Pay for performance (P4P) is increasingly being used to stimulate healthcare providers to improve their performance. However, evidence on P4P effectiveness remains inconclusive. Flaws in program design may have contributed to this limited success. Based on a synthesis of relevant theoretical and empirical literature, this paper discusses key issues in P4P-program design. The analysis reveals that designing a fair and effective program is a complex undertaking. The following tentative conclusions are made: (1) performance is ideally defined broadly, provided that the set of measures remains comprehensible, (2) concerns that P4P encourages "selection" and "teaching to the test" should not be dismissed, (3) sophisticated risk adjustment is important, especially in outcome and resource use measures, (4) involving providers in program design is vital, (5) on balance, group incentives are preferred over individual incentives, (6) whether to use rewards or penalties is context-dependent, (7) payouts should be frequent and low-powered, (8) absolute targets are generally preferred over relative targets, (9) multiple targets are preferred over single targets, and (10) P4P should be a permanent component of provider compensation and is ideally "decoupled" form base payments. However, the design of P4P programs should be tailored to the specific setting of implementation, and empirical research is needed to confirm the conclusions.

Compensation methods, Incentive reimbursement, Pay for performance, Program design, Provider behavior
Behavioral Economics; Underlying Principles (jel D03), Economics of Contract Law (jel D86), Analysis of Health Care Markets (jel I11), Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. (jel J31), Compensation Packages; Payment Methods (jel J33)
dx.doi.org/10.1007/s10198-011-0347-6, hdl.handle.net/1765/31002
The European Journal of Health Economics
Erasmus School of Economics

Eijkenaar, F. (2013). Key issues in the design of pay for performance programs. The European Journal of Health Economics, 14(1), 117–131. doi:10.1007/s10198-011-0347-6