Bookmarkers beware: Bookmarks to pages other than the home page may not work after we change our server in April Editor's Choice | This Week in BMJ | Press releases BMJ No 7131 Volume 316 Editorial Saturday 21 February 1998 Rewarding healthcare teams A way of aligning pay to performance and outcomes The American economist Robert Solow argued that labour markets "cannot be understood without taking account of the fact that participants, on both sides, have well developed notions of what is fair and what is not."(1) This may explain why many NHS trusts in Britain have been reluctant to implement local pay mechanisms and performance related pay. As a result the creation of the NHS internal market has not led to a more efficient market for clinical labour. Indeed, opportunities have been missed - the recent review of the distinction award system, for example, paid little attention to incentives for efficiency.(2) Nevertheless, the present government is retaining the purchaser-provider split and is likely to continue to seek efficiencies. With care and a common sense approach, economics can contribute to the analysis and improvement of the clinical labour market. Some approaches to the analysis of labour markets reflect Solow's common sense approach. Efficiency wage models, for example, accept that workers have discretion over their own performance because of imperfections in managerial monitoring. Workers will adjust their activity according to the wage paid and the fairness of their employment contract. An alternative theory suggests that because of the costs of recruiting and training staff, existing workers (insiders) are more valuable than unemployed alternatives (outsiders). This differential means that (even though the unemployed alternatives may be willing to work for less) employers prefer to keep existing workers at higher wages - which may in turn be enhanced by trade union power. When these ideas are applied to clinical labour markets, it is apparent that consultants and general practitioners determine not only their own performance, but also that of their clinical teams. Managerial monitoring of performance in health care is difficult as outcomes are difficult to measure. In clinical labour markets medical professionals are insiders and other professions (such as nurses) are outsiders. The medical profession regulates itself, but traditionally the royal colleges, the British Medical Association, and the General Medical Council have been reluctant to manage the outcomes and efficiency of their members and have resisted changes in skill mix. The asymmetry of information between doctors and their patients and employers means that doctors act as agents for both. One way of getting over this problem is to incorporate employers' goals into an "incentive compatible contract" through financial and non-financial incentives. Trusts might consequently explore the use of short term contracts, although this raises transaction costs and exposes them to risks of discontinuity of care. They might also explore performance related pay, though this is limited by the difficulties of monitoring performance and concern about the fairness of such devices. An alternative might be to create incentive compatible contracts at the level of the healthcare team. Instead of giving individual consultants distinction awards for successes that are partly due to their team and general practitioners fees for services provided by other team members, the rewards could go to the whole team. The clinical team could be given clinical and other targets, and team members, jointly rewarded, would have incentives to monitor each other's performance. Again, Solow has suggested that in labour market analysis there is too little emphasis on teamwork and too much on individual performance. "Probably the best possible monitors of work effort are other workers in the same shop floor group. If a major part of compensation for work were tied to group effort or group productivity, which must be easier to observe than individual effort and productivity, it would be in the interest of group members to see that everyone contributed a fair share."(1) If team performance is the measure, then performance related pay may become more practicable in health care, as health professionals may be better able to monitor each other's productivity than a non-clinical manager. This team approach also helps retain clinical freedom while curtailing inefficiency through internal monitoring.(3,4) An initial application might be to replace distinction awards with targets and rewards for a clinical team. More innovatively, teams could tender to provide an agreed package of care; such teams could exploit changes in skill mix (for example, increased use of nurse practitioners and nurse anaesthetists). Initial experimentation could begin with a waiver of the distinction award scheme, using the freed resources to implement cautious group incentive schemes and outcome measurement. Similar models could be created in primary care. Instead of commissioning care from just general practitioners, purchasers could commission it from teams exploiting the skills of doctors, nurses, pharmacists, and others. Such ideas should be introduced cautiously, with piloting and quasi-experimental evaluation. Health-care professionals work in teams, and the internalisation of managerial control within teams offers the possibility of increased accountability and efficiency while preserving the professionalism of health workers. It deserves careful and informed consideration by policymakers. Karen Bloor Research fellow, department of health sciences Alan Maynard Professor of economics University of York, York YO1 5DD email: keb3@york.ac.uk References 1 Solow R. The labour market as a social institution. Oxford: Blackwell, 1990. 2 Working Party on the Review of the Consultants' Distinction Awards Scheme. Report. London: Department of Health, 1994. 3 Hsiao W C, Braun P, Dunn D, Becker E R. Resource-based relative values: an overview. JAMA 1988; 260:2347-53. 4 Bloor K, Maynard A. How much is a doctor worth? York: Centre for Health Economics, University of York, 1992. 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