Case Study: Improving Safety

“Our first priority is improving safety. Some of our nursing homes have very high workers’ compensa-tion costs, which just kills the bottom line. Plus, it really gets in the way of providing high-quality care. If workers are shuttling in and out of the nursing home, they cannot build relationships with residents and they will have trouble working together,” said Rowan, the CEO, looking around the table.Braver than most of the employees, Dominique homed in on the complex issues this simple idea raised. “Right now we give administra-tors bonuses and promotions based on profitability. We have to recog-nize that unsafe work practices may boost productivity; for example, it may take longer to lift patients the safe way. In addition, managers who are working on promoting safety will not be doing the marketing or process improvement work that could boost their facility’s profits. It is absolutely true that poor worker safety hurts the system’s profits, but it may not hurt the nursing home’s profits. After all, the system, not the individual nursing home, pays the workers’ compensation premium.”“We have to be smart about this,” Casey interjected. “A 1997 arti-cle by Puelz and Snow described a restaurant chain that began paying managers a fixed wage plus a share of the restaurant’s profits plus a bonus for reducing workers’ compensation claims. Some managers improved safety, but some apparently stopped reporting minor acci-dents (which could get them and us in real trouble). We have to make sure that we get managers to focus on making nursing homes safer places to work, not on convincing workers not to file claims.”

Discussion questions:

• Who is the principal and who is the agent in this scenario?

• How is the agent better informed than the principal?

• How do poorly aligned incentives affect the system and individual administrators?

• What could the system do to convince nursing home administrators to improve safety?

• Are financial incentives a part of the action plan? Why or why not?

• How could nursing home administrators signal to the company that they are improving safety?