Can we improve the health system with pay-for-performance?

28 May 2014
  • Advanced healthcare systems are moving toward greater efficiency, transparency and accountability, and this trend is not likely to change
  • There is no single measure that will improve service delivery and patient outcomes, ensure financial sustainability and increase accountability and transparency in a health system
  • The jury is still out on whether financial incentive mechanisms, such as pay-for-performance, work as intended and deliver value for money
  • The research literature is rich in lessons policymakers need to keep in mind when developing and rolling out pay-for-performance programs:

Program design

  • Build on what already exists
  • Formulate a clear business case that defines the objectives of the program in terms of the desired outcomes
  • Define performance using absolute and relative thresholds, ensure target can be adjusted over time and attribute credit for performance to participants in ways that foster care across serviced populations and not on a case-by-case basis
  • Ensure methodologies for risk adjustment are developed prior to the program’s introduction
  • Model and evaluate the program carefully before implementation and at regular intervals afterward. Pilot the program before rolling it out in a phased approach
  • Consider regional disparities when modelling and evaluating the program prior and post implementation
  • Design the program to drive improvement and quality across a range of service providers performing at various levels and not just reward current high performers
  • Performance targets must be perceived as being achievable although not without some additional effort
  • Allow room for innovation and flexibility

Data collection

  • Ensure strong health information systems are in place
  • Use rigorous and verifiable data collection methods and analysis, allow for health service providers to review/correct/supplement data and determine rewards using long-term data trends


  • Incentives should be sufficient, equitable and transparent in order to have any effect
  • Incentives should reach various levels within an organisation
  • Financial incentives are more likely to have the intended effect where there is one single funder


  • Secure strong political and management support
  • Design the program collaboratively with health service providers and professional health associations and organisation

Keep in mind

  • Pay-for-performance can yield small gains at large costs, particularly when targets are set in the absence of a good baseline
  • Potential perverse and unintended consequences need to be carefully considered
  • Not everything can be measured. Current pay-for-performance programs focus on clinical and organisational measures, which may be relatively easy to measure through objective data or observation, but there are other aspects that are less easily quantified and are only briefly considered in many pay-for-performance programs such as: continuity of care, ease of access to care, strength of the patient-doctor relationship and patient satisfaction

Beyond pay-for-performance

  • Payment systems and financial incentive programs cannot do everything. Many of their key objectives, such as lowering costs, improving quality and driving appropriate change, are goals that are achievable in concert with other policy initiatives
  • Invest in outcomes and health service research
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