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Hospital Cost Containment Gone Awry

Summary:
Or installment #753 on unintended consequences. In a new paper in the Journal of Political Economy, Diane Alexander studies how physicians responded to a new bonus program for reducing total hospital costs. From her abstract:Doctors respond to the bonuses by becoming more likely to admit patients whose treatment can generate high bonuses and sorting healthier patients into participating hospitals. Conditional on patient health, however, doctors do not reduce costs or change procedure use. These results highlight the ability of doctors to game incentive schemes and the risks of basing nationwide health care reforms on pilot programs.Designing an appropriate incentive scheme is difficult.

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Or installment #753 on unintended consequences. In a new paper in the Journal of Political Economy, Diane Alexander studies how physicians responded to a new bonus program for reducing total hospital costs. From her abstract:
Doctors respond to the bonuses by becoming more likely to admit patients whose treatment can generate high bonuses and sorting healthier patients into participating hospitals. Conditional on patient health, however, doctors do not reduce costs or change procedure use. These results highlight the ability of doctors to game incentive schemes and the risks of basing nationwide health care reforms on pilot programs.

Designing an appropriate incentive scheme is difficult.

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