Shifting Perverse Incentives: A Good Reason the Affordable Care Act was Upheld

By John Weeks

The recent decision of the US Supreme Court upholding the Patient Protection and Affordable Care Act (ACA) will have scores of consequences. One not frequently mentioned should be of particular interest to all consumers. This is the ACA’s steps to redress what policy wonks call the “perverse incentives” in our current medical payment system.

This is a shift that led the CEO of Minnesota’s huge Allina Hospitals and Health System to state that “for the first time ever, the payment will change toward keeping people healthy.”

Associating “perverse” with something as intimate as the decisions one of your medical practitioners makes in treating you can feel extremely discomforting. I suspect most of us retreat to a belief that maybe this is true of others’ doctors. Our own, we assume, would never let that be an influence.

Yet the perversity in fee-for-service system is systemic and undeniable. Each practitioner makes more money as each performs more procedures. This applies to stent placement by a heart surgeon, organ removal by a surgeon, or an adjustment by a chiropractor.

In a fee-for-service system, the more volume of such procedures each performs, the more revenue each generates. Such thinking transfers upstairs to budgeting by hospital executives. Economic incentives push decision-makers to celebrate the number of heart surgeries performed in a given month, rather than the number of patients who avoided them through better health.

The endpoint is a system that is organized to prosper when we are sicker. Our doctors, hospital administrators, pharmaceutical providers, and medical-device manufacturers are deeply invested in disease.

We would hope, at least, that these extra services were good for us. But are they?

In 2008, three leaders at the Institute of Medicine (IOM) published an opinion piece in the Journal of the American Medical Association entitled “From Waste to Value in Health Care.” The IOM is considered by many to be the brains of US medicine. They state: “Higher healthcare spending does not correlate with higher quality of care or better patient outcomes.”

They add that 30 to 50 percent of what is done in medicine—over $1 trillion annually—is waste, and “much of that harmful.” Medical journalist Shannon Brownlee subsequently explored these issues deeply in her highly regarded best seller entitled Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer.

Bottom-line: None of us should reasonably assume that our own practitioners are immune from the forces of these economic drivers.

The perversity has another ugly impact on our care. What incentive does a practitioner have to refer optimally to other providers as part of an integrated team? Each is paid in his or her own payment silo. The payment structure even influences the education of our health professionals. Education follows payment patterns. Each discipline is typically educated with little concern for teaming up with other practitioners in the best interest of patients.

Each of us, literally, has skin, and multiple other organs, in this game.

Happily, the architects of the ACA counter these incentives in many ways. The ACA supports development of Accountable Care Organizations (ACO) and Patient-Centered Medical Homes. In these combined delivery-reimbursement models, payment is linked not to volume but to outcomes. High patient satisfaction is rewarded.

With the Supreme Court’s decision, medical systems across the country are scrambling to learn how to deliver care in which their bottom line is no longer dependant on the ka-ching of each procedure.

Here is an example of the transformation this new thinking is producing: We are all accustomed to the idea of a hospital “discharge.” This is an ugly word for sending patients off without much consideration for what kind of follow-up care they will receive after one or more deeply invasive and expensive procedures. New Medicare rules penalize hospitals if their re-admission rates are high. As a result, administrators are invested in developing teams to “transition” rather than “discharge” patients into the outpatient environment.

This shift in direction toward team care is supported by work through the Health Resource Services Administration (HRSA). Under administrator Mary Wakefield, RN, PhD, the HRSA has taken a lead in promoting interprofessional education. This commitment recently led four major foundations to fund the $8.6-million National Center for Interprofessional Education and Collaborative Practice at HRSA. Not surprisingly, better communication is linked to less waste and harm.

In addition, under the ACA, new team members who espouse a health-focused philosophy are included via a non-discrimination rule. This rule, Section 2706, opens doors to greater inclusion of licensed complementary- and alternative-medicine practitioners. Even a potential role for health coaches gets a historic first mention in federal statute.

The road ahead in creating these new structures is rocky. ACO payment plans are still not fully aligned with quality care. Yet consumers should be pleased that under the ACA, attempts are being made to reverse the perverse incentives that have generated the pattern of costly and harmful outcomes from overtreatment.

It was a new sort of music to hear Allina’s Ken Paulus tell an audience last November that, under the new payment incentive models promoted in the ACA, “for the first time in 100 years, it will be our job at Allina to keep the village healthy.” Now that sounds like health reform.


John Weeks is the editor of “The Integrator Blog News and Reports” (, a leadership-oriented news, networking, and organizing journal for the integrative-medicine community, and a columnist for Integrative Medicine: A Clinician’s Journal.