Bonuses for good doctors

1. Over the last year, six California health plans have been monitoring the performance of 45,000 doctors. The top performers will split a bonus pool of $40 to $60 million

2. 35 health plans, covering some 30 million patients, now tie doctor bonuses to performance. Preventive care and measure to encourage “patient follow-up” receive special rewards.

3. Bonus-based coverage is expected to double in size over the next year.

4. Some experts predict that pay-for-performance eventually will account for 20% to 30% of what the federal government pays health care providers.

The insurance companies feel that better doctor performance will lower their long-run costs. Many doctors don’t like these incentives. Their financial risk is increased, and they cannot always control how well the patient sticks to the prescribed regimen. Still, if greater medical skill does not show up in the numbers, over a reasonably large sample of patients, why do we spend so much time and money educating doctors?

I predict that as information technology progresses, and performance becomes easier to measure, the American economy will resort to many more bonuses of this type, across many professions.

Here is the story, WSJ subscription and password required.

By the way, regular MR readers will not be surprised to learn who first wrote up the idea of rewarding doctors for superior performance: our ever-inventive colleague Robin Hanson. More recently Harvard economist David Cutler has promoted the idea as well.

For those who care: Here is a thorough AEI estimate of the cost impacts of the Kerry and Bush health care plans. If you are concerned about our fiscal future, this makes for scary reading.