Subscribe to The Podcast by KevinMD. Watch on YouTube. Catch up on old episodes!
We sit down with Taylor J. Christensen, an internal medicine physician and health policy researcher, to discuss his health care incentives framework. Taylor explains how restructuring financial incentives can encourage providers and insurers to deliver higher value for patients. Tune in as we explore the barriers preventing patients from choosing high-value care, how to align competing interests in health care, and the future of innovation driven by better incentives.
Taylor J. Christensen is an internal medicine physician and health policy researcher.
He discusses the KevinMD article, “How to structure financial incentives in our health care system.”
Our presenting sponsor is DAX Copilot by Microsoft.
Do you spend more time on administrative tasks like clinical documentation than you do with patients? You’re not alone. Clinicians report spending up to two hours on administrative tasks for each hour of patient care. Microsoft is committed to helping clinicians restore the balance with DAX Copilot, an AI-powered, voice-enabled solution that automates clinical documentation and workflows.
70 percent of physicians who use DAX Copilot say it improves their work-life balance while reducing feelings of burnout and fatigue. Patients love it too! 93 percent of patients say their physician is more personable and conversational, and 75 percent of physicians say it improves patient experiences.
Help restore your work-life balance with DAX Copilot, your AI assistant for automated clinical documentation and workflows.
VISIT SPONSOR → https://aka.ms/kevinmd
SUBSCRIBE TO THE PODCAST → https://www.kevinmd.com/podcast
RECOMMENDED BY KEVINMD → https://www.kevinmd.com/recommended
GET CME FOR THIS EPISODE → https://www.kevinmd.com/cme
I’m partnering with Learner+ to offer clinicians access to an AI-powered reflective portfolio that rewards CME/CE credits from meaningful reflections. Find out more: https://www.kevinmd.com/learnerplus
Transcript
Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today, we welcome Taylor Christensen. He’s an internal medicine physician and health policy researcher. Today’s KevinMD article is “How to Structure Financial Incentives in Our Health Care System.” Taylor, welcome to the show.
Taylor J. Christensen: Thanks, Kevin. It’s nice to be here.
Kevin Pho: So let’s start by briefly sharing your story and journey.
Taylor J. Christensen: Well, as an undergrad, I decided—probably typical of most physicians—that I liked science and wanted to help people. So, I decided I’d be pre-med, but I got some really good pre-med advice. The counselor said, “You should choose a major you enjoy because you’ll get better grades. And if it’s not basic sciences, then you’ll have a more diverse application for med school.” So I said, “Well, I’m working for a startup company. That’s really interesting. I’m going to try out business for my major.”
The thing that really shifted the path of my life toward health care policy and fixing the health care system was when I read Complications by Atul Gawande—one of my heroes—and realized that the health care system is probably the most incredibly complex puzzle humanity has ever devised. Based on that, it sucked me in. I totally wanted to figure out what’s wrong with the health care system.
For a while, I toyed with going into health care consulting, but I still wanted to help people individually, directly, as a physician. So I ended up moving forward with going into medicine, but I shifted my focus and my major to business strategy. That way, I could get a broad understanding of the health care system. In business strategy, you’re looking at industries and how they work. That was the main event that shaped the direction my career took.
When I went to med school, I chose Case Western because they had an MD/PhD program in health policy. I started there, but unfortunately, right before I was about to start my PhD years, there was an era of fiscal austerity, and they dropped half of those programs across the country, including ours. So, I did part of a PhD in health policy but didn’t finish it because I didn’t want to pay my own way for all those years. I went straight through and finished med school.
Since then, I’ve been reading, blogging, and studying the health care system, trying to figure out how it works and what the core issues are. That led me to write this series of articles on your platform, explaining the framework that formed in my mind over time. Today’s post is one piece of that, specifically focused on financial incentives in the health care system—whether they’re good or bad, and what role they play.
Kevin Pho: Sure. I completely agree with the complexity of our health care system. You wrote these pieces a few years ago, so let’s talk about one of them: How to Structure Financial Incentives in Our Health Care System. Tell us about this article for those who didn’t get a chance to read it.
Taylor J. Christensen: Yeah, so the thing that really struck me during residency, which motivated me to think more about financial incentives, was an attending I had. I don’t remember the context exactly—it was probably some patient who couldn’t afford care. My attending said, “There’s no place for financial incentives in health care.” That shocked me. I had studied business strategy and the health care system for years, and to hear that someone believed that surprised me. But I found that it was a common sentiment among physicians.
So, the first thing I want to convey is that the idea that there’s no place for financial incentives in health care is false. At the time, I kept my mouth shut, but I’ll say it here: it’s not true. Anytime you have an industry where people are paid for the work they do, there are financial incentives. That’s just a fact of life. It’s true in health care and everything else. Even in Soviet Russia, under communism, they had financial incentives, even though the government controlled prices and production. So, the first big point is that there will always be financial incentives in health care.
The problem is that people misunderstand this and think that financial incentives should be eliminated, but that’s impossible. What we need to do is align those incentives with what we want.
Kevin Pho: Talk to us from a physician’s perspective. I think back to what your attending said—perhaps they should have prefaced it by saying that, in an ideal world, financial incentives wouldn’t matter in medical decision-making. But as you’ve articulated, we don’t live in an ideal world. For those unfamiliar, talk to us about some of the financial incentives physicians navigate on a day-to-day basis.
Taylor J. Christensen: Yeah. I’ll expand a bit, because it’s not just physicians—it’s the whole health care system. Every decision—whether it’s made by a hospital system or an insurance company—is shaped by financial incentives. As physicians, we deal with this all the time. There are laws that try to prevent financial incentives from influencing decisions, but they’re still there. For example, I work as a hospitalist. Someone comes to the emergency department with chest pain—a non-STEMI. It’s not severe enough to be life-threatening, but the cardiologist has a financial incentive to do a procedure. So, they’re more likely to do a catheterization, even if the evidence suggests it might not be necessary.
We also face it when selecting treatment plans. Yesterday, I discharged a patient who was new on anticoagulation. Apixaban is much more expensive than warfarin, but it was the more convenient option. So, I had to have that conversation about costs—if insurance doesn’t cover it well enough, we’ll switch to something cheaper.
Then, there are decisions about whether to admit someone. As a hospitalist, I often think, “Yes, we could do some good if they stay in the hospital, but we might do more harm financially.” These decisions come into play all the time, and we often don’t even realize it.
Kevin Pho: How did we get to this point where financial incentives influence so much of our medical decision-making, explicitly or implicitly? How did we get here?
Taylor J. Christensen: I think it’s always been this way. We just never talked about it. In the early health care system, a doctor would go from house to house, and they might be influenced by who could pay for care. Goodwill and charity have always been part of health care, but financial realities have always been there, too. If you want to make a living, you have to get paid. It’s the same for modern health care systems. So, it’s always been part of the system, but it’s become more complex over time.
Kevin Pho: You mentioned that your attending didn’t want to admit financial incentives were present in everyday medicine. That was years ago. What’s it like today? Has the situation improved in terms of open discussions about the financial aspects of health care?
Taylor J. Christensen: In some ways, yes. There’s been more acknowledgment of financial issues, especially with the cost of medications like GLP-1s, which are becoming very popular but also very expensive. So, there’s more recognition, but we still don’t have a good understanding of what to do about financial incentives.
That’s what I write about in this article. It’s basic Business 101: understanding what a financial incentive is and how to change it. If it’s OK, I’d like to jump into that.
Kevin Pho: Absolutely.
Taylor J. Christensen: First of all, recognize that the profit of a company—or in the case of a nonprofit, their surplus—is calculated as revenues minus costs. Financial incentives come from whatever leads to greater profit. Companies want more profit because that allows them to stay in business and reinvest. So, the challenge is to find a way to make health care companies—whether hospitals, insurers, or others—earn more money when they do what we want them to do, which is to provide high-value care. By high value, I mean good quality for a reasonable price.
To achieve that, we need to either lower their costs or raise their revenues. Lowering costs is hard—they’re already trying to purchase things as cheaply as they can. So, we need to look at how to raise their revenues when they provide high-quality care.
Raising revenue comes down to two things: the price of services and the quantity of services provided. What we’ve tried to do in the past is raise the price for high-quality care by giving bonuses. But when you raise the price, you lower the value. We’ve rewarded high quality, but the value decreases when the price goes up. The same thing happens with shared savings programs like ACOs—they reward savings by raising the price for those who deliver high-quality care.
The solution is to increase the quantity of services provided by high-value providers. That’s how you get more patients to choose higher-value care.
Kevin Pho: So, if I understand correctly, the key is to direct patients to higher-value providers. But we don’t have transparency yet in terms of directing patients to those options, right?
Taylor J. Christensen: Exactly. We don’t have enough transparency. There are some efforts, like Medicare’s star ratings, but those aren’t enough. Patients often don’t know about them, and even when they do, the metrics are not always relevant. For instance, a star rating might be based on mortality rates for heart failure patients, but if the difference between two hospitals is 0.1 percent versus 0.15 percent, that’s not necessarily relevant to a patient deciding where to go. Patients want to know things like quality of life after surgery or recovery times, but those metrics aren’t always available or easy to understand.
Another issue is that insurance networks limit choices. If one hospital is in-network and the other isn’t, patients will usually go to the in-network provider, regardless of quality.
Kevin Pho: So, in an ideal world, if you were in charge of reforming the health care system, what would be the first steps you would take to address this issue?
Taylor J. Christensen: That’s a great question. I would take a two-pronged approach. First, we need better quality metrics that are relevant to patients. We need to identify the metrics that matter most to patients, such as complication rates, recovery times, and overall satisfaction, and measure them consistently across all hospitals. Then, we need to put that information somewhere patients can easily access—ideally a single website that becomes the go-to resource for comparing quality metrics across hospitals.
The second prong is to address pricing. Patients don’t care about the total price of care; they care about what they’re going to pay out of pocket. So, we need to design insurance plans that give patients financial incentives to choose lower-cost, high-quality providers. This could be done through tiered copays, where patients pay less if they choose a higher-value provider. Another idea is reference pricing, where insurance companies say, “We’ll pay up to this amount for a procedure, and if the provider charges more, you pay the difference.”
Bundled payments are another important innovation. Instead of patients and insurance companies not knowing the total cost until after the fact, bundled payments provide an all-inclusive price upfront. This includes the surgeon, anesthesiologist, and follow-up care, so everyone knows the total cost ahead of time.
Kevin Pho: It sounds like giving patients transparency around both cost and quality would help them make more informed decisions. Have you seen any successful examples of this in action?
Taylor J. Christensen: Yes, there are some good examples of bundled payments and reference pricing being implemented, and they’ve been successful in lowering costs while maintaining or improving quality. But we need more widespread adoption. The problem is that the health care system is so fragmented, and there’s not enough incentive for providers to change unless they start losing patients.
If we had better transparency around both cost and quality, patients would start choosing higher-value providers. That would force lower-value providers to either improve their quality or lower their prices, just like in any other industry. Over time, that competition would lead to better care at lower costs across the board.
Kevin Pho: We’re talking to Taylor Christensen, internal medicine physician and health policy researcher. Today’s KevinMD article is “How to Structure Financial Incentives in Our Health Care System.” Taylor, let’s end with some of your take-home messages for the KevinMD audience.
Taylor J. Christensen: Sure. First, I want to emphasize that financial incentives are a part of health care, and they always will be. No matter how much government involvement we have in the system, financial incentives will exist. The problem isn’t that they exist; it’s that they’re not aligned with what we want.
Second, once we accept that financial incentives are a part of the system, we can start to figure out how to align them with the goals we have for better patient care. The first step is understanding how financial incentives work and how we can structure them to reward high-value care.
Finally, I want to encourage all physicians and health care workers to get involved in the conversation about health care reform. Just because you’re an expert in clinical care doesn’t mean you’re an expert in health care economics. Take the time to educate yourself on these issues, and then use that knowledge to advocate for policies that will improve the system as a whole.
Kevin Pho: Taylor, thank you so much for sharing your insights and perspective. Thanks again for coming on the show.
Taylor J. Christensen: Thanks so much, Kevin.
