A new emissions trading-style scheme for the health system

07 April, 2009

A market-based “cap and trade” system similar to an emissions trading scheme could dramatically improve patient safety in Australian hospitals, new research from the University of New South Wales (UNSW) has found.

Inspired by successful approaches to environmental governance, the health system-wide scheme would for the first time place a dollar value on patient safety and provide a way to use financial incentives and penalties to minimise patient harm.

A paper outlining the radical new approach appears this month in the British Medical Journal ‘s prestigious Quality and Safety in Health Care. The Journal has dedicated considerable space to the proposal, including three fast-tracked expert commentaries.

Professor Enrico Coiera and co-author Professor Jeffrey Braithwaite, from UNSW’s Institute of Health Innovation, argue that such an approach is needed because ‘business as usual’ is no longer an option.

“It’s just like carbon trading. You set up a system and allow the marketplace to find innovative new ways to reduce clinically adverse events in the health system, through the creation of market-based incentives,” said Professor Coiera.

The proposal comes as the NSW Government responds to the Garling Review into Acute Care Services, which highlighted major deficiencies in the management of patient safety.

Adverse events are currently associated with about 10 per cent of hospital admissions and 1 million visits a year to general practitioners.

“We’ve thrown a lot at patient safety over the years,” Professor Braithwaite said. “ We’ve had eight inquiries like Garling’s and they’ve all said the same thing. Yet the problems persist.

“We need to try something outside the box.”

Under the proposal, system-wide targets would be set, a patient safety price negotiated and a market established for the trade of safety credits. Organisations would then find ways to meet the targets. New and innovative players would be encouraged to enter the system.

The authors describe the scheme as “radical common sense”.

“Like in the carbon economy, you can talk to big polluters until you are blue in the face but unless they’ve got an incentive to join a system that creates rewards and punishments to change behaviour, you get nowhere,” Professor Braithwaite said.

The authors stress that the scheme is a mechanism for optimising the regulation of safety in the health system and should not be confused with ideological stances like ‘the free market’. The system would be tightly regulated and audited and open to public scrutiny for accountability and equity.

“For the first time, we would be putting a price on error, and that price would appear on organisations’ bottom line,” Professor Coiera said. “What we are doing is locking together the principles of financial incentives and penalties.

“Instead of telling people what they should do locally to improve safety from the top down, we are giving them a new currency to work with and leaving it up to them to decide the best way to spend it to solve their local problems,” he said.

How a ‘cap and trade’ scheme might work

  1. Set a patient safety price. A value is set on each preventable adverse event (PAE), based upon its estimated cost to the system.
  2. Establish system-wide targets. Using an estimate of the current baseline PAE rate, set a global target to progressively reduce this over time.
  3. Allocate organisational targets. For clinical organisations, estimate their current baseline PAE rate, and provide them with ‘credits’ equal to a reduced target. Organisations must find ways to meet that target.
  4. Create a safety market for trading safety credits. Organisations that reduce PAE rates below set targets have surplus credits, which they can sell. Organisations that miss targets must purchase market credits to meet target, or pay the regulator for credits at a set price. Failure to comply generates a large penalty.
  5. Police the market through an auditing mechanism. Audit need not be universal, but will need to be visible, credible, perhaps random to ensure compliance, and responsive to attempts to distort, cheat or evade.
  6. Allow for certification and audit of authorised third party organisations. New organisations can independently initiate verifiable harm reduction projects to generate new credits.