Incentives for cost-effective physician behavior.

Abstract

The objective of the National Health Service is to maximise improvements in the health status of patients regardless of their willingness and ability to pay. To achieve this objective it is necessary to identify those procedures which maximise improvements in health or quality adjusted life years (QALYs) and direct scarce resources to those therapies with the best cost-QALY characteristics. Unfortunately in the NHS and elsewhere cost-QALY characteristics are largely unknown and the structure of the health service and its provider remuneration systems are such that objectives are vague, behavior perverse due to the haphazard construction of incentive systems, and health status outcomes often unknown due to the failure to evaluate input-outcome relationships. To reform the NHS, in particular ensure more efficient practice by physicians, existing perverse incentives will have to be replaced by the use of buyer (NHS) power and by budgeting mechanisms which induce economizing behavior. It is not clear which type of incentive mechanism will produce outcomes consistent with NHS goals. To remedy this ignorance experimentation with careful evaluation would seem appropriate.