Healthcare: capitalism's perverse incentives

‘That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair.’ George Bernard Shaw, Preface on Doctors: The doctor’s dilemma – a tragedy

Payment by Results
In 2004, the first wave of foundation trusts took on Payment by Results (PbR). The intention is that over 80% will be under the system by 2008. PbR is trumpeted as a system that will provide a fair and transparent way of funding local services, and one that makes a predictable, single and nationally predetermined payment to the provider of health care for every patient treated in hospital.

It seems simple: admit, treat, code and be paid with a standard tariff... However, first the services delivered must cover their costs and, second, the payment is calculated using a complicated formula which takes into account the complexity and cost of interventions recorded during a patient’s treatment. Each intervention has a code and therefore recording every activity becomes critical for ensuring income recovery.

With such a system, maximising income rather than organising the most appropriate treatment becomes the first priority. It introduces a set of perverse incentives which can compromise the independent judgment of doctors, and which allow managers to judge every service on the income it generates rather than whether it meets the needs of the person or the community concerned.

The consequence of PbR are already with us. Foundation hospitals with PbR get better paid the more they investigate (a CT scan done in A&E will generate a much greater tariff than if no scan is done). They also get paid more the longer someone stays in hospital, the busier the department is, and the longer the list of past medical problems on the patient’s discharge letter.

So managers start panicking if A&E is quiet and start seeing discharge letters as invoices rather than communication between health care workers. Short-stay wards with the aim of early discharge become a problem – not because people are being sent home too early but because a 48-hour stay means hundreds of pounds more in payment from the Primary Care Trust compared to 47 hours. The future will see hospital departments that do not generate income and are not financially viable either losing that service altogether or passing it to a private company. PbR will be used as a tool to justify cuts in services. That such cuts are going to take place is evident from a letter that David Nicholson, NHS chief executive, sent to all MPs on the first day of the parliamentary recess in early November. In it he announced that there are to be more closures of A&E departments and maternity and children services in England. Fewer beds in hospitals will be needed as he envisages more people being treated in ‘local clinics’ and ‘high-tech specialist centres’. The following day came the revelation that a third of the NHS trusts in England are forecasting deficits totalling about £1.2 billion. 175 trusts expect to fail to meet their obligation to break even. Richard Douglas, the Department of Health director of finance, is warning of more redundancies and ward closures. One of the biggest forecast deficits is Queen Elizabeth Hospital in London with an expected overspend of £37.1 million, 32.3% of its turnover.

How this affects individual hospitals is being demonstrated by the Homerton hospital in east London, one of the first ten trusts to get Foundation status. Its medical director announced in 2005 that ‘there is much more financial awareness, especially of our responsibility to control costs; it has led to a greater rigour about our plans and their financial implications’. What that ‘rigour’ means now a year later is becoming evident: ward closures with enforced relocation of nursing staff, reduction in services, post freezes, and cuts in vitally important clinical nurse specialist jobs.

Newly qualified nurses are applying for health care assistant jobs or moving out of nursing before their careers have begun because fewer jobs are being advertised country-wide than the number of nurses who are qualifying. Drop-in-the-ocean savings such as stopping tea bag and coffee supplies for staff take on disproportionate importance. The hospital painting and decorating team, which five years ago painted wards while they were empty, are now painting around sick people, moving their beds away from the wall to get behind them. A ban on overtime means that they can no longer use weekends to paint areas only used in the weekdays.

Health care cannot be adequately provided in this manner. Patients will be treated more and more as commodities. Tariffs cannot be worked out for kindness, compassion, patience, empathy or humour – these vital components of human interaction will no longer count for anything.
Hannah Caller

FRFI 194 December 2006 / January 2007


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