Perverse Incentives

April 18, 2007

What is a perverse incentive?

When the system rewards behaviour or policies which are actually detrimental to the service. It has been described as an organisation shooting itself in the foot. Here are 5 obvious examples:

Waiting Lists:

This is the classic perverse incentive. Until quite recently NHS consultants with active private practice had a real incentive to keep their NHS waiting lists long in order to encourage people to go private rather than wait. I am not sure how often consultants conspired to keep lists up, but they certainly had no personal drive to shorten the NHS lists. This situation has effectively ceased to exist as waiting lists have come down, but there are varieties on the theme and isolated cases which I am sure still occur. Dentistry is a classic case in which this sort of practice remains widespread. Furthermore historically hospitals with longer waiting lists were given additional money to help reduce them-thus there was no real incentive to do so


NHS budgeting would not stand up to rigorous scrutiny from industry standard auditors. There are any number of arcane practices, but one of the key perverse incentives is that if you spend less than your budget,it is highly likely that next years budget will be cut, regardless of the reason. If you overspend, there is a good chance your budget will be adjusted upwards, regardless of the reason for the overspend. Everyone from ward managers to senior consultants and managers therefore has a perverse incentive to exceed their budget (the ideal amount is around 5%), so that when taking into account the automatic CRES (cash releasing efficiency savings) which mean that the starting points for all budgets are automatically cut by 2% per annum and a modest inflation of 3%, next year’s budget will be balanced.


We now have a competitive market (sort of) where secondary care (hospitals) are potentially competing with primary care (GPs) for the supply of some services-for example diabetes care and minor surgery. Does it make any sense that the commissioning bodies (Primary care trusts and more recently GP practices themselves) have no representation from secondary care? In effect the GPs have the opportunity to commission certain (possibly more lucrative?) services from themselves, no matter whether or not this provides a better service for the patient

Quality of care

It goes without saying that provision of high quality care is often more expensive than provision of adequate care. Without any real element of competition for patients there is a perverse incentive for trusts to provide the lowest acceptable standard of care rather than seeking to provide excellence, or even to deliver improvements

Targets and monitoring

Although some targets have produced real improvements in the service, many are disruptive to the service and may even be harmful. They consume vast amounts of resource for often little or no benefit. Clearly the vast number of agencies which the government has set up has an incentive to keep issuing targets, as these are the only things which justify their existence. In some ways middle grade hospital managers also have an incentive to encourage the target culture for the same reason

These problems are not new-in many ways they are an inevitable result of the creation of an artificial market, and indeed have been well described in the past-see HERE for an interesting exposition written in 1991 by Steve Harrison discussing gaming, shunting and creaming (boys will be boys). The question is how to avoid them or minimise their impact. The introduction of the market has, remember brought significant efficiency savings. As a junior doctor I remember that one simply did not care what a treatment cost- we all simply prescribed the best treatment for our patients. This nirvana now seems a long way off.

One answer is to abolish the artificial market and create a real market in healthcare. Do we have the courage to consider such a choice. And is it a practical one to maintain a fee at point of service NHS?  On a practical level the best we can do is to minimise the distortions applied to the market.  This would appear to be contrary to gobernment policy



  1. Mens Sana, despite having started on opposite sides of an argument – it is clear we can & do agree.

    Waiting Lists – Yep. The only thing now you have waiting lists to get on waiting lists. The other perverse incentive is that a GP has to refer you to a Consultant, who then refers you to a Specialist, who then refers you back to the Consultant, whp then refers you back to the GP. In this wonderful process they all collect a fee – as the patient passes go – whether the patient receives the treatment he needs, or whether he dies from boredom or ‘delays’ is not relevant. GPs and Consultants & Specialists have clearly done their job well whether the patient receives the treatment or surgeru he needs, whether he receives the wrong treatment, or even if he dies from boredom or ‘delays’ in waiting for treatment.

    Budgeting – Mind you that applies to the private sector too, they must spend their advertising fee, increase the budget of their legal dept (to reduce the risk of legal costs – lol) etc etc ad infinitum.

    The plus side used to be that if you had a radiography department (fully equip[ped & manned) then you just sent however many patients needed an x-ray, whether 10 or 40 a day it did not matter. Now there are false costs measures (pricing) as to whether the department is efficient or cost effective?

    The same with a theatre – you should have a well equipped and manned theatre for operations, regardless of whether you have 10 or 20 coming thru the door.

    Ideally doctors, nurses, consultants, surgeons and specialists should het paid for playing golf all day – because they did such a good job last year, there are no sick left and no surgery needed.

    But in the real world, we know there are more sick every day. The health service is like McDonalds, they don’t want to ‘cure’ your hunger – they want you to keep coming back for more.

    If Son of Bush & Blair really wanted to start a war on drugs – they could start a war on prescription drugs, a much bigger market than any illegal drugs which after all face market forces, competition and restrictive laws – lol

  2. Q9 In this wonderful process they all collect a fee

    Not sure how you think this happens. Hospitals get a fee for seeing new patients but consultants don’t. I don’t think GPs do either

    otherwise I completely agree

  3. Hi Mens Sana,
    not wanting to split hairs,
    but GP Surgeries & Dental Practices – receive a payment for every patient on their list.

    A new dentist will advertise for nhs patients, get them registered, offer them a check-up and x-ray
    but not necessarily any treatment.
    I know, I once went thru half dozen within two years, all willing to register me – charge the check-up fee to the NHS – but none were willing to offer the treatment required, unless I was willing to pay the private fee.

    Then a GP or Dentist must refer you to a hospital Consultant – say at Addenbrookes hospital – who does not personally receive a ‘fee’ – but increasingly will either want more patients (if their department can receive income from the nhs or you can pay) – or if not they’ll simply tell the GP or dentist NOT to refer anymore patients, or to refer them somewhere else.

    Then the Consultant may refer you to the specialist at the Eastman Hospital. The Eastman hospital will receive the ‘fee’ for seeing you whether they treat you or not – and whether they solve your problem or not.

    What I meant is that the doctor, GP, dentist, hospital Consultant will have all fulfilled their role (or believe they have) for a salary or a fee – whilst the patient may have been sent on a roller coaster ride, or like some guinea pig or mouse on the treadmill, been shuffled thru the system, without having received the treatment required.

    And if the patient complains about this merrygoround roller coaster ride – the hospital consultant or specialist can just claim they offered the patient what they could, or discredit the patient by saying the patient is asking for treatment not available, or the patient is not suitable for treatment requested, and finally that the NHS does not or will not pay for said treatment.

    And though the Judge may well know the barrister, solicitors and hospital staff are lying thru their teeth – his hands are tied, since he cannot question Medical Evidence – assuming he’d even want to.

    Not even High Court Judges (never mind County Court) would presume to challenge or question Doctors, Surgeons, Consultants & Specialists – since they themselves or their mothers may need treatment – and they can expect to get the best available
    As long as they don’t create any waves!
    For even Monarchs & Presidents must bow to the surgeon when they (or their mother) go under their knife

  4. Of course that is the problem with paying people or institutions for activity rather than for outcomes. Exactly the issue in the GP contract. It would be much better if payment was by successful outcome, but these can be notoriously difficult to measure in healthcare, which is why the DoH prefers to measure things it can count easily

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