The Perverse Incentives in the US Healthcare System

The Perverse Incentives in the US Healthcare System
by Russ Gonnering at Brownstone Institute

Donald Berwick, one of the giants in the field of Medical Quality Improvement, is often credited with popularizing the phrase, “Every system is perfectly designed for the results it gets.” I am indebted to Anna Reich for exploring the history of this saying. As it turns out, as usual, the history is a bit more “complex” and is a distillation of the ideas of multiple people.

This truism should not really be a surprise, though. Those of us who have raised children, or even a dog, understand that incentives matter, and incentives must be built into the system. What really IS surprising is that the “experts” in whom so much of our lives are entrusted, especially in healthcare, have such a poor understanding of this fact.

Let’s do a “root cause analysis” of why the “experts” seem to have gotten so many things wrong when it comes to health and healthcare. If we follow the questioning deeper, we will eventually get to the answer that the “experts” do not really understand how the health/healthcare system works. They don’t understand this because they lack the knowledge allowing them to separate what is “merely complicated” from what is “truly complex.” They don’t comprehend it, because their education was lacking in this area. I know…I was one of those “experts” at a point in my career. I described my own epiphany in this Brownstone essay as well as multiple Substack posts. 

In addition to my clinical career in Oculofacial Reconstructive Surgery, I had a “shadow career” and headed the Quality Improvement Program at a large tertiary-care medical center. We applied the methods of statistical quality control to healthcare, and we had some amazing success. But we had dismal failures as well, and that was puzzling. It was only when I read this article by David Snowden and Mary Boone that I realized what was missing.

Stop what you are doing and follow the hyperlink to the article so you understand the basis of this essay. If you can’t do that, follow this to a 3-minute YouTube video that will explain the difference between merely complicated and truly complex.

It became clear to me that when we applied the statistical quality control approach to problems that were merely complicated, we were very successful. However, when we tried the same with those problems that were truly complex, we failed miserably. We needed a different toolset for those, and we needed to recognize emergent order where the elements of the problem worked together in ways difficult or even impossible to know ahead of time. Changing one element would disrupt the flow and produce other, unforeseen adaptive changes in the problem.

In a Complex Adaptive System, “the whole really is more than the sum of the parts.” Efforts to conform the system to what we thought should work (when in reality it didn’t work at all) led down the road to ultimate failure. We would only know “the answer” when we solved the problem! This of course is anathema to one schooled for years in the scientific method.

With truly complex or wicked problems described by Rittel and Webber, we can’t realistically formulate the One hypothesis and test it with a huge fail-safe effort. We need to formulate multiple safe-fail hypotheses as a failure, and the constructive response to it is essential to arrive at the optimum answer to the problem. 

This series of “constructively changing course” is the basis of the concept Peter Sims described in Little Bets: How Breakthrough Ideas Emerge from Small Discoveries. This embrace of failure is completely counterintuitive to those in the health professions so accustomed to success. To avoid catastrophic failure, one must learn to recognize and expect small failures and profit from them. That is the only way to achieve the optimum result.

The predictability horizon from the emergent order in a Complex Adaptive System is very short. One must make changes on the fly, putting resources into what is working, then stop and adapt when it stops working. In Complexity Science parlance, we need to augment the positive attractors and dampen the negative ones.

When we finally did recognize which problems were truly complex and applied the proper tools, we were successful. As I write this, it seems so obviously simple! To improve health and healthcare, we need to understand emergent order, augment the positive attractors and dampen the negative ones, and make adjustments along the way to keep improving! So why is there so much negativity to change? 

Attempting to share this epiphany with others is difficult. Changing ideas, especially with physicians and hospital administrators, can be extremely difficult. Often, embracing change can be professionally threatening. The realization that one has spent years climbing the wrong ladder will terrify some people and prevent them from accepting something that may be clearly right. 

Those who worked long and hard to get where they are may not want to give up that position, even if it is counterproductive to society. For others, it is simply easier to keep chopping wood than sharpen the axe…or heaven forbid, get a chainsaw! The successful change agent must point out the ways for a leader to move laterally to that new optimum and not suggest that the only move is to start all over or cede their leadership position to others. 

We unfortunately face monumental challenges from yet another source. The fundamental nature of a Complex Adaptive System, emergent order, flies in the face of those wanting to impose order. They believe they know how things should work and are reluctant to see that it was in error! In addition, there are some agents, or groups of agents, who have a problem with their Organizational Culture. These two challenges, Emergent order and Organizational Culture, can produce an explosive mixture.

Dave Logan, my mentor at the USC business school, showed through 10 years of empirical research that Organizational Culture is the primary determinant of Organizational Performance. He found 5 levels of culture in organizations:

Dave and I went on to publish an agent-based model visualizing the relationship between Organizational Culture (“The pattern of, and capacity for, constructive adaptation based on a shared history, core values, purpose, and future seen through a diversity of perspective”) and Organizational Performance. 

Dave and his co-authors found that virtually all physicians, lawyers, and college professors are ossified (fossilized?) at Stage 3 culture:

Professionals usually cap out at Stage Three. Attorneys, accountants, physicians, brokers, salespeople, professors, and even the clergy are evaluated by what they know and do, and these measuring points are the hallmarks of Stage Three. “Teams” at this point mean a star and a supporting cast— surgeon and nurses, senior attorney and associates, minister and deacons, professor and TA’s. 

A typical faculty meeting shows the limitations of Stage Three. One professor after another gives his opinion and says what he thinks should be done. The result is that most educational programs look as if they had been designed by a committee—because they were. Students often ask if faculty ever speak to one another, and the answer is ‘not often’—at least about important topics.

The very people needed to make changes in health and healthcare, especially in the education of health professionals, are the least likely to have the incentive to do so.

Let me give you an example of the intersection of Organizational Culture and Emergent Order from my own area of clinical medicine, Oculofacial Surgery. In the 45 years since I finished my clinical training, monumental changes have taken place. Whereas much of my efforts were made in the treatment of severe trauma patients, now very few Oculofacial Surgeons (especially those just leaving training) are interested in dealing with these problems. The reimbursement is low, or non-existent, and the liability huge. 

Reviews by CMS demand repayment of surgical fees paid years ago, as they are now retrospectively judged by the rules of today and not by those in force when the surgery was done. Moreover, the whole shift from physician to provider, so eloquently cataloged by Joseph Varon in his excellent essay, “The Lost Vocation of Medicine: From Calling to Commodity,” has taken a vicious toll. I would urge each of you to read it. We have augmented the negative attractors and dampened the positive! 

Because of this massive blunder and reversal of incentives, Emergent Order has produced a sea change of movement toward totally aesthetic procedures: cosmetic surgery, laser resurfacing, fillers, and cosmetic Botox™. No longer do the best and brightest of my field seek to help the afflicted, but to heal the already healthy! 

So, is this all about money? Far from it. In Drive: The Surprising Truth About What Motivates Us, Dan Pink identifies three things that are central to motivation:

• Autonomy
• Mastery
• Purpose

These are the three things that have been systematically ripped out of medicine. Physicians have little say in what happens to them. They have little voice in decision-making on how they practice. There is no distinction based on excellence. To many administrators, both corporate and academic, personnel are like electricity. They are just bodies who fill a job description. 

Even worse, altruistic purpose is often ridiculed as the bottom line takes precedence. “No money, no mission” is one favored response to anyone who suggests otherwise. The one thing remaining for many physicians is monetary compensation. Is it any wonder that financial compensation is the “attractor” that still operates in this profession?

How do we remedy this complex situation? There is no magic bullet. It took decades to get here. But one thing is certain: we need to apply tools of Complexity to fix this Wicked Problem in the Complex Adaptive System that is health and healthcare, and the first thing is to fix education for health professionals.

We need to value critical thinking, courage, leadership, ethics, and moral responsibility as well as STEM excellence, for entry into, and advancement within, the health professions. All these attributes must be fostered very early, long before professional school. Ideally, active fostering should begin in middle school. 

We must impart not only the academic theory but the tools to build a true Community of Practice to provide the social support networks that health professionals will need to withstand the unique challenges they will face. With the severe constraints on educational time in professional school, this process must begin and be largely complete before health professionals enter their clinical training in professional school. 

This is a radical change from the present situation. I can think of only one educational institution, Hillsdale College, that has both the vertical (transgenerational) and horizontal (cross-disciplinary) reach to have a chance at success. They already have the mission statement of Developing Minds and Improving Hearts, which covers critical thinking, courage, leadership, ethics, and moral responsibility. 

I have personally seen the quality of medical students who have completed their undergraduate education at Hillsdale, and it is exceptional. However, even this exceptional education still does not prepare students for the unique and at times savage experiences they face in the woke arenas of medical education in today’s world. They need the social support network that a true Community of Practice can provide. Prospective students need to have direction on how to join one, or if not available, how to form their own.

Ultimately, we need to reform the stranglehold that the American Association of Medical Colleges (AAMC) and its Application Service (AMCAS) have on medical education. This whole process is worthy of study by the NIH, as it will be critical for the future of health in general. Multiple pilot projects (“Small Bets”) and frequent updating of methods (“Augmenting Positive and Dampening Negative Attractors”) are fitting for a Complex Adaptive System. Some methods may work in rural areas, others in urban, or in other subunits not yet even understood. 

The critical thing is to start it now.

The Perverse Incentives in the US Healthcare System
by Russ Gonnering at Brownstone Institute – Daily Economics, Policy, Public Health, Society