emanuel_behavioral economics and physician incentives
TRANSCRIPT
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Using Behavioral Economics to Design Provider Incentives
that Deliver Higher Quality and Lower Cost Care
Ezekiel J. Emanuela,b, Peter A. Ubelc, Judd B. Kesslerd,e, Gregg Meyerf, Ralph W.
Mullere,g, Amol S. Navathee,h, Pankaj Pateli, Robert Pearlj, Meredith B. Rosenthalk, Lee
Sacksi, Aditi P. Senb,e, Paul Shermanl, Kevin G. Volppa,b,e,h,m
aDepartment of Medical Ethics and Health Policy, Perelman School of Medicine, University of
Pennsylvania, Philadelphia, Pennsylvania; bDepartment of Health Care Management, The
Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania; cFuqua Business
School and Sanford School of Public Policy, Duke University, Durham, North Carolina;
dDepartment of Business Economics and Public Policy, The Wharton School, University of
Pennsylvania, Philadelphia, Pennsylvania; eLeonard Davis Institute Center for Health
Incentives and Behavioral Economics, Philadelphia, Pennsylvania; fPartners Healthcare
System, Boston, Massachusetts; gUniversity of Pennsylvania Health System, Philadelphia,
Pennsylvania; hDepartment of Medicine, Perelman School of Medicine of the University of
Pennsylvania, Philadelphia, Pennsylvania; iAdvocate Physician Partners, Chicago, Illinois;
jThe Permanente Medical Group, Oakland, California; kDepartment of Health Policy and
Management, Harvard School of Public Health, Boston, Massachusetts; lGroup Health,
Seattle, Washington; mCenter for Health Equity Research & Promotion, Philadelphia
Veterans Affairs Medical Center, Philadelphia, Pennsylvania
WORD COUNT: 3,481
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Funding: This paper was partially supported by a grant from the Commonwealth Fund.
Corresponding Author:
Ezekiel J. Emanuel, M.D., Ph.D.Telephone: 215-573-9384Email:[email protected]
Conflict of Interest: Dr. Volpp is a principal in the behavioral economics consulting firmVALhealth. The other authors do not have any financial conflicts of interest.
Some of the ideas delineated here were originally developed for the Kimball Lecture at theAmerican Board of Internal Medicine Foundation meeting in August 2013.
mailto:[email protected]:[email protected]:[email protected]:[email protected] -
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ABSTRACT
Behavioral economics can provide insights into how to improve the effectiveness of
physician incentives to deliver higher quality and lower cost care. Lessons from
behavioral economics suggest that the way in which incentives are structured and
delivered can shape behavior, as can thoughtful design of the choice environment
and infrastructure. We discuss nine principles of behavioral economics that can
inform the design of financial and nonfinancial incentives, including inertia, loss
aversion, choice overload, immediacy, and relative social ranking. These well-
accepted principles have been applied widely to improve incentives in areas
including personal health decisions, retirement planning, and consumer savings
behavior, but have been largely ignored in the design of physician incentive
programs. We argue that applying these principles to physician incentives can
improve their effectiveness by making them more salient to physicians and better
aligned with performance goals, without increasing their costs. We offer examples of
programs that apply lessons from behavioral economics and specific design
interventions to boost the effectiveness of financial incentives. The application of
insights from behavioral economics to the design of provider incentives is largely
untested and many outstandingquestions of design exist. We argue that a
systematic approach to assessing infrastructure changes, non-financial incentives,
and financial provider incentives is needed to design effective payment systems that
incentivize high-quality, cost-conscious care.
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The American health care system is undergoing tremendous transition. The
objective of this revolution is to control total health care costs while improving or
maintaining quality of care. A fundamental aspect of the transition is payment
reform.
While fee-for-service payment (FFS) remains the dominant form of payment,
the last few years have seen a major shift away toward alternative payment
methods as highlighted by Secretary Burwells recent announcement that Medicare
and Medicaid will be rapidly moving away from FFS in the next few years. There
now are hundreds of organizations, such as hospitals and large physician groups
functioning as accountable care organizations (ACOs), which are participating in
shared-savings payment programs, in which savings from a calculated baseline are
shared between providers and payers. Still others, including Pioneer ACOs, have
two-sided risk contractsincreasing potential for financial gains if they control
costs, but also taking financial risk if they fail to reduce costs. At the opposite end of
the payment spectrum from FFS are fully capitated delivery systems, of which there
are relatively few.
Optimal provider payments will vary not only with an organizations position
along the payment spectrum but also based on its particular mission, culture, local
competitive environment, patient population, and contractual and financial
relationship with providers. Each mode of payment incentivizes different provider
behavior. Fee-for-service encourages overutilization of treatments, while capitation,
in theory, rewards underutilization. To promote appropriate high-quality
utilization informed by evidence-based guidelines, payers in FFS environments have
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often supplemented their payment mechanisms with pay-for-performance. But to
date, pay-for-performance has demonstrated little effect on physician behavior.1,2
This result likely reflects at least in part the relatively small size of the financial
incentives employed in most pay-for-performance programs to date.
But it may also reflect that most provider payment programs have been
exercising trial-and-error, uninformed by the best science of human motivation.
Generally, efforts to reform provider payment have been built on the assumption
that providers are largely rational and have not utilized insights from behavioral
economics, which has documented many ways that people's behavior does not
conform to rational norms..3,4The principles of behavioral economics have been
successfully used in the design of patient incentives for smoking, substance abuse,
obesity, and drug compliance.5-14Behavioral economics has also emphasized
thoughtfully structuring the choice environment and the use of non-financial
rewards and penalties to shape behavior.3,4,15,16
To facilitate consideration of how behavioral economics could improve
providers economic and non-economic incentives and as well as the practice
environment, we describe selected behavioral economics principles and elucidate
how they could inform the design of provider incentives. This guidance is
inherently preliminary and speculative because there has been little use and
evaluation of behavioral economics in provider payment schemes. We offer a
tentative framework to stimulate more systematic use and testing of behavioral
economics in the design of provider incentives.
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Behavioral Economics Principles: Nine Examples
The scientific understanding of human motivation has evolved over the last
30 years. Previously, much of economic theory was based on the assumption that
providing information to rational actors would usually lead to optimal behavior. In
this framework, the main driver of behavior is the size of the bonus or penalty
relative to the effort required to achieve the goal. More recently, behavioral
economics has revealed systematic ways in which human behavior is shaped not
merely by the size of incentives, but also by their design and how they are delivered.
For example, the same size incentive could have a significantly different impact on
behavior depending on whether it is constant or intermittent, framed as a gain or
loss, presented to people privately or in front of a group, and is perceived as fair or
unfair.15,16Because humans often make decisions that seem inconsistent with
getting the most from a fixed incentive, they often appear irrational from the
perspective of standard economic theory.3,4,17
Another important consideration is that people respond differently
depending on what type of tasks are incented. For pro-social activities, like
charitable giving, providing small incentives is likely to be worse than providing no
incentive at all because this displaces intrinsic motivation without supplying much
extrinsic motivation. In the realm of provider payment we are generally not
discussing small incentives, but this highlights why programs like P4P that are
grafted onto the FFS system may not work well and why alternative designs for
provider payment and the embedded incentives are needed.18
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To illustrate how behavioral economic concepts could be relevant in
influencing provider performance, consider the following nine principles of
behavioral economics (Table 1).
1. Limitations of Information Provision:Although information is necessary
for people to understand their options and to communicate social norms, it is
rarely sufficient to induce behavior change. Smokers know that smoking
causes illness. In fact, smokers may overestimate these risks.19But simply
informing smokers rarely induces smoking cessation. Similarly, menu
labeling is not always sufficient to lead people to significantly reduce the
calories purchased.20Merely telling providers the goal of changes is unlikely
to get them to change.
2. Inertia:When making choices, people often demonstrate a status quo bias,
following habits and settled practices which are typically the paths of least
resistance.21It usually requires explicit efforts and policies, such as
implementing new defaults, to change these habits and settled practices. For
instance, physicians with an order entry system that defaults to generics
rather than brand medications tend to order generics at higher rates.22
Similarly, in the Netherlands, where people must take an explicit action to
register as an organ donor, 27.5% of population does so. In neighboring
Belgium, where people are automatically registered unless they actively
refuse, 98% of Belgians are donors.23
Inertia highlights the importance of setting up providers choice
environments to make it easy to provide high quality, cost-effective care.
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Defaults on electronic health records, physician orders, or office flows should
facilitate achieving performance metrics. For instance, when a systems
oncologists agree to a preferred care pathway, a specific first-line
chemotherapy regimen, and laboratory tests for metastatic lung cancer, it
should be installed as the default in the physician order set within the
electronic health record (EHR); thereby simultaneously reducing the need
for providers to manually input orders and maximizing the likelihood
patients will receive the best care. Changing the choice environment often
requires some initial effort; in fee for service environments there has been a
disincentive to change the choice environment toward high-quality, cost-
effective care. Shifts in payments toward bundles or episode-based payments
and population health will accelerate the use of defaults that can change
settled practice to make it more cost effective.
3. Choice Overload:More choice is not necessarily better. When confronted
with too many selectionsor overly complicated optionspeople often
avoid making choices.24,25 For instance, too many performance metrics, or
too many patient alerts in the electronic medical record, can induce less
rather than more behavior change.26 Choice overload suggests a challenge in
determining the right number of metrics used to determine provider
incentives. Too few can induce providers to focus only on those evaluated
while too many can trigger inertia. Similarly, if clinicians face one set of
metrics from one payer, and another set from another payer, they could face
metric overload that causes them to ignore both sets of metrics.
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4. Immediacy:Immediacy enhances response and delayed gratification dulls
impact. People tend to over-weight the immediate costs and benefits of their
actions while discounting delayed benefits.27Consequently, when providing
the same incentive, delayed gratification is usually less effective than
immediate gratification.28 Similarly, when providing performance feedback,
immediate information is more effective than delayed feedback in inducing
behavior change. The optimal feedback frequency is unknown. Obviously,
the value of immediacy needs to be balanced by the need for sufficient
numbers of cases for statistical precision. Nevertheless, giving clinicians
interim feedback monthly or quarterly, rather than annually, provides them
an opportunity to modify their behavior and get quicker feedback on
whether their modifications improve their performance measurement.
5. Loss Aversion:How people feel about options can be strongly influenced by
whether the options are framed as gains or losses. For example, people feel
more positively about medical interventions described as providing 90%
survival rates than ones described as having 10% mortality rates. Closely
related is the endowment effect. Simply owning somethinga sports ticket
or a mug increases its value to the person above its monetary value. Due to
loss aversion and the endowment effect, people work harder to retain a
provisionally awarded bonus than they do to receive a yet-to-be-awarded
bonus. For instance, teacher performance in Chicago schools improved when
they were awarded bonuses at the beginning of the year that were at-risk
compared to teachers given year-end bonuses.29Similarly, the Massachusetts
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General Hospital used loss aversion by giving an incentive to everyone in one
year so that in the subsequent year it would feel like a loss not to get the
incentive.30,31
6. Relative Social Ranking:People are heavily influenced by their perception
of how their performance compares to those around them. This influence
has been shown in contexts ranging from giving people feedback on how
their energy consumption compares to their neighbors to giving providers
feedback on their relative performance to their peers.32-34Physicians highly
value personal competitive success. This competitiveness can be deployed by
using anonymous rankings or by distributing identified rankings to providers
within ones group, or even to the general public. For example, Dean Clinic
in Wisconsin found that releasing anonymous rankings had little impact on
physician behavior while the release of monthly performance data by name,
visible to every other Dean physician in their division, was much more
effective (Allison Mooney, Dean Health System, personal communication). In
addition, organizational awards, conferred publicly, for outstanding
performance and ranking, emphasize the organizations norms and priorities
while providing status and social recognition for physicians.
7. Goal Gradients:As people approach a goal they try harder to achieve it. This
has been observed with frequent flyer miles, rewards cards, and bonus cards
for free coffee.35 Closely related is the threshold effect in which human
behavior changes after a threshold is reached. For instance, people dont
typically try as hard once they are above the threshold.36 One consequence is
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that incentives may have to increase over time to encourage continued effort.
Thus it can be important to recognize both achievement of absolute ranking
and improvement in the rankings. Otherwise, poorer performers, concluding
they cannot reach the targeted threshold, may become demoralized and stop
trying to improve. Recognition of significant improvement in performance
can mitigate this demoralization.
8. Limits of Willpower:Exerting willpower tires people out and makes them
less likely to exert effort on subsequent tasks.37 Thus, relying on providers
vigilance to achieve optimal performance is unlikely to produce sustained
improvement; providers tire from having to constantly focus and exert
energy. Infrastructure that uses defaults to make the right action the path of
least resistancewill keep providers from having to deplete willpower to
continually remember to make the highest value choice.
9. Mental Accounting and Salience:People react very differently to the same
amount of payment if it is separate and visible as opposed to packaged
together with much larger sums of money.38,39 A $100 incentive is more
powerful if disbursed as a separate check than if it is folded into a paycheck
and electronically deposited into a bank account. A 15.5% sin tax on
unhealthy food is more effective when decoupled from the price of an entre
than when folded into the total price of the dish.40
These behavioral economics principles have been used with great effect in a
variety of contexts ranging from consumer savings behavior, retirement planning,
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personal health behavior, and enrollment in health insurance.14-16,41-45 To date they
have been used by some health systems, but they have tended not to be
systematically incorporated in the design provider incentive programs. However, as
systems try to change provider behaviors to focus more on quality and cost-effective
care, approaches informed by behavioral economics could make provider incentive
and feedback programs more effective and efficient.
Behavioral Economics and the Formulation of Financial and Non-Financial
Incentives for Providers
With few directly applicable studies, delineating the implications of these nine
behavioral economics principles for the design of efforts to influence providers to
provide higher value carewill inherently be theoretical and speculative.
Nevertheless, the principles do suggest at least four broad lessons for designing
such provider-focused initiatives (Table 2):
1. The Limits of Information:Simply providing information to individual
providers about the organizations goals or their own performance is
unlikely to be sufficient to stimulate sustained behavior change.
2. The Limits of Standard Economic Incentives:Standard economic
incentives incorporated into fee-for-service reimbursement tend to
encourage overuse of services and have been highly effective in doing so. P4P
type programs within the US have not been effective in encouraging a focus
on quality and cost-effective care, though much larger P4P incentives have
been effective in the UK.46 Designing financial incentives that account for
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common decision errors will likely have more impact in inducing providers
to focus on quality and cost-effective care.
3. The Importance of Infrastructure:Changing infrastructure to both remove
barriers to optimal performance and make desired behaviors the default can
effectively change behavior often without financial incentives.
4. The Synergy of Incentives:Using non-financial incentives, such as social
comparisons, and leveraging behavioral biases, such as loss aversion and
immediacy, can stimulate behavior change alone and magnify the impact of
financial incentives.
To illustrate one of these lessons, the importance of synergy, Advocate used
to release physician performance quarterly, but, because of immediacy, the results
are now available on-line in real time. In addition, using the power of relative social
ranking, individual performance rankings are visible to all providers in their
practice group. Advocate also holds a public awards ceremony for outstanding
performance annually where, invoking mental accounting and loss aversion, it
distributes paper checks for rewards, including a report on unearned dollars and
what would have needed to occur to receive the additional incentive (Pankaj Patel
and Lee Sacks, Advocate Physician Partners, personal communication).
These principles also suggest four specific interventions in the design of
provider incentives and practice environments. First, the principle of choice
overload highlights the importance of keeping financial incentives simple. Fee-for-
service that incentivizes securing the highest possible RVUs has this virtue. In trying
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to design incentives to reward high quality and cost consciousness, keeping it
simple will be more challenging because of the need for sufficient measures to know
quality has in fact improved.
Second, mental accounting and relative social rank suggest that financial
rewards should not just be folded into a regular paycheck and hidden from both the
recipient and peers. For incentives to have their maximal impact, they should be
given as a separate payment. Payment separated from the routine electronic
paycheck deposit can enhance the impact of the incentive. For instance, the
Massachusetts General Hospital prints checks and mails them home.30,31This allows
the providers family to see the recognition and the financial payment and provide
emotional reward to the provider. This can generally only be done with incentives
that are structured as rewards and not penalties.
Third, it could be important to deliver financial incentives at times when
those incentives are particularly salient. For instance, Advocate pays its incentives
around tax day, April 15th, and the Massachusetts General distributes checks at the
start of December in time for the winter holiday shopping season.
Finally, it is important to align provider financial incentives both with the
incentives of their organization, with those of managers, and ideally with those
faced by their patients. Aligning incentives between providers and their
organizational leadership makes sense to facilitate coordination where there might
otherwise be conflict in the choice of performance metrics and the necessary,
infrastructure changes. Having benefit designs that reinforce the goals of the
provider incentive system might be effective for health metrics, such as weight
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control and medication adherence, that may be more under a patients control than
a providers.
Outstanding Issues in Applying Behavioral
Economics to Provider Incentives
The guidance from behavioral economics on provider incentives leaves much
that is, as yet, empirically untested. Indeed, a major issue is which combination of
infrastructure, non-financial and financial incentives works best in which types of
health care organizations and at what stage along the payment spectrum. It is
unlikely that the same combination of provider incentives will be effective in
shifting physicians from fee-for-service to shared savings models as will be effective
in shifting physicians from capitated models to models that emphasize quality of
care. Determining which combination of incentives is optimal for different
organizations is an important open question.
A second unknown relates to the distribution of incentives between
individual providers and their provider group. Achieving many performance metrics
requires collaboration among providers and not just performance of individual
providers. Yet incentives to individuals can drive individualistic behaviors that are
inimical to the support of the group. Conversely, incentives to groups may not lead
each group member to exert him- or herself as much as under an individual
incentive program. Advocate began providing 70% of the incentive based on the
individual providers performance and 30% based on his or her group. Conversely,
the Permanente Medical Group allocates almost all incentive dollars at the
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department or module level, limits the total dollars to less than 10% of annual
salary, and applies them only to quality and service measures, not cost. It is not
known whether dividing performance rewards between individuals and groups
enhances performance, and whether the 70-30 or 90-10 split is optimal and needs
study.
Third, using incentives to induce cost consciousness raises public concerns
about skimping on care. This may be one reason some health systems have focused
provider incentives on improving quality and patient safety rather than reducing
use of low value services. An important area for future development is to identify
areas in which quality gaps and excessive costs coexist, so that changes in incentives
could produce quality and cost saving outcomes simultaneously. Such examples
might include the care of diabetic foot ulcers, medical interventions that are proven
to be of equal clinical effectiveness in randomized trials but of lower cost, such as
the use of hypofractionated radiation for early stage breast cancer, or in which cost
savings do not affect quality, such as dispensing generics or 90 day supplies of
medications.47,48
Fourth, we should investigate the size of financial incentives needed to
change different types of behaviors. In the Medicare Acute Care Episode bundled
payment model, orthopedists were able to receive a maximum of 25% payment
increase per procedure to improve their compliance with quality metrics.49 Other
organizations have used 2%, 5%, or 20% of base salary, and for each of these
approaches anecdotal evidence points to multiple successes.30Still others have
offered set dollar amounts ranging from $1,000 to $5,000 per physician in annual
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incentive payments. To move from anecdote to science, the association between the
size of incentives and behavior change, and where there are diminishing returns,
needs to be more rigorously evaluated.
There are myriad other issues, three of which we mention here. Instituting
an appeals process for providers is important as a signal that the social ranking and
any other incentives are done fairly. Second is the question of when to retire a
performance metric and its associated incentive. The optimal time is when the
performance is hard wired and has become a habit or default behavior, requiring
little or no willpower for adherence, or when it is literally built into the
infrastructure, as in electronic prescribing. Practices which are supported by
defaults are less likely to regress when no longer directly assessed or incentivized.
Finally, the optimal combination of the different behavioral economics principles is
unknown. It may be possible for health care organizations without significant
financial resources to achieve substantial change in performance by focusing on
infrastructure and non-financial incentives, such as changes in office flows and
public recognition of superior performance, rather than financial incentives. Careful
empirical testing of the potential synergy of different complementary strategies is
imperative.
American health care is undergoing significant change toward a greater focus
on quality and cost-effective delivery of care. Many health systems now have
contracts that link payment to demonstrably higher quality and lower costs. They
are challenged by how to change providers behaviors to align with these new
payment models. Hundreds of billions of dollars are spent annually in the US on
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provider payment with only a small handful of trials and limited data providing
guidance on how to optimally improve the outcomes of the payment system.
Systematically incorporating the principles of behavioral economics could enhance
the impact of provider payment systems to improve quality and reduce costs and
pay enormous dividends. To move off haphazard approaches, we need a systematic
program assessing infrastructure changes, non-financial incentives, and financial
provider incentives so that by 2020, healthcare delivery systems can adopt proven
incentive programs with a much better sense of the likely impact of those programs.
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TABLE 1: Principles of Behavioral Economics relevant to Provider Payment
Principle Description Examples in Health and Health CareLimitations ofinformationprovision
Providing information isnecessary and reflectssocial norms, but is rarelysufficient alone to inducebehavior change.
Smoking: smokers know that smokingcauses cancer but many despite thatcontinue to smoke
Menu labeling: In New York City, therewas no significant change in meannumber of calories purchased beforeand after menu labeling of calories.
Inertia orstatus quo bias
People tend to favor thestatus quo and current
practices rather thaninitiating change.
Generic prescribing: When genericsare the default in CPOE there is a
significant increase in the prescriptionof generic drugs.
Organ donation: When people mustactively sign up to donate organs ornot, such as in the Netherlands 27.5%of population does. In neighboringBelgium, organs are procured unlesspeople actively refuse. Consequently98% of Belgians are listed as donors.
Choiceoverload
Too many choice optionsor too complex choicesinduce paralysis and lackof action. Fewer, simplechoices are more likely toinduce behavior change.
Health plan choice: Choosing from theuniverse of health plans is difficultwithout someone prescreeningchoices and narrowing down thechoice to a smaller number
Immediacy People respond morestrongly to immediateincentives rather thandelayed incentives.
Using the gym: People are more likelyto go to the gym if given feedbacktoday rather than at the end of theyear
Loss aversion People react more stronglyto the same situation,framed in terms of losses,than framed in terms ofgains
Physician bonuses: Paying providers abonus at the end of the year may beless effective than giving them thebonus at the beginning of the year andmaking keeping it conditional onimprovement in performance
Relative socialranking
People care about howthey compare to others
Release of provider performance data:Providers do not want to be viewed as
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especially when thosepeople are known and inclose proximity to them.
a low performer relative to their
peers.
Goal gradientsand threshold
effects
People try harder whenthey are close to achieving
a goal and tend not to tryas hard far from the goal.
Provider performance effort:Providers who are near a threshold
target (e.g. 80% of patients who getbeta blockers) will try hard to getthere; those who are far away willview the goal as too difficult to reach
Limits ofwillpower
Willpower is anexpendable resource. Themore people need toexercise willpower in oneactivity, they less likelythey are to have willpowerin other activities.
Provider effort: Having to constantlyremember to prescribe a generic isless likely to be effective than settingthis up as a default within an EMR
Mentalaccounting andsalience
The incentive is stronger ifgiven distinctly andexplicitly rather thanfolded into a regularpaycheck.
Distributing provider financialbonuses: $1,000 in a separate check ismore noticeable than $1,000electronically deposited as part of apaycheck
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Table 2: Four Lessons from Behavioral Economics Principles
Lesson Description
The limits of information Providing information aboutperformance goals or optimal
performance is likely to beinsufficient to stimulate sustainedbehavior change.
The limits of standardeconomic incentives
Common decision errorssuch asloss aversionpowerfully influencehuman behavior and poorly designedfinancial incentives will be less potentthan ones that account for sucherrors.
The importance ofinfrastructure
Changing infrastructure to bothremove barriers to optimal
performance and make desiredbehaviors the default can effectivelychange behavior often withoutfinancial incentives.
The synergy of incentives Leveraging non-financial incentivesand behavioral biases can bothstimulate behavior change alone andmagnify the impact of financialincentives.
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