Incentives Mania

Published April 12, 1987 in North Shore Sunday.

The federal government loves incentive programs.  Remember President Ford's Whip Inflation Now buttons?  Incentive programs like WIN are almost always losers because they require sacrifice.  The ones that do work well require only a desire to save a few bucks, usually in the form of tax breaks.  And so it goes that we have such enticements as the "business lunch," which is just the government's way of nudging businesspeople together so they can make more money (as if they needed to be persuaded).

But the business lunch is small potatoes compared to a new incentive program for hospitals that treat Medicare patients.  In an effort to cut the cost of health care for the elderly, the government no longer pays hospitals for services actually performed.  Instead, hospitals are paid a flat fee based on the average cost for treating a patient with a particular illness.  So if the average length of hospitalization for a patient requiring gall bladder surgery is, say, five days, and the hospital can safely release that patient in four days, the hospital is still paid for five days of services and makes a profit.  But if the patient requires care for six days, the hospital loses money.

The initial reaction to this incentive program is one of horror. The government seems to be encouraging hospitals to make greater profits by releasing patients "quicker and sicker," as critics of the program charge.  But studies show that even though patients are being released from hospitals sooner than in years past, the quality of health care apparently has not suffered.  And don't be fooled by the sizeable profits that hospitals have realized on Medicare patients since this wheel 'em in and wheel 'em out incentive program began in 1984.  Dr. Carol M. McCarthy, president of the American Hospital Association, recently told the New York Times that the profits are not really profits at all, but "an accounting artifact."

What we have here is a major breakthrough in government incentive programs, one which can be applied to other tasks where cost-effective and speedy results are the prime concerns.  Let's take war.  America's involvement in the average war is about 3.8 years.  At the next outbreak of hostilities, congress should give the military enough funds to carry on the war for exactly that length of time.  If the military can bring the conflict to a successful conclusion before that time, it can keep what is left over for the next war, or use it to buy the $500 screwdrivers and $1000 toilet seats that it is so fond of, and no one could complain.  But if the war lasts longer that the 3.8 years, the military is on it's own.  Maybe Oliver North, if he is out of jail by that time, could raise funds from private sources, but not a penny more could come from the government.

A similar incentive program would work miracles in reducing the unemployment rate.  Let's say the average time a worker is "between jobs" is six months.  On the first day of his unemployment, the worker would receive unemployment compensation for the entire six-month average.  If he goes out and finds a job the very next day, he gets to keep all the money as profit.  If he is out of work longer than the six months, too bad.

In education, illiteracy and ignorance would become things of the past.  School departments would be paid for twelve years worth of education for each student entering the first grade.  Tests would be given each year to determine which students have learned enough to graduate.  The school department would profit when students pass the tests and leave the system early.  Other students would be required to stay in school until they either pass the tests or become grandparents, whichever comes first.

Cynics claim that bottom-line incentive programs will bring out the worst in human nature and, in fact, cause the release of patients quicker and sicker and of students quicker and stupider.  Not so.  Take this column you now are reading as evidence.   Contributors to this column are paid a flat $75 for approximately 750 words – ten cents per word.  If I can bring this column in at under 750 words, I am, in effect, making money.  But if it takes me 850 or 1050 words to say what I need to say, I still make only $75.  If I were motivated purely by profit, I would count my words like a miser counting pennies until reaching the point at which