The problem with financial incentives in healthcare

Back in the early 1990s, while working for Harvard Community Health Plan (later Harvard Pilgrim Health Care), I was involved in the implementation of quality-based incentive programs (now called pay-for-performance or P4P programs) where we incentivized physicians and medical practices to do certain things such as improve patient satisfaction and adhere to a drug formulary.

Some years later, while at Martin’s Point Health Care, I developed these incentive models and oversaw their use and impact. And over time I learned a great deal about controllable outcomes, unintended consequences and the direct and indirect impacts of such models.

Now 15 to 20 years later, as we continue to move from productivity-based reimbursement to quality-based reimbursement via the accountable care organization and other payment reform models, a large caution sign is illuminated before me.


Just before Christmas, I was speaking with a former colleague who had recently decided to leave the nonprofit sector within the healthcare system to go back to school. She is now at Boston University in what sounds like a very interesting MBA program and is apparently learning a great deal more of the business side of nonprofits.

"Yes, Tom, we are studying the impact of incentivizing behaviors and I must admit that during our most recent project there was definitely an adrenaline rush having to do with both chasing and receiving a financial reward for achieving a specific target."

"But do you really want a physician to be driven to care because they are chasing a financial reward as opposed to the fact that they actually truly care?"

"But, Tom, what if a financial incentive does actually bring about positive change?"

And of course this led me to the Harvard Business Review andWhy Incentive Plans Cannot Work:

1. Rewards do not create a lasting commitment. They merely, and temporarily, change what we do.

2. People are likely to become less interested in their work, requiring extrinsic incentives before expending effort.

In addition, it’s very important to me as a patient, as a family member of patients and as a healthcare leader to know that those who are caring for those I love are doing so because they truly care--and not because they are being financially incentivized to do so. As you might know, I write extensively about the need for authentic relationships within the healthcare system. And as a parent who has lived the fear of a child living her first few days in the NICU, I know that I would want (did want/do want) the person caring for my baby to be someone who does just that--truly and authentically care--rather than someone who is motivated by an additional financial return for pretending to do so.

Yes, perhaps the financial incentives will change behavior (temporarily), and perhaps it will even have an impact on HCAHPS and other satisfaction and experience scores. But even if those scores were not affected only temporarily, do you really want a healthcare system to be driven by financial rewards rather than an enduring commitment to quality and safety by people who truly care?

It’s true that productivity-based financial drivers lead to harm to those we most care about. And yet, we must ensure we do not edge out the humanity in healthcare as we seek to improve upon it.

Years ago, while leading a Voice of the Customer effort in which my organization was seeking to understand our members and patients better, our hypothesis was our patients wanted a new benefit and service line. But in reality, what they wanted was someone to truly care. And I believe this is true today.

Financial incentives may temporarily change outcomes, but they do not change hearts.

  • Let’s not edge the humanity out of healthcare via over reliance on financial drivers of change.
  • Let’s focus on changing adaptively rather than with a quick financially based technical fix.
  • Let’s focus on bringing humanity back into healthcare once again.
  • Let’s eliminate existing barriers to true caring.

And let’s ensure that we position doctors, nurses and all participants within the healthcare system to authentically care about one another and self so that we all feel cared for and cared about. For when we are all whole and healthy, we will be best positioned to care for one another.

True healthCARING will be long lasting and will truly innovate healthcare.

Like the old saying goes, "money can’t buy love."

Or in our case, "financial drivers can’t buy sustainable change or authentic caring."

Thomas H. Dahlborg, M.S.M., is an industry voice for relationship-centered and compassionate care, keynote speaker, author, consultant and adviser.