optimal performance is unlikely to produce sustained improvement. Infrastructure that uses defaults to make the right action the path of least resistance will keep physicians from expending the energy to continually make the highest value decisions. Mental Accounting and Salience People react very differently to the same amount of payment if it is separate and visible as opposed to packaged together with much larger sums of money (2729) For example, a $100 incentive is more powerful if disbursed as a separate check than if it is folded into a paycheck. There are other important behavioral economic principles, but we believe that these 9 represent those most likely to be used to shape physician incentives. Using Behavioral Economics to Devise Effective Physician Incentives These behavioral economics principles have been used with great effect in a variety of contexts, including consumer savings behavior, retirement planning, personal health behavior, and enrollment in health insurance (5, 6, 3035) To date, they have not been systematically incorporated into the design of physician incentive programs. As health systems increasingly assume financial risk and need
Annals of Internal Medicine