Healthcare providers respond to good and bad incentives

One of the factors often blamed for escalating healthcare costs is the provision of unnecessary tests and procedures. Much has been written about the practice of defensive medicine by physicians - providing medical services that are not expected to benefit the patient but that are undertaken to minimize the risk of a subsequent lawsuit.

In a study of residents across specialties, 81 percent said that they view every patient as a potential lawsuit. This protective, fear-of-lawsuit attitude incentivizes physicians to adopt behaviors that increase healthcare costs. Estimates of how much defensive medicine costs vary greatly from 5% to 34% of medical expenditures. This has not been a concern to physicians as the cost was passed on to the payer or patient. They were motivated by the desire to avoid a lawsuit.

Likewise, a fee for service environment with little control or guidance as to what is appropriate, creates an incentive for unnecessary procedures to maximize revenue to the hospital and/or physician. As an example, 400 patients are suing St. Joseph Hospital in London, Kentucky and 11 cardiologists associated with the hospital for performing medically unnecessary cardiac catheterizations and other invasive cardiac procedures. The hospital was cited by Medicare and Medicaid for failing to review the medical necessity of 3,367 cardiac catheterizations performed in 2010.

Until there are more specific guidelines and care paths defining what is optimal for a given condition, the practice of defensive medicine won't change. Physicians who follow clinical guidelines could be given safe harbor in the event of a subsequent lawsuit. Guidelines can also provide a rationale to convince patients that some of the "latest and greatest" tests or procedures they are demanding are unnecessary. Otherwise physicians lack the motivation to argue with their patients as they don't have supporting evidence backing them. Physicians will often accede to these requests in order to make the patient happy and keep to their schedule. And, happy patients are less likely to sue!

Additionally, guidelines and care paths would give consumers a framework upon which to compare physicians' performance. Greater transparency of practices and outcomes will enable patients to rely on evidence to compare performance across providers. The process will increase accountability of physicians and healthcare systems to explain why their practice of medicine differs from those competitors down the street or a thousand miles away -- either in terms of costs or the quality they provide. When that happens we will have taken a major leap forward towards a market-based model of healthcare.

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