The term cobra effect stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes in Delhi. The government therefore offered a bounty for every dead cobra. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the governmentbecame aware of this, the reward program was scrapped, causing the cobra breeders to set the now-worthless snakes free. As a result, the wild cobra population further increased. The apparent solution for the problem made the situation even worse. —Wikipedia: Cobra Effect

The cobra effect occurs when an attempted solution to a problem actually makes the problem worse.

If you’re reading this, I’m sure you’re already drawing parallels to healthcare incentives and reimbursement schemes. Our reliance on intermediaries to pay for our healthcare creates a top-down approach for setting incentives and reimbursement schemes. This is incredibly difficult to get right in complex systems like healthcare.

In Systems Thinking and the Cobra Effect, Barry Newell and Christopher Doll explain that in a complex real-world system there will be multiple feedback loops driving the response to any new policy. These feedback loops are maintained by actors with different goals and with little or no communication between them. To make matters worse, the feedback
effects can take years or even decades to be felt and may occur far away from where we thought we were doing our work.

Healthcare is too complex to be studied and modeled as a whole — and that’s true even if you don’t consider its impact on all other sectors of our government and economy. Therefore many of our rules are crafted by looking and just a slice of reality. This inevitably leads to unintended consequences, which leads to more rules and more consequences. It’s a vicious cycle and it creates the “perverse incentives” you hear people referring to in the industry.

In Catastrophic Care, David Goldhill gives example after excruciating example of incentives gone wrong. From a kidney dialysis drug maker raising the price of their drug by 1,000% to “be competitive”, to LTC providers sending patients to the hospital so that their reimbursement goes up on return or how cost control measures have lead to our current primary care shortage.

Michelle Noteboom had a great post with examples too in Healthcare’s Cobra Effect:

Long-term care hospitals time discharges to maximize paymentsPatient satisfaction surveys compromise care and increase costsMeaningful Use hinders innovation

Discussion Details

Wednesday, March 30, 2016

12:00 PM EST – #hcbiz Tweet Chat
Follow the #hcbiz hashtag on Twitter or use an app like tchat.io to join the conversation.

12:30 PM EST – Blab
Don Lee will continue the conversation with Shahid Shah and special guests with a 30–60 minute video chat on Blab. Subscribe here!

Discussion Topics

Q1: What are some examples of incentives or rules in healthcare that have lead to unexpected consequences?

Q2: What are some examples of incentives or rules that have been successful? Why did they work?

Q3: We often here that we should “Align Incentives” and things will improve. How do we do that?

Further Reading

If you’re interested in learning more about The Cobra Effect and other similar phenomena, check out this Freakonomics Radio Podcast.