The Dangers of Perverse Incentives

Catherine Bollman Honorbound Period 6

Incentives are all around us from a parent offering ice cream to their child for cleaning their room to a manger offering a bonus to the employee who has worked the most hours. While incentives give the impression of being simple they can unfold to something more complex because of one flaw in its system: relying on the unpredictable human being. This could lead to the creation of perverse incentives “which are the inadvertent incentives that can be created when we set out to do something completely different.”[1] Even though a person may enter a situation with the best intentions in the end that person could walk out with horrible results. With these disastrous consequences that could take place people can conclude that perverse incentives have the power to create dangerous environments, as seen in medical field today.

Dr. Elliott Fisher states “Most of the U.S. health system is paid simply for each service, regardless of the results of that service.”[2] These health care providers are incentivized to treat more of their patients in return for higher wages, but a perverse incentive came out of this system of payment. The perverse incentive was to care for more and more patients and spend less time on the quality of the treatments. Dr. Elliott Fisher articulates this when saying “They are rewarded for more services, not better services. They are rewarded for more care, not better care.”2 Dr. Javier Ramirez states that hospital staff are ordering unnecessary tests and procedures because “hospitals tend to emphasize those kinds of services where they can be sure they’ll make a profit.”2 If his allegations are true then the perverse incentive to have more tests and procedures done in order to receive a larger pay causes patients to undergo unnecessary trauma. The longer these perverse incentives are allowed to remain in the medical world, the more unreliable and dangerous health care providers have the capacity to become.

“Self-interest makes the world go around”1 because people are going to almost always choose what is best for them which is going to make perverse incentives even worse. In the medical world doctors and hospitals are choosing to do potentially harmful actions (less quality treatment and performing unnecessary procedures) in order to gain more cash in their pockets. Others will begin to latch on to the idea of choosing what is best for them over what is best for all. This will eventually create a world where it is every man for himself and unsafe to trust anyone. In order to prevent this barbaric time to come about “great care and consideration need to be taken in order to avoid unintended consequences and perverse incentives”[3] when organizations are creating new incentives for their employees. Perverse incentives in the medical field will worsen unless people start to remember it is more important to care for your patient than how much money you are making.

 

[1] Charles J. Wheelan, Naked economics: undressing the dismal science (New York: W. W. Norton, 2010).

[2] Jennifer Hyde and Drew Griffin, “‘Perverse incentive’ in current health care system, says expert,” CNN, February 11, 2010. Accessed March 26, 2017, http://www.cnn.com/2010/POLITICS/02/10/health.care.costs/.

[3] James D. Meacham, “Unintended Consequences and Perverse Incentives,” SAI Global – compliance and risk solutions specialists, January 16, 2013. Accessed March 26, 2017, http://compliance.saiglobal.com/community/blogs/item/4392-unintended-consequences-and-perverse-incentives.

[4] Steve MacDonald, “Perverse Incentives Under ObamaCare,” GraniteGrok, January 30, 2014. Accessed March 29, 2017, http://granitegrok.com/blog/2014/01/perverse-incentives-under-obamacare. (Photo)

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