Does Pay-for-Performance Improve the Quality of Health Care?

Most physicians and hospitals are paid the same regardless of the quality of the health care they provide, but increasing numbers of health programs link payment to physician and hospital performance as an incentive to improve the quality of care. This study assesses the relationship between explicit financial incentives and the provision of high quality health care by systematically reviewing empirical studies published between 1980 and 2005. Despite the fact that only 17 empirical studies of explicit financial incentives for quality were available for review, the authors could draw a few preliminary conclusions.

They note that incentives require very careful design to elicit the desired response. In designing performance measures for incentive programs, policy-makers should consider whether their goal is improving performance at the lower end of the spectrum, maintaining best performance, or both. Basing the incentive on a combination of a process-of-care measure (for example, documentation of smoking cessation advice) and the outcome of interest (for example, tobacco quit rates) would capitalize on the advantages and complementary nature of both types of quality-of-care measures. Other important considerations are the size and timing of the bonus. Citing the need for rigorous research on explicit financial incentives in health care, a proposed research agenda is included in this article.