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business newsWhat Government Doesn't Realize: Incentives Matter
Here is a crazy idea: Maybe the government can be incentivized to spend less, while providing more and better services to you and me.
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A few years ago, the federal Centers for Medicare and Medicaid Services changed the way that home health care companies would get paid. Instead of receiving a bonus for 10 therapy visits, a new schedule was created to provide bonuses for six, 14, and 20 visits. The committee was apparently shocked to find out that by changing the incentives, the companies re-adjusted their businesses in a crazy scheme to -- wait for it -- make money.
Home health is an attractive option within health care. As all of us taxpayers are on the hook for Medicare; it is hard to approve of Medicare abuse, if it actually is taking place. But there is a bigger story here. An elderly person can be cared for in his or her home for as little as $50 per day. That same care in a skilled nursing home costs as much as $500 per day; in a hospital, the cost can run into the thousands per day. It is a cost effective method for delivering health care to the neediest segment of the population.
Instead of concentrating on the bigger issue -- that is, how can we treat the most patients with the best care for the least amount of money? -- the government came up with a perfectly ridiculous incentive plan. These companies are not getting paid for providing excellent care. They are not getting paid for doing their part to reduce our national debt. No, they are getting paid per visit. And when they adjust their behavior to incorporate more visits, the government actually gets surprised and angry. The real surprise would be if behavior did not change.
Think about your job. If one day your boss comes in and tells you your compensation will be determined based solely on one thing, do you think you are likely to focus on that one thing? Incentives matter. In fact, if there is anything I have learned, it is that incentives matter more than anybody can possibly imagine.
The problem with government is there are no sensible incentives. The standard bit about "doing good" or "contributing to society"? Well, folks may mean well, but they sure are not doing well. This home health care business is a perfect example of complete and total stupidity. Maybe the government should fine all these companies so excessively that they go out of business, and the taxpayers are forced to pay 10 times as much for the same service. Would that be a good result?
The fact that government is actually sitting around attempting to dream up incentives is a huge problem in itself. The market is the best place to do this. Health care, for all of its complexity, suffers from the fact that consumers are separated from the economic consequences of their choices.
When was the last time you decided to do or not do something based on what it would cost your insurer? If each individual carried a tab, where they were able to consume only "so much" health care, you had better believe that Americans would get healthier, and costs would come down. That is what has made this country great.
For a good laugh, read some of the 670 pages worth of findings the Senate Committee on Home Health Care produced. Read damning emails where evil executives conspire to actually earn more money. No doubt, there will be a committee convened immediately to sanction waiters at high-end steakhouses who – gasp! – have the audacity to suggest to their customers that they order the porter house instead of the strip.
We need to be serious as a nation about the challenges we face. The private sector is forced to be serious based on incentives: If they succeed, they are rewarded; and if they fail, they will not exist. The government has no such incentives, and therein lies the problem. Do you think the government has done a good job in the past five years? I hope you do, because they have tripled in size.
Incentives are a key component of what has made America what it is. Bill Gates had every incentive in the world to create Microsoft, just as Henry Ford had the incentive to create Ford. That incentive – albeit slightly diluted by regulation – still exists for the private sector.
What we need is a set of incentives for government that makes sense. Here is a crazy idea – maybe the government can be incentivized to spend less, while providing more and better services to you and me. Is that not what faces every business owner today – do more with less? Lets try that one on our government. You will be amazed what happens.
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