Aligning Contracts With Incentives

People, including healthcare providers, typically behave the way they are incentivized to behave. Healthcare
administrators, payers, and regulators spend a significant amount of time working to align incentives with
desired behaviors and outcomes.
Consider the following hypothetical scenario:
You are the head of physician contracting at a small community hospital. The physicians who are employed by
the hospital are paid an annual salary without any quality or outcome incentives. In contrast, area physicians
with hospital privileges who are employed by medical groups are compensated for quality outcomes and are
not paid an annual salary. Your boss, the director of contracting, has asked you to evaluate whether the
hospital should shift its employed physicians away from an annual salary model and into a model that
incentivizes quality outcomes.
How would you approach this request? What additional information do you need in order to evaluate what the
hospital should do? Consider potential competing stakeholder values. Create a stepwise plan to respond to the
director’s request.

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