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The Cost‐Effectiveness Of Using Financial Incentives To Improve Provider Quality: A Framework And Application

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  • Rachel Meacock
  • Søren Rud Kristensen
  • Matt Sutton

Abstract

Despite growing adoption of pay‐for‐performance (P4P) programmes in health care, there is remarkably little evidence on the cost‐effectiveness of such schemes. We review the limited number of previous studies and critique the frameworks adopted and the narrow range of costs and outcomes considered, before proposing a new more comprehensive framework, which we apply to the first P4P scheme introduced for hospitals in England. We emphasise that evaluations of cost‐effectiveness need to consider who the residual claimant is on any cost savings, the possibility of positive and negative spillovers, and whether performance improvement is a transitory or investment activity. Our application to the Advancing Quality initiative demonstrates that the incentive payments represented less than half of the £13m total programme costs. By generating approximately 5200 quality‐adjusted life years and £4.4m of savings in reduced length of stay, we find that the programme was a cost‐effective use of resources in its first 18 months. Copyright © 2013 John Wiley & Sons, Ltd.

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  • Rachel Meacock & Søren Rud Kristensen & Matt Sutton, 2014. "The Cost‐Effectiveness Of Using Financial Incentives To Improve Provider Quality: A Framework And Application," Health Economics, John Wiley & Sons, Ltd., vol. 23(1), pages 1-13, January.
    • Handle: RePEc:wly:hlthec:v:23:y:2014:i:1:p:1-13
    DOI: 10.1002/hec.2978
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    Cited by:

    1. Maynard, A., 2014. "Contracting for Quality in the NHS," Monographs, Office of Health Economics, number 000073.
    2. Emma McManus & Jack Elliott & Rachel Meacock & Paul Wilson & Judith Gellatly & Matt Sutton, 2021. "The effects of structure, process and outcome incentives on primary care referrals to a national prevention programme," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1393-1416, June.
    3. Gutacker, Nils & Bloor, Karen & Bojke, Chris & Walshe, Kieran, 2018. "Should interventions to reduce variation in care quality target doctors or hospitals?," Health Policy, Elsevier, vol. 122(6), pages 660-666.
    4. Brosig-Koch, Jeannette & Hennig-Schmidt, Heike & Kairies-Schwarz, Nadja & Wiesen, Daniel, 2016. "Physician performance pay: Evidence from a laboratory experiment," Ruhr Economic Papers 658, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Andrew H. Briggs & Daniel A. Goldstein & Erin Kirwin & Rachel Meacock & Ankur Pandya & David J. Vanness & Torbjørn Wisløff, 2021. "Estimating (quality‐adjusted) life‐year losses associated with deaths: With application to COVID‐19," Health Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 699-707, March.
    6. Brosig-Koch, Jeannette & Groß, Mona & Hennig-Schmidt, Heike & Kairies-Schwarz, Nadja & Wiesen, Daniel, 2021. "Physicians' incentives, patients' characteristics, and quality of care: A systematic experimental comparison of fee-for-service, capitation, and pay for performance," Ruhr Economic Papers 923, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Rachel Meacock & Tim Doran & Matt Sutton, 2015. "What are the Costs and Benefits of Providing Comprehensive Seven‐day Services for Emergency Hospital Admissions?," Health Economics, John Wiley & Sons, Ltd., vol. 24(8), pages 907-912, August.
    8. Turner, Alex J. & Nikolova, Silviya & Sutton, Matt, 2016. "The effect of living alone on the costs and benefits of surgery amongst older people," Social Science & Medicine, Elsevier, vol. 150(C), pages 95-103.
    9. Feng, Yan & Kristensen, Søren Rud & Lorgelly, Paula & Meacock, Rachel & Sanchez, Marina Rodes & Siciliani, Luigi & Sutton, Matt, 2019. "Pay for performance for specialised care in England: Strengths and weaknesses," Health Policy, Elsevier, vol. 123(11), pages 1036-1041.
    10. Slawomirski, Luke & Hensher, Martin & Campbell, Julie & deGraaff, Barbara, 2024. "Pay-for-performance and patient safety in acute care: A systematic review," Health Policy, Elsevier, vol. 143(C).
    11. Sarah Karlsberg-Schaffer;Jon Sussex;Yan Feng, 2015. "Incentives to follow Best Practice in Health Care," Briefing 001583, Office of Health Economics.
    12. Noémi Kreif & Richard Grieve & Dominik Hangartner & Alex James Turner & Silviya Nikolova & Matt Sutton, 2016. "Examination of the Synthetic Control Method for Evaluating Health Policies with Multiple Treated Units," Health Economics, John Wiley & Sons, Ltd., vol. 25(12), pages 1514-1528, December.
    13. Francesco Longo & Luigi Siciliani & Giuseppe Moscelli & Hugh Gravelle, 2019. "Does hospital competition improve efficiency? The effect of the patient choice reform in England," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 618-640, May.
    14. Ogundeji, Yewande Kofoworola & Bland, John Martin & Sheldon, Trevor Andrew, 2016. "The effectiveness of payment for performance in health care: A meta-analysis and exploration of variation in outcomes," Health Policy, Elsevier, vol. 120(10), pages 1141-1150.
    15. Nadja Kairies-Schwarz & Claudia Souček, 2020. "Performance Pay in Hospitals: An Experiment on Bonus–Malus Incentives," IJERPH, MDPI, vol. 17(22), pages 1-29, November.
    16. Jemimah Ride & Panos Kasteridis & Nils Gutacker & Hugh Gravelle & Nigel Rice & Anne Mason & Maria Goddard & Tim Doran & Rowena Jacobs, 2023. "Impact of prevention in primary care on costs in primary and secondary care for people with serious mental illness," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 343-355, February.
    17. Okeke, Edward N. & Abubakar, Isa S., 2020. "Healthcare at the beginning of life and child survival: Evidence from a cash transfer experiment in Nigeria," Journal of Development Economics, Elsevier, vol. 143(C).

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