Healthcare efficiency needs to be measured and incentivised
Market imperfections such as financial incentives are only part of the reason for an oversupply of healthcare resources, says a London Business School expert. Financial incentives institutionalise norms of practice, which in turn opens the door for the over-prescription of medicines, procedures and interventions.
“It would be wrong to blame individuals, or a class of individuals such as doctors for what is an endemic system-wide behaviour,” says Nicos Savva, Associate Professor of Management Science and Operations at London Business School. One way to tackle this, Dr Savva believes, can be to bring in healthcare systems like the UK’s NHS or Kaizer Permanente from the United States. “When physicians are salaried employees, their remuneration is not linked to their patients’ treatment”, he says. “However, such systems are sometimes accused of not providing enough incentives to provide the best possible care for patients, and of even rationing care for patients.”
“More worrying is that this oversupply of beds targeting high-end medical care is coupled with a shortage of beds for mid to low-earners. This again suggests that there is a market friction – one segment of the market is not profitable enough to attract sufficient investment.”
According to Dr Savva, the general problem of market frictions preventing supply from matching demand is not uncommon. In this context, the current debate on how to improve efficiency in healthcare delivery is highly relevant to Dubai. This is not an issue that can be easily remedied, he warns.
“Efficiency can be improved by increasing the value of the care provided, and/or reducing the cost of providing care. So in order to be efficient, the value of the care provided must be improved without increasing costs – or costs must be reduced without sacrificing value”, says Dr Savva.
“In order to manage and improve efficiency, it is imperative that we are able to quantify the value that care generates and the cost of providing it. Value is notoriously difficult to quantify objectively, and the temptation is to resist any such attempt: a misguided approach.”
While it is difficult to measure value at the individual level, it is easier to do so in aggregate and over time. The National Institute for Health and Care Excellence (NICE) in the UK is a good example of an institution that tries to assess and compare different clinical interventions on their clinical merits and cost-effectiveness.
“Contrary to perceptions, costs are not much easier to measure. A large component of healthcare cost is fixed and amortising this to the individual patient episode can also be difficult. But again this is easier in aggregate – in fact, most hospital reimbursement systems (for example those that use the DRG system) rely on this.
“Following its measurement, efficiency should be incentivised. This has traditionally taken the form of providing incentives to reduce costs, while monitoring the quality to ensure that it is not compromised. For example, hospitals in most of developed world are reimbursed at the average cost of providing care for each cohort of patients in other hospitals. A more recent trend is to adjust reimbursement to directly incentivise better outcomes, e.g., by providing extra payments for hospitals that achieve a lower readmission rate or a higher patient satisfaction than national average. I think this can be further improved by adding process measures such as waiting time in the payment formula”
Furthermore, educating doctors and hospital administrators to understand and participate in operational improvements should complement any financial incentives, says Dr Savva.