Using Behavioral Economics to Design Physician Incentives That Deliver
High-Value Care
Synopsis
A number of health systems and provider organizations are turning to
behavioral economics to encourage doctors to follow evidence-based         Jan. 19, 2016
guidelines and deliver better-coordinated care to their patients. Many     Authors Ezekiel J. Emanuel, Peter A.
                                                                           Ubel, Judd B. Kessler, Gregg Meyer,
are seeing promising results, although more evaluation is needed to
                                                                           Ralph W. Muller, Amol S. Navathe,
identify the most effective physician incentive designs.
                                                                           Pankaj Patel, Robert Pearl, Meredith B.
The Issue                                                                  Rosenthal, Lee Sacks, Aditi P. Sen,
                                                                           Paul Sherman, and Kevin G. Volpp
The field of behavioral economics is built on the premise that human
                                                                           Journal Annals of Internal Medicine,
behavior is not always rational. Our decisions are often shaped by         published online Nov. 24, 2015
recognizable foibles, including a tendency to give greater weight to       Contact Ezekiel J. Emanuel, M.D.,
potential losses than to gains, and a desire to maintain the status quo    Department of Medical Ethics and
even when it does not serve our interests. Such principles have been       Health Policy, Perelman School of
harnessed to alter retirement planning and savings decisions but are       Medicine, University of Pennsylvania,
infrequently applied to health care, despite their potential to redirect   vp-global@upenn.edu
                                                                           Access to full article.
physicians’ and patients’ behavior.
Applying Behavioral Economics to Health Care
The authors of this Commonwealth Fund–supported study focus on nine behavioral economics principles that
are most relevant to influencing physicians’ practice patterns and performance—among them, loss aversion,
choice overload, and relative social ranking.
      Loss aversion describes the tendency of human beings to be more sensitive to the prospect of loss than
       to the possibility of gain. Health systems and provider organizations can take advantage of this by
       making the threat of losses more salient, for example, by providing incentive payments upfront and
       requiring physicians to return the money if they do not meet performance targets.
      Choice overload occurs when people are presented with too many choices or options that are too
       complex. In health care, overly complicated incentive programs can overwhelm providers, causing
       inertia to set in. Fewer, simpler choices are more likely to induce behavior changes.
      People tend to overestimate the immediate costs and benefits of their actions while discounting
       delayed benefits. Frequent interim feedback on performance therefore may be more effective in
       changing physicians’ behavior than annual reviews.
      Providing information—such as calorie counts on menus—is necessary but rarely sufficient to induce
       behavior change. Similarly, information about clinical options may need to be reinforced with more
       specific guidance.
      According to the principle of relative social ranking, people care a great deal about how they compare
       with others, especially when their peers are known and in close proximity. Ranking providers’
       performance within an organization may thus encourage outliers to adjust their practice patterns.
         Individuals tend to favor current practices rather than initiating change. Overcoming such inertia by
          changing habits and settled practices may require explicit efforts and policies. For instance, a physician
          order entry system can be programmed to default to generic medications rather than brand-name
          ones.
         Behavioral economists have found that people try harder when they are close to achieving a goal and
          less so when it is distant. This suggests a need to provide greater encouragement to physicians who
          are farther away from reaching desired targets.
The Big Picture
Health care organizations are increasingly entering into contracts that reward them for improving outcomes
and reducing spending. But they often struggle to translate these goals into effective incentive programs for
physicians making the decisions that are key to achieving cost savings and quality improvements. Monetary
incentive programs fail to account for the way emotions and social status, among other variables, factor into
providers’ decisions.


 The Bottom Line
 Insights from behavioral economics can help health care organizations engage providers by working with
 human limitations rather than fighting against them.

E. J. Emanuel, P. A. Ubel, J. B. Kessler et al., “Using Behavioral Economics to Design Physician Incentives That Deliver High-Value Care,” Annals of
Internal Medicine, published online Nov. 24, 2015.


This summary was prepared by Sarah Klein.