Wednesday, December 5, 2012

How Can You Incentivize Preventative Care?

Why do some physicians provide insufficient preventative care?

Perhaps the physician compensation incentive system is askew when it comes to preventative care.

Quick background: 
Medicare currently uses Relative Value Units (RVUs) to determine fees for health care providers. It is basically a measure that quantifies “care” and is composed of three inputs:

  • The relative level of time and skill that a service takes to deliver.
  • The expenses required to deliver this service (e.g., staff time, rent, gauze).
  • The expected risk of the service, as measured by the marginal malpractice cost.


I would consider adding a fourth component:  prevention. Prevention would be the opposite of the third component:  the expected decrease in risk of incurring future medical costs.

For example:
Service xyz has the three following components:inputs:

  • Work RVU:  1.92
  • Expense RVU:  0.59
  • Malpractice RVU;  0.13
The sum of these is 2.64. Given a RVU conversion factor of, say, $36.87, the fee would be $97.34. If this service is expected to prevent 50 RVUs of future work for 1% of the people who receive the service, then the value is an additional 0.5. With time value of money, the 0.5 may be discounted at the relevant risk-free rate over the expected timeline. Imagine this lowers the savings to 0.4.

Adding this new fourth component to the existing three gets an RVU total of 3.04, for a fee of $112.08.
This method aligns physician incentives directly with payor incentives, and can be modified as the assumptions of prevention change.