#pay-for-performance

One of the main topics in organizational economics (and economics in general I suppose) is the principal-agent problem- i.e. the misalignment of incentives between one party and another party enlisted to do the first party's bidding. For example, a small-business owner hires an employee to run things and maximize profit for the owner, but a self-interested employee who is paid a fixed salary would likely rather check Facebook then do whatever it is that would be in the owner's best interest. (Here's another great empirical example involving real-estate agents.) This isn't a criticism of the employee, just a descriptive observation, but it is the starting point for an entire line of research on ways to mitigate the inefficiency created by the principal-agent problem- essentially, the economic version of "if you want something done right, do it yourself."

Most economists focus their attention on various incentive (i.e. pay for performance) schemes, partly because they are interesting and partly because there is a general consensus that, in a lot of situations, simply hiring managers to monitor the workers and make sure that they do their jobs is an overly costly and/or ineffective solution. Think about it- if the employee doesn't have the proper incentives to work rather than check Facebook, why would the manager have the proper incentives to monitor employees rather than check Facebook? I guess you could hire another manager to monitor the first manager, but that both adds to cost and just shifts the same problem up one more level. In order for the monitoring solution to work, the owner has to be the ultimate monitor, which largely defeats the purpose of hiring others to work on his behalf in the first place.

That said, I think Scott Adams may have stumbled upon a solution to the monitoring problem, as shown above. I guess this could work until our robot overlords get sophisticated enough to get on Facebook and start defying orders- so like 5 years maybe? I feel like my Alexa has already has already made significant progress on the latter front at least.

Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.

Websites

https://kolahal.org

https://kfmindia.in

https://kolahalstudio.com

Larry Librach on pay-for-performance in the healthcare system

Larry and I recorded many hours of conversation together about issues ranging across most topics. In this short series of “soundbites” I hope to share with you some short extracts from those conversations. Today, Larry on pay-for-performance in the healthcare system. “How do you measure humanity?” he asks? How indeed.

Study: Pay-For-Performance & Value-Based Healthcare

The New York City Department of Health & Hygiene recently studied the effects of implementing pay-for-performance incentives and how they can initiate a value-based healthcare system. The study was conducted amongst a sample of small (<10 clinicians) healthcare clinics – each must be using EHR systems, serve at least 200 patients, 10% being uninsured or on Medicaid.

Clinics were awarded performance-based incentives for reaching certain goals and clinical outcomes (specifically for improvements amongst cardiovascular care). Negative outcomes were not penalized. Payments were made directly to the provider facility based on the number of patients who achieved positive outcomes and were treated according to set care guidelines.

As a result, the study saw improvements in patient outcomes amongst providers who received incentives, and providers saw growth towards greater market share. (The full study can be accessed here.)

Analysis: Value-Based Healthcare

The study provides food for thought for healthcare providers and payers. As payers and patients begin to aggressively push to reduce healthcare costs and improved quality, the move from fee-for-service towards pay-for-performance value-based care seems inevitable.

The idea of value-based care is focused around the patient with the goal of improving the quality of care provided throughout the entire cycle, while reducing costs and ultimately building a more efficient healthcare system. For providers, this means adhering to set guidelines and treatment algorithms within the care process, while being rewarded for achieving improvements in patient outcomes, i.e. quicker recoveries, fewer readmissions, lower infection rates, and fewer medical errors.

To facilitate the change towards value-based care, providers will have to make the effort towards greater standardization in the care they provide, whilst eliminating variation and error. By implementing a new care delivery system known as a ‘value agenda’, hospitals and healthcare facilities can evolve into a value-based provider. The six key components of the ‘value agenda’ are:

  Integrated Practice Units – IPU’s are a network of clinical and non-clinical personnel dedicated towards providing the full care-cycle for a certain patient population and their needs.

Cost and Outcomes Measurement – Measuring and reporting outcomes that are valuable to payers, patients, and providers can help increase transparency and data-efficiency, whilst increasing pressures towards improving quality and adopting practices that yield the demanded outcomes.

Bundled Payments – Bundled payments shifts provider invoicing towards charging for the full care cycle, overall care, or primary and preventative care for a defined patient population. This can reduce redundant charges and multiple service lines, improving cost-reductions.

Integrated Care Delivery – Integrating care requires providers to define their scope of services provided, concentrate volumes to centralized location, allocate services to the appropriate location, and integrate all patient data throughout the network.

Expanded Services – To increase transparency and market share, providers must strategically expand as IPUs to ensure that quality care is provided at a comparable standard.

An Information Technology Platform – At the foundation of this is a value-enhancing IT platform that can facilitate all integration within the IPU, allowing all parties access to data, whilst tying together all components of the value-agenda.