What do tonsillectomies have in common with auto repair?

In 1992 charges were brought against Sears whose mechanics were recommending unnecessary auto repairs.  The problem was traced to the incentive system used by Sears (and others in the industry),

[the] use of quotas, commissions, or similar compensation may provide incentives for sales personnel to sell unnecessary auto repair services in order to meet quotas or receive larger commissions.

Sears tried to fix the problem by re-organizing into two divisions, one responsible for recommending repairs; and the other responsible for doing them.  Rather than solving the problem, however, the two divisions got together and began colluding.  In exchange for recommending unnecessary repairs, the service division paid the recommending division for recommending them.  Sears finally adopted flat pay for the mechanics, which led to shirking.

I used this example in Vanderbilt's MMHC class (syllabus) to illustrate the difficulties of aligning the incentives of providers with the goals of payers.  President Obama tried to make the same point when he accused physicians of performing unnecessary tonsillectomies.  However, as the Sears example suggests, there are no "fixes" to the problem, only tradeoffs:

Incentives matter, yet maybe the truth is that medicine is a highly complex science in which the evidence changes rapidly and constantly. That’s one reason tonsillectomies are so much rarer now than they were in the 1970s and 1980s—but still better for some patients over others. As the American Academy of Otolaryngology put it in a press release responding to Mr. Obama’s commentary, clinical guidelines suggest that “In many cases, tonsillectomy may be a more effective treatment, and less costly, than prolonged or repeated treatments for an infected throat.”

Mr. Obama seems to think that such judgments are easy. “If there’s a blue pill and a red pill and the blue pill is half the price of the red pill and works just as well,” he asked, “why not pay half price for the thing that’s going to make you well?” But usually the red and blue treatments are available—as well as the green, yellow, etc.—because of the variability of disease, human biology and patient preference. And the really hard cases, especially when government is paying for health care, are those for which there’s only a red pill and it happens to be very expensive.