The Opportunity to Transform Healthcare
The Opportunity to Transform Healthcare

The Opportunity to Transform Healthcare

The healthcare industry has numerous examples of misaligned incentives that create inefficiencies. Further study of incentive design can help raise awareness, quantify the impacts and costs of the misaligned incentives, and offer ways to create better systems.
Healthcare is one of many sectors that can be transformed; see our vision for more.


One of the core problems in healthcare is an agency problem. Though we want everyone to have access to decent healthcare, many can’t afford this on their own. Therefore governments or insurers step in, but this creates a perverse incentive for individuals to over-consume healthcare when someone else is paying.
We use copayments to dissuade this overconsumption, but this fixed fee approach offers little disincentive to wealthy people while arguably putting too high a barrier for the less well off.
Would it make sense to consider income as a factor in copayments? The Swiss consider income a factor in calculating speeding tickets; how might a similar approach change the incentives within the US healthcare system?

Certifying new doctors

We don’t train enough doctors in the US. This has little to do with the demand for doctors or the number of students who want to train as doctors, and lots to do with restrictions from the National Residency Matching Program on how many residents can train per year. This program even has an exemption from antitrust laws that support it.
Doctors who are currently in the profession thus get to decide how many new doctors to allow into the profession. While not necessarily nefarious, this creates perverse incentives. The fewer doctors that enter the profession, the higher the wages of those who already are doctors. Could this protectionist incentive be part of the reason why residency requirements force new trainees to slog through years of long hours and low wages? Or why so few are allowed to match in the first place?
ID can help shine a light on this incentive, understand how it affects behavior, articulate its economic and medical implications, and offer better approaches to ensuring high quality medical training while dissuading this protectionist practice.

Reduce drag of payment fees

Doctors often are required to pay a fee of 2.5% to receive electronic payments from insurance companies, who contract with third party providers to run this transaction. No company would stand for self-imposing a 2.5% tax on paying its own employees and yet our healthcare system enables and incentivizes middlemen to do just that.

Accelerating research and development

Institutional Review Boards (IRBs) that oversee medical research put too much emphasis on liability reduction and don’t adequately consider the risk to probability ratio or the potential for human advancement that can come from research. This is outlined in great depth by Simon Whitney in “Oversight to Overkill” and expounded upon here.
How do we leverage better study to understand the incentives with which IRBs are operating and help shift the systemic risk / reward toward

Overconsumption of tests

Patients have an incentive to order any test that might potentially be useful. Doctors get compensated for running tests. These incentives together lead to a systemic overconsumption of testing that’s expensive and drives costs up for everyone. It also lead to increased stress from false — for example, a 7%-12% false positive rate compounded over 10 yearly exams means a woman is 50% - 60% likely to experience at least one false positive.
Though insurance companies have some incentive to deny testing, this is not a good solution either. Thus, overconsumption drives up systemic costs.