The work that just earned two economists the Nobel Memorial Prize in Economics could have uses in the future for accountable care organizations (ACOs) and in physician compensation.
Oliver Hart, Ph.D., an economics professor at Harvard, and Bengt Holmström, Ph.D., an economics professor at the Massachusetts Institute of Technology, researched (.pdf) ways that contracts can be better designed to improve output and align incentives.
“The work of Drs. Hart and Holmström provides healthcare organizations the tools to analyze the financial terms of contracts as well as how control and decision rights are allocated between physicians, hospitals and other stakeholders,” according to Becker’s Hospital Review.
For ACOs, according to Becker’s, the theory could reduce free-riding, in which one or more physicians may shirk duties without impacting the overall quality of the organization.
ACOs must use precise quality measures, Becker’s reports, so each must have at least 5,000 beneficiaries. But, this diminishes the impact that individual physician behavior has on quality as a whole, which opens the door for free-riding, according to the article. According to Holmström’s research, ACOs could employ an outside owner or defer compensation for such docs to reduce the problem.
For facilities that pay doctors on a pay-for-performance agreement, Holmström’s research suggests that performance measures should be less broad, according to Becker’s. Ideally, performance bonuses would be pegged to the organization’s share price relative to overall industry performance, instead of merely to the firm’s share price. This way, doctors aren’t being rewarded or punished solely on luck if the industry as a whole is experiencing a financially positive or negative period.
Holmström also suggests that pay should be fixed for those who are responsible for a variety of tasks, according to Becker’s. In the case of doctors, physicians could focus on improving in specific areas and ignore others, solely to increase their pay.