The dinner hour is much quieter in our home now. We are no longer tormented by telephone callers offering to refinance our mortgage. At the mortgage re-fi peak, we had been receiving more than a dozen calls a day (and night). But it has now been over a week since our last unsolicited offer.
The sub-prime mortgage market collapse was not purposely designed to provide us with a respite from telemarketers, but that was certainly one of its unanticipated side effects.
Governments have suddenly fallen in love with economic incentives, and they may discover some side effects and unintended consequences as well. New York City is planning a commuter tax that would charge motorists $8 to drive their cars into lower and mid-Manhattan. The Seattle School District is offering iPods for kids to attend a summer class to help them prepared for the state’s academic standards tests. Schools around the country are offering cash to students who achieve specified grades. And now the federal government has announced that Medicare will no longer pay for hospitals’ medical mistakes.
The school districts are using positive economic incentives by increasing the income for the targeted group. Both the New York City traffic plan and the Medicare no-pay plan are using negative economic incentives, usually called disincentives. These increase costs rather than income for the targeted group.
They share the same goal, though: changing behavior by restructuring the economics of particular behavior patterns. Sometimes this kind of restructuring tries to encourage a desired behavior, like getting better grades or attending summer school. Alternatively, disincentives try to discourage unwanted behavior such as leaving your forceps in a heart patient’s chest or clogging up the city streets by driving downtown in your beloved Belchmaster sedan.
Economic incentives and disincentives almost always work, but they don’t always work out the way we think they will. Unintended consequences are both frequent and, well, unintended.
The new federal Medicare policy involves life-or-death issues, and may provide us with an education in how economic disincentives reshape behavior in ways that are hard to predict. The policy involves the withholding of payments to hospitals when certain types of medical errors occur.
Some of these errors, called serious preventable events by Medicare, involve clear and irrefutable mistakes, such as such leaving tools, sponges or other stuff inside when they sew up a patient after surgery, or giving a patient a transfusion of the wrong blood type.
Other errors, like bedsores and injuries from falls, are also on Medicare’s hit list, and would seem to be accidents and errors that could be prevented by better care management.
The biggest problem of the lot involves infections, though, and these will prove to be the most complicated to address. According to the Centers for Disease Control and Prevention, hospitals report that patients develop about 1.7 million infections each year. These infections proved fatal for nearly 100,000 of the patients.
Some of these infections would seem to be responsive to better care management systems. Many of the infections, for example, are the result of using catheters for medication and nutrition; a process that undoubtedly helps many patients but clearly requires more intense monitoring than has been generally applied.
This is especially true for Medicare recipients, who tend to be high-mileage patients and naturally develop infections far more readily than younger people. What it will take to create standard procedures and protocols to reduce the risk of infection for these older patients — within the cost constraints of Medicare and private insurance payers — is one of two big unknowns in the equation.
The other big unknown about the new Medicare policy is whether it will work the way it is supposed to. We are putting a lot of faith in economic disincentives as a solution, despite the fact that the spread of tort litigation, which penalizes mistakes far more severely, has had little apparent effect on the number of medical errors. It has simply raised the overall cost of practicing medicine and receiving care.
There is the risk that the same thing will happen as an unintended consequence of the new non-payment policy: instead of better medical care we will get more medical tests.
Medicare’s underlying idea is that withholding payments will prompt hospitals to pay more attention to medical errors and do something about them. And perhaps that will work, for a while. We certainly hope, though, that this new hospital policy will be tightly monitored to judge its effectiveness, for the experience with economic disincentives in the business world would not encourage optimism.
In the longer run, though, the reduction of medical errors will depend on professional pride, accountability and better management. The good news is that none of these things are likely to have unintended consequences or unpleasant side effects.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.
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