Financial Incentives in Healthcare

Pictures of Money - MoneyBlog post by Colin Hung

Financial incentives can be a powerful motivator in any industry. Corporations often use incentives to align employees with organization goals. The lure of financial reward is often a nice “sweetener” that pushes people to work just a little bit harder.

Equally motivating are penalties and punishments. Governments often use the threat of penalties to encourage certain behaviors in populations. For example: fines for not filing taxes on time and tickets for parking illegally.

But do financial incentives and penalties work in healthcare?

Over the past 5 years, the US and Canadian governments have given out $Billions to incentivize physicians/healthcare organizations to adopt electronic health record systems (EHRs). 2016 represents the final year of the US program and there are many who are saying it was a complete failure. Personally, I’ve spoken with many physicians who absolutely detest the EHRs that they are forced to use. They spend more time looking at their screens than at their patients.

Hartzband and Groopman summed it up best in their New York Times article “How Medical Care Is Being Corrupted”:

Medical care is not just another marketplace commodity. Physicians should never have an incentive to override the best interests of their patients.

Unfortunately the EHR incentive program seems to have given physicians a carrot that was at odds with the best interests of their patients.

But what about other incentive programs in healthcare? Are they any better? We don’t have to look too far to find another far-reaching healthcare program…pay for performance (aka P4P, aka Value Based Payments). Under this program physicians and organizations would be paid based on desired outcomes rather than based on activity. Keep patients healthy and you get paid more. Seems simple enough.

There is, however, some doubt about the potential effectiveness of P4P on quality and clinical outcomes:

The use of financial incentives to reward PCPs for improving the quality of primary healthcare services is growing. However, there is insufficient evidence to support or not support the use of financial incentives to improve the quality of primary health care. Implementation should proceed with caution and incentive schemes should be more carefully designed before implementation. – Anthony Scott et al

Rewards do not create a lasting commitment. They merely and temporarily change what we do – Thomas Dahlborg

Dahlborg has some interesting suggestions in his recent Hospital Impact article:

  • Let’s not edge the humanity out of healthcare via over reliance on financial drivers of change.
  • Let’s focus on changing adaptively rather than with a quick financially based technical fix.
  • Let’s focus on bringing humanity back into healthcare once again.
  • Let’s eliminate existing barriers to true caring.”

I believe that financial incentives can be a catalyst for change, but they cannot sustain it. They are most effective when they are carefully tied to metrics that are aligned to the clear goals.

Join us on January 26th 2016 at 8:30pm ET (for your local time click here) for our weekly #hcldr tweetchat where we will be discussing financial incentives in healthcare.

  • T1 What works better financial incentives or penalties in healthcare? Is there a difference?
  • T2 Do you believe financial incentives for physicians and healthcare orgs can work?
  • T3 If you had a $1B what healthcare outcome/technology/behavior would you incent?
  • T4 What ideas do you have for bringing humanity back into healthcare without using financial incentives?


“The problem with financial incentives in healthcare”, Thomas Dahlborg, Hospital Impact, January 14 2016,, accessed January 24 2016

“Why Incentive Plans Cannot Work”, Alfie Kohn, Harvard Business Review, September 1993,, accessed January 24 2016

“Health Care: End the Perverse Incentives”, Susan DeVore, Business Week, January 24 2011,, accessed January 24 2016

“Reviewing the Potential Roles of Financial Incentives for Funding Healthcare in Canada”, Jason Sutherland et al, Canadian Foundation for Healthcare Improvement, December 2012,, accessed January 24 2016

“Evidence-Based Financial Incentives for Healthcare Reform”, George A Diamond and Sanjay Kaul, Cardiovascular Quality and Outcomes, February 2009,, accessed January 24 2016

“Financial Incentives in Health Care”, New York Times, November 27 2014,, accessed January 24 2016

“How Medical Care Is Being Corrupted”, Pamela Hartzband and Jerome Groopman, November 18 2014,, accessed January 24 2016

“The effect of financial incentives on the quality of health care provided by primary care physicians”, Anthony Scott et al, Cochrane Effective Practice and Organisation of Care Group, September 7 2011,, accessed January 24 2016

Image Credit – Pictures of Money by Money

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