Category: Incentives

“Atlas May Actually Decide to Shrug”


(p. A16) During the recent off-year elections, the president repeatedly pointed to the booming economy and noted that his tax cuts were responsible.  With growth strong and unemployment low despite the ending of the stock-market bubble, terrorist attacks and the war in Iraq, he had every reason to be proud.  Moreover, both economic theory and the actual timing of the economic revival support his claims regarding the tax cuts.

That is why it is so odd that rumors swarm around Washington that the president may be willing to raise taxes as part of a "deal" on entitlement reform.  In particular, the rumors suggest the president might be willing to get rid of the provision that caps the income level used to compute Social Security taxes and benefits.  These rumors aren’t without substance; last year the president would not rule out raising the cap when asked.

Doing so would raise the marginal tax rate on the entrepreneurs that Mr. Bush credits for having led the economic recovery by more than 10 percentage points.  The new effective rate would be five percentage points above the level when he took office.  Moreover, in 2011, the rate would go up a further 4.3 percentage points to an effective 53% marginal rate on entrepreneurial income.  The president would thus be not just raising taxes on entrepreneurs to well above the levels that prevailed in the Clinton administration, but to a rate higher than that which prevailed in the Carter administration.  Most of the improved incentives for entrepreneurship and work brought about under Reagan would be repealed.

. . .

Last year an entrepreneur similar to me would have paid federal taxes equal to 33.9% of total income.

. . .

Don’t make it too tough on him, or Atlas may actually decide to shrug.

 

For the full commentary, see: 

LAWRENCE B. LINDSEY.  "Compromised."  Wall Street Journal  (Mon., November 20, 2006):  A16.

(Note:  the ellipses are added.) 

 

The last line of the commentary is a not-so-veiled allusion to: 

Rand, Ayn.  Atlas Shrugged.  New York:  Random House, 1957.


Without Incentives, the Energetic become Lazy


Wise words from Frederick W. Taylor, who is known as the father of scientific management:


(p. B1) "When a naturally energetic man works for a few days beside a lazy one," Mr. Taylor wrote, "the logic of the situation is unanswerable.  ‘Why should I work hard when that lazy fellow gets the same pay I do and does only half the work?’ "



As quoted in: 

CYNTHIA CROSSEN.  "DEJA VU; Early Industry Expert Soon Realized a Staff Has Its Own Efficiency."  Wall Street Journal  (Mon., November 6, 2006):  B1.


For Major Changes, CEOs Need to Change Who “Calls the Shots”


Some of the best advice in Gerstner’s book concern ‘execution’ issues of rewards, incentives, and who has the power to make which decisions.  Consider:

(p. 249)  If a CEO thinks he or she is redirecting or reintegrating an enterprise but doesn’t distribute the basic levels of power (in effect, redefining who "calls the shots"), the CEO is trying to push string up a hill.  (p. 250)  The media companies are a good example.  If a CEO wants to build a truly integrated platform for digital services in the home, he or she cannot let the music division or movie division cling to its existing technology or industry structure—despite the fact that these traditional approaches maximize short-term profits.

. . .

I knew we could not get the integration we needed at IBM without introducing massive changes to the measurement and compensation system.  I’ve already explained that the group executives who ran IBM’s operating businesses were not paid bonuses based on the unit’s performance.  All their pay was derived from IBM’s total results.

When a CEO tells me that he or she is considering a major reintegration of his or her company, I try to say, politely, "If you are not pre-(p. 251)pared to manage your compensation this way, you probably should not proceed."

 

The reference for the book is:

Gerstner, Louis V., Jr.  Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change.  New York:  HarperCollins, 2002.

(Note:  ellipsis added.)

 

The Missing Pillow: A Lack of Incentives Leaves an Obvious ‘Job’ Undone


In late July, I had an appointment for a treadmill stress-test at Omaha’s Methodist Hospital.  They told me the process would be over in an hour, but it took about two hours, due to another patient having some sort of crisis during their stress-test. 

They had me put on a gown, they stuck an I-V "dye" drip in back of my hand, and they pasted about six electrodes to my chest, after shaving and applying something like sand paper to the parts of the chest where the electrodes were attached.  Then they had me lie on my side on a hard table, to wait.  It was very uncomfortable.  The first nurse said that there was supposed to be a pillow on the table, but did nothing to obtain one.  Every several minutes some technician or nurse would stop in to ask if I was ready for them.  (I was always ready.)  But it turned out that someone needed to do something to me first, and that person was, I guess, taking care of the crisis next door.  At least one of these visitors also mentioned that I was supposed to have a pillow, but did nothing to acquire one.  If memory serves, the first nurse came back in, and again mentioned that I was supposed to have a pillow, but again did nothing to obtain one.

These people were all pleasant and friendly.  For example, they had a lot of friendly chats amongst themselves, that I could not help but over-hear.  (One of them was pregnant with twins, but did not know the genders of the babes-to-be, and so had not yet spent the time to come up with names.)

But two hours later, when the whole process was over, I still did not have a pillow.

A week or two after the test, I received a several page survey from Methodist Hospital asking a bunch of questions about how I thought they had done during the test.  You see they really "care" about my opinion.  (They also run frequent, slick TV ads about how much they "care.")

Marketers, and management gurus, say that organizations need to invest in surveys and the like to figure out what the customer wants and needs.  And Clayton Christensen advocates spending resources to figure out what "job" the customer needs to have done.  And maybe, sometimes, it does take surveys and research.

But sometimes it is obvious that the customer needs a pillow.

What is missing is not a survey, or statistical analysis.

What is missing is the incentive for someone to go get the pillow. 

 

P.S.  You may wonder, then, if it is simply a mistake for the hospital to send out the survey?  I suspect that those who send out the survey are not making a mistake, but are trying to get a different job done than the one that appears to be intended.  It appears that they are trying to find out what customers want and need.  But maybe they already know that.  Maybe they are mainly sending out the survey so that if anyone asks if they are "customer-oriented" they can whip out the survey to prove that yes-indeed, they sure are.  In other words, the point of the survey is not to learn about customers; it is to cover rear-ends.


United States Cardiologists Fail to Prescribe Fish Oil, Despite Low Cost, Safety, and Evidence of Efficacy


  Source of graphic:  online verison of the NYT article quoted and cited below.


United States cardiologists are reluctant to prescribe fish oil, wanting more definitive data on efficacy.  But a lack of definitive data on efficacy doesn’t stop them from performing costly and risky procedures such as the application of stents.  Possibly relevant:  installing stents is much more lucrative for cardiologists, than prescribing fish oil.  Doctors are not bad people, but like most of us, they respond to financial incentives.


(p. D5) ROME — Every patient in the cardiac care unit at the San Filippo Neri Hospital who survives a heart attack goes home with a prescription for purified fish oil, or omega-3 fatty acids.

“It is clearly recommended in international guidelines,” said Dr. Massimo Santini, the hospital’s chief of cardiology, who added that it would be considered tantamount to malpractice in Italy to omit the drug.

In a large number of studies, prescription fish oil has been shown to improve survival after heart attacks and to reduce fatal heart rhythms.  The American College of Cardiology recently strengthened its position on the medical benefit of fish oil, although some critics say that studies have not defined the magnitude of the effect.

But in the United States, heart attack victims are not generally given omega-3 fatty acids, even as they are routinely offered more expensive and invasive treatments, like pills to lower cholesterol or implantable defibrillators.  Prescription fish oil, sold under the brand name Omacor, is not even approved by the Food and Drug Administration for use in heart patients.

“Most cardiologists here are not giving omega-3’s even though the data supports it — there’s a real disconnect,” said Dr. Terry Jacobson, a preventive cardiologist at Emory University in Atlanta.  “They have been very slow to incorporate the therapy.”


For the full story, see:

ELISABETH ROSENTHAL  "In Europe It’ s Fish Oil After Heart Attacks, but Not in U.S."  The New York Times  (Tues., October 3, 2006):  D5.


Sulfa: First Antibiotic Was Pursued for Profit

  Source of the book image:  http://ec1.images-amazon.com/images/P/1400082137.01._SS500_SCLZZZZZZZ_V52133117_.jpg

 

Economists have debated whether patents mainly provide incentives, or obstacles, to innovation.  In the story of the development of sulfa, the first powerful antibiotic, the desire for profit, through patents, was one motive that drove an important part of the development process; this, even though, in the end, sulfa turned out not to be patentable:

(p. P9) Mr. Hager follows a group of doctors into postwar German industry — specifically into the dye conglomerate IG Farben.  These men, having witnessed horrible deaths by infection on the battlefield, picked up on Ehrlich’s hypothesis by trying to synthesize a dye that specifically stained and killed bacteria.  Led by the physician-scientist Gerhard Domagk, they brought German know-how, regimentation and industry to the enterprise.

Year after year the team infected mice with streptococci, the bacteria responsible for so many deadly infections in humans.  The researchers then treated the mice with various dyes but had to watch as thousands upon thousands of them died despite such treatment.  Nothing seemed to work.  The 1920s turned into the ’30s, and still Domagk and his team held to Ehrlich’s idea.  There was simply no better idea around.

Then one of the old hands at IG Farben mentioned that he could get dyes to stick to wool and to fade less by attaching molecular side-chains containing sulfur to them.  Maybe what worked for wool would work for bacteria by making the dye adhere to the bacteria long enough to kill it.

. . .

The IG Farben conglomerate expected huge profits from Prontosil.  But then French scientists at the Pasteur Institute in Paris dashed these dreams.  The German scientists — all of them Ehrlich disciples — thought that the power to cure infection rested in the dye, with the sulfa side-chain merely holding the killer dye to the bacteria.  The scientists at the Pasteur Institute, though, showed that the sulfa side-chain alone worked against infection just as well as the Prontosil compound.  In fact, the dye fraction of the compound was useless.  You could have Ehrlich’s magic bullet without Ehrlich’s big idea!  This bombshell rendered the German patents worthless.  The life-saver "drug" turned out to be a simple, unpatentable chemical available in bulk everywhere.

 

For the full review, see: 

PAUL MCHUGH.  "BOOKS; Medicine’s First Miracle Drug."  The Wall Street Journal  (Sat., September 30, 2006):  P9.

(Note: ellipsis added.)

 

The reference for the book is: 

Thomas Hager.  The Demon Under The Microscope.  Harmony, 340 pages, $24.95

“An Image Was Worth a 1,000 Statistical Tables”


HandWithGerms.jpg  Artistic vision of germ-laden hand.  (This is not the photographic image mentioned below, and used as a hospital screen-saver.)  Source of image:  online version of the NYT article cited below.

 

(p. 22)  Leon Bender noticed something interesting: passengers who went ashore weren’t allowed to reboard the ship until they had some Purell squirted on their hands.  The crew even dispensed Purell to passengers lined up at the buffet tables.  Was it possible, Bender wondered, that a cruise ship was more diligent about killing germs than his own hospital?

Cedars-Sinai Medical Center, where Bender has been practicing for 37 years, is in fact an excellent hospital.  But even excellent hospitals often pass along bacterial infections, thereby sickening or even killing the very people they aim to heal.  In its 2000 report “To Err Is Human,” the Institute of Medicine estimated that anywhere from 44,000 to 98,000 Americans die each year because of hospital errors — more deaths than from either motor-vehicle crashes or breast cancer — and that one of the leading errors was the spread of bacterial infections.

. . .

. . . the hospital needed to devise some kind of incentive scheme that would increase compliance without alienating its doctors.  In the beginning, the administrators gently cajoled the doctors with e-mail, (p. 23) faxes and posters.  But none of that seemed to work.  (The hospital had enlisted a crew of nurses to surreptitiously report on the staff’s hand-washing.)  “Then we started a campaign that really took the word to the physicians where they live, which is on the wards,” Silka recalls.  “And, most importantly, in the physicians’ parking lot, which in L.A. is a big deal.”

For the next six weeks, Silka and roughly a dozen other senior personnel manned the parking-lot entrance, handing out bottles of Purell to the arriving doctors.  They started a Hand Hygiene Safety Posse that roamed the wards and let it be known that this posse preferred using carrots to sticks:  rather than searching for doctors who weren’t compliant, they’d try to “catch” a doctor who was washing up, giving him a $10 Starbucks card as reward.  You might think that the highest earners in a hospital wouldn’t much care about a $10 incentive — “but none of them turned down the card,” Silka says.

When the nurse spies reported back the latest data, it was clear that the hospital’s efforts were working — but not nearly enough.  Compliance had risen to about 80 percent from 65 percent, but the Joint Commission required 90 percent compliance.

These results were delivered to the hospital’s leadership by Rekha Murthy, the hospital’s epidemiologist, during a meeting of the Chief of Staff Advisory Committee.  The committee’s roughly 20 members, mostly top doctors, were openly discouraged by Murthy’s report.  Then, after they finished their lunch, Murthy handed each of them an agar plate — a sterile petri dish loaded with a spongy layer of agar.  “I would love to culture your hand,” she told them.

They pressed their palms into the plates, and Murthy sent them to the lab to be cultured and photographed.  The resulting images, Silka says, “were disgusting and striking, with gobs of colonies of bacteria.”

The administration then decided to harness the power of such a disgusting image.  One photograph was made into a screen saver that haunted every computer in Cedars-Sinai.  Whatever reasons the doctors may have had for not complying in the past, they vanished in the face of such vivid evidence.  “With people who have been in practice 25 or 30 or 40 years, it’s hard to change their behavior,” Leon Bender says.  “But when you present them with good data, they change their behavior very rapidly.”  Some forms of data, of course, are more compelling than others, and in this case an image was worth 1,000 statistical tables.  Hand-hygiene compliance shot up to nearly 100 percent and, according to the hospital, it has pretty much remained there ever since.

 

For the full commentary, see:

STEPHEN J. DUBNER and STEVEN D. LEVITT.  "FREAKONOMICS; Selling Soap."  The New York Times Magazine (Section 6)  (Sunday, September 24, 2006):  22-23.

(Note:  ellipses added.)

 

      The screen-saver at Cedars Sinai Hospital.  Source of image:  http://freakonomics.com/pdf/CedarsSinaiScreenSaver.jpg

Higher Oil Prices Provide Incentive to Seek Deeper Oil


Source of map:  online version of the WSJ article cited below.

 

(p. C1) The successful production of oil from the five-mile-deep Jack well in the Gulf of Mexico is likely to spur more deep-water exploration around the world — and that prospect is helping calm overheated crude-oil markets anxious about future supplies.

. . .

The successful Jack test underscores what a group of economists and oil-industry executives have been arguing for a while:  High prices will encourage energy companies to find and pump oil in deep, dark places around the world that otherwise would have been uneconomical.

 

For the full story, see:

RUSSELL GOLD.  "More Companies May Dig Deeper In Search for Oil Gulf of Mexico Discovery Fuels Prospects of Finding New Supplies; Lack of Resources Could Slow Push."   Wall Street Journal  (Tues., September 19, 2006):  C1.


Distorted Incentives in Medicine


  Source of book image:  http://www.harpercollins.com/books/9780061130298/The_End_of_Medicine/index.aspx

 

The problem right now, as Mr. Kessler sees it, is that we fight the "big three" — cancer, stroke and heart attack — with treatment rather than early detection.  Cancer cells and blood-vessel plaque can be handled much more easily in the early stages, but we spend most of our money on the later ones.  More than 80% of health-care dollars are paid by insurance companies and the government, and neither is especially interested in detecting disease when it first appears.  Doctors, regulators, researchers and payers of all kinds are locked into what Mr. Kessler calls — a bit ungenerously — the "cholesterol and cancer conspiracies."

A complicated system of mutual dependency distorts the incentives.  "The FDA is like the FCC and Big Pharma is like the regional Bells" is what Mr. Kessler hears from Don Listwin, a former Cisco executive who now heads the Canary Foundation, a Silicon Valley-based effort to promote preventive medicine.  In other words, in medicine as in telecom, the big players end up exploiting regulations more than opposing them, if only to preserve their monopolies.  The Food and Drug Administration — understandably but narrow-mindedly — wants "cures" for cancer and other diseases.  Thus tens of thousands of chemicals are screened, only a handful make it even to Phase I trials, and by the time a new drug is approved a billion dollars has been spent.  Even then the new drug may help only 10% of patients.

Yet if someone were to invent a device with a wide, preventive usefulness — say, a nanotech implant that would spot the proteins that indicate the first minute presence of cancer — it would have to go through the same process of billion-dollar testing.  Since the government and insurance companies are reluctant to add anything to their repertoire of coverage — and since such a device would be targeted at the much broader pool of people who are not sick — research might well stall in its earliest phases for lack of reimbursement-funding.

 

For the full review, see:

WILLIAM TUCKER.  "Bookshelf; The Art of Navigating Arteries."  Wall Street Journal (Tues., July 18, 2006):  D6.

 

A full reference to the book reviewed, is:

Kessler, Andy.  The End of Medicine:  How Silicon Valley (and Naked Mice) Will Reboot Your Doctor. HarperCollins, 2006.

 

“Financial Incentives Can Change the Way Medicine is Practiced”


        An angioplasty being performed in Eyria, Ohio.  Source of photo:  online version of the NYT article cited below.

 

Medicare patients in Elyria receive angioplasties at a rate nearly four times the national average . . .

. . .

. . . some outside experts say they are concerned that Elyria is an example, albeit an extreme one, of how medical decisions in this country can be influenced by financial incentives and professional training more than by solid evidence of what works best for a particular patient.

“People are rewarded for erring on the side of an aggressive, highly expensive intervention,” said Dr. Elliott S. Fisher, a researcher at Dartmouth Medical School, which analyzed Medicare data and found Elyria to be an outlier.

Medicare pays Elyria’s community hospital, EMH Regional Medical Center, about $11,000 for an angioplasty involving use of a drug-coated stent.

The cardiologist might be paid an additional $800 for the work.  That is well above the fees for seeing patients in the office.  And with the North Ohio doctors performing thousands of angioplasties a year — about 3,400 in 2004, for example — the dollars can quickly add up.

Some medical experts say Elyria’s high rate of angioplasties — three times the rate of Cleveland, just 30 miles away — raises the question of whether some patients may be getting procedures they do not need or whether some could have been treated just as effectively and at lower cost and less risk through heart drugs that may cost only several hundred dollars a year.

. . .

Experts know that changing the financial incentives can change the way medicine is practiced.

For example, Kaiser Permanente, the big health system that employs its own doctors, says its patients in Ohio, including some in Elyria, are slightly less likely than the national average to undergo the type of cardiac procedures the North Ohio Heart Center doctors perform so prolifically.

Kaiser’s cardiologists, who work on salary instead of being paid by the procedure, typically treat patients in that region at the Cleveland Clinic, where they have hospital privileges.  And they follow established protocols about when a patient should undergo an angioplasty, when drugs might suffice and when bypass surgery might be the best resort.

“It’s not just individual doctors making up their minds,” explained Dr. Ronald L. Copeland, the executive medical director for Kaiser’s medical group in Ohio.  With no financial reason to perform expensive procedures, the Kaiser doctors frequently choose to manage the patients’ heart disease with drugs only.  “Our doctors have no disincentive to do that,” Dr. Copeland said.

. . .

For many cardiologists, the natural tendency when they see a patient with heart disease is to perform a procedure to try to clear arterial blockages.  And patients, cardiologists say, tend to rely on their doctors’ judgment.

“It’s sort of like, you go to a barber and ask if you need a haircut,” said Dr. David D. Waters, chief of cardiology at San Francisco General Hospital, who is currently studying the effectiveness of different kinds of treatment for heart disease.  “He’s likely to say you do.”

. . .

Experts say it can be difficult to detect cases in which doctors cross a medical line and are clearly performing unnecessary treatments.

“A lot of decisions are discretionary,” said Dr. Harlan M. Krumholz, a cardiologist and professor at Yale.

“It’s about where the thermostat is set,” he said, arguing that doctors in a particular geographic area tend to be unaware if the way they are treating their patients is markedly different from the practices of their peers in other areas.

Traditional measures of medical quality are not set up to detect whether patients are being treated too much, he said, unlike the kinds of safeguards that prompt credit card companies to call their customers to discuss unusual spending activity.  “Right now there are no ‘smart’ systems in place,” Dr. Krumholz said.

In the absence of any real monitoring or oversight, doctors in most places, including Elyria, have few incentives not to favor the treatments that provide them the most reimbursement.  Dr. Waters, the San Francisco cardiologist, said that the way physicians are typically paid — more money for more procedures — results in too many decisions to give a patient a stent.

“You can’t be paying people large sums of money to do things without checks and balances,” he said.

 

For the full story, see:

REED ABELSON.  "In Ohio City, a Heart Procedure Is Off the Charts; SIDE EFFECTS; A Stent Epidemic."  The New York Times  (Fri., August 18, 2006):  A1 & C4.

 

Source of graphic:    online version of the NYT article cited above.

Perverse Incentives Lead to Useless Heart Surgeries


The old idea was this:  Coronary disease is akin to sludge building up in a pipe.  Plaque accumulates slowly, over decades, and once it is there it is pretty much there for good.  Every year, the narrowing grows more severe until one day no blood can get through and the patient has a heart attack.  Bypass surgery or angioplasty — opening arteries by pushing plaque back with a tiny balloon and then, often, holding it there with a stent — can open up a narrowed artery before it closes completely.  And so, it was assumed, heart attacks could be averted.

But, researchers say, most heart attacks do not occur because an artery is narrowed by plaque.  Instead, they say, heart attacks occur when an area of plaque bursts, a clot forms over the area and blood flow is abruptly blocked.  In 75 to 80 percent of cases, the plaque that erupts was not obstructing an artery and would not be stented or bypassed.  The dangerous plaque is soft and fragile, produces no symptoms and would not be seen as an obstruction to blood flow.

That is why, heart experts say, so many heart attacks are unexpected — a person will be out jogging one day, feeling fine, and struck with a heart attack the next.  If a narrowed artery were the culprit, exercise would have caused severe chest pain.

Heart patients may have hundreds of vulnerable plaques, so preventing heart attacks means going after all their arteries, not one narrowed section, by attacking the disease itself.  That is what happens when patients take drugs to aggressively lower their cholesterol levels, to get their blood pressure under control and to prevent blood clots.

Yet, researchers say, old notions persist.

”There is just this embedded belief that fixing an artery is a good thing,” said Dr. Eric Topol, an interventional cardiologist at the Cleveland Clinic in Ohio.

In particular, Dr. Topol said, more and more people with no symptoms are now getting stents.  According to an analysis by Merrill Lynch, based on sales figures, there will be more than a million stent operations this year, nearly double the number performed five years ago.

Some doctors still adhere to the old model.  Others say that they know it no longer holds but that they sometimes end up opening blocked arteries anyway, even when patients have no symptoms.

Dr. David Hillis, an interventional cardiologist at the University of Texas Southwestern Medical Center in Dallas, explained:  ”If you’re an invasive cardiologist and Joe Smith, the local internist, is sending you patients, and if you tell them they don’t need the procedure, pretty soon Joe Smith doesn’t send patients anymore.  Sometimes you can talk yourself into doing it even though in your heart of hearts you don’t think it’s right.”

Dr. Topol said a patient typically goes to a cardiologist with a vague complaint like indigestion or shortness of breath, or because a scan of the heart indicated calcium deposits — a sign of atherosclerosis, or buildup of plaque.  The cardiologist puts the patient in the cardiac catheterization room, examining the arteries with an angiogram.  Since most people who are middle-aged and older have atherosclerosis, the angiogram will more often than not show a narrowing.  Inevitably, the patient gets a stent.

”It’s this train where you can’t get off at any station along the way,” Dr. Topol said.  ”Once you get on the train, you’re getting the stents.  Once you get in the cath lab, it’s pretty likely that something will get done.”

 

For the full story, see: 

GINA KOLATA.   "New Heart Studies Question the Value of Opening Arteries."  The New York Times   (Sun., March 21, 2004).