A major element of Lean production techniques is the adoption of standarded work instructions, which are implemented as detailed procedures for doing routine and regular work. The purpose of such standardized operations is to make the rules for performing work explicit, and through that means, to minimize and control variation in quality, cost, and throughput. As this variation is controlled, additional benefits are expected to accrue, such as reductions in defects, rework, and wasted materials.

In some professions, the concept of standard work instructions is taken even further, so that the compensation systems is aligned with these standardized work instructions; in effect, the work and pay for a given activity are calibrated, and through this means, the expectation is established that workers will be motivated to innovate and find ways to perform their work faster, and thus increase their own productivity and compensation. This compensation strategy is called piecemeal work, and it implies that workers will be paid for each individual instance of a product or service that they produce. As a result, the more output you produce, the more the workers will get paid.

There are obvious limits to this strategy, best exemplified by a series of classic Dilbert cartoons. If you produce more of something that has unacceptable quality, you end up having to pay the piper in the long run. But whether compensation systems are aligned with standardized work or not, standardized work definitions presume, by their nature, an allocation of staffing and estimates of the ratio between different roles required to perform work. Such allocations may themselves be inefficient, unless they are based upon historical facts and data, and careful analysis.

Adopting a standard reimbursement formula for health care began in the US when William Hsiao, a medical economist, produced the Resource-Based Relative Value Scale in the late 1980s. The RBRVS assigns a relative value for every medical procedure that is reimbursed by Medicare. The book Better describes how these changes occurred:

... fees for cataract surgery (which could reach six thousand dollars in 1985) had been set when the operation typically took two to three hours. When new technologies allowed ophthalmologists to do it in thirty minutes, the fees didn’t change. Billings for this one operation grew to consume 4 percent of Medicare’s budget. In general, payments for doing procedures had far outstripped payments for diagnoses. In the mid-eighties, doctors who spent an hour making a complex and lifesaving diagnosis were paid forty dollars; for spending an hour doing a colonoscopy and excising a polyp, they received more than six hundred dollars. This was, the federal government decided, unacceptable....

In the 1980s, insurers, both public and private, began to agitate for a more "rational" schedule of physician payments. For decades, they had been paying physicians according to what were called "usual, customary, and reasonable fees." This was more or less whatever doctors decided to charge. Not surprisingly, some of the charges began to rise considerably... Some specialists were outraged by particular estimates. But Congress set a multiplier to convert the relative values into dollars, the new fee schedule was signed into law, and in 1992 Medicare started paying doctors accordingly.

RBRVS values are reviewed and updated every 5 years by a government committee, and determine the Medicare payment schedule for all medical procedures performed by physicians. Factors which are considered in this assessment include the physician's time, their mental effort, the technical skill and judgment required, and the stress which is associated with each diagnosis. An amortization of the physician's education, their practice and malpractice expenses, and a geographic adjustment are also included. Adjustments for outcomes, quality of service, the severity of injuries, or the demand for services are not included, even though all obvious are relevant to actually accomplishing the work.

It is unusual to see piecemeal work applied to open-ended tasks like engineering situations, due to the uncertainties involved in performing that work, but the piecemeal approach has been the prevalent means of compensating physicians in health care in the United States for centuries. Other countries (such as British Columbia) also use it, but have made no adjustment to a hospital's funding based upon patients seen. The net effect of such a policy over time on the quality and accessibility of care should be pretty obvious.

The secondary effects of variation in work performers are also an issue. If you design the targets for the average performer, above-average performers may go elsewhere, which can lead to  a reinforcing cycle of declining performance for the team over time. If you instead set targets to accommodate slower-than-average resources performing the work, costs escalate and may no longer be affordable. Such trends have been apparent in other areas where piecemeal work incentives been established - for example, in maintenance labor rates for car dealerships. These have been escalating for years, and now often approach $90/hr. The root cause is that while standardized work can make sense in a production line in which continuous improvement is consistently and reliably implied, it can also become a needless burden and frustration for above-average performers, especially if there is no effective mechanisms in place to reliably level and balance the overall distribution of work - a phenomenon known in economics as the free rider problem.

As a further attempt to control such variation in health care costs, in 2008, Medicare began to stop paying for rework for selected procedures. It will be interesting to see the impact of this on health care availability, and whether this trend for piecemeal work extends into other industries.