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A Note on the Comparative Statics of Pay‐for‐Performance in Health Care

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  • Tisamarie B. Sherry

Abstract

Pay‐for‐performance (P4P) is a widely implemented quality improvement strategy in health care that has generated much enthusiasm, but only limited empirical evidence to support its effectiveness. Researchers have speculated that flawed program designs or weak financial incentives may be to blame, but the reason for P4P's limited success may be more fundamental. When P4P rewards multiple services, it creates a special case of the well‐known multitasking problem, where incentives to increase some rewarded activities are blunted by countervailing incentives to focus on other rewarded activities: these incentives may cancel each other out with little net effect on quality. This paper analyzes the comparative statics of a P4P model to show that when P4P rewards multiple services in a setting of multitasking and joint production, the change in both rewarded and unrewarded services is generally ambiguous. This result contrasts with the commonly held intuition that P4P should increase rewarded activities. Copyright © 2015 John Wiley & Sons, Ltd.

Suggested Citation

  • Tisamarie B. Sherry, 2016. "A Note on the Comparative Statics of Pay‐for‐Performance in Health Care," Health Economics, John Wiley & Sons, Ltd., vol. 25(5), pages 637-644, May.
    • Handle: RePEc:wly:hlthec:v:25:y:2016:i:5:p:637-644
    DOI: 10.1002/hec.3169
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    1. Oddvar Kaarboe & Luigi Siciliani, 2011. "Multi‐tasking, quality and pay for performance," Health Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 225-238, February.
    2. Jinhu Li & Jeremiah Hurley & Philip DeCicca & Gioia Buckley, 2014. "Physician Response To Pay‐For‐Performance: Evidence From A Natural Experiment," Health Economics, John Wiley & Sons, Ltd., vol. 23(8), pages 962-978, August.
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    1. repec:hal:spmain:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    2. Domenico Lisi & Luigi Siciliani & Odd Rune Straume, 2020. "Hospital competition under pay‐for‐performance: Quality, mortality, and readmissions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 289-314, April.
    3. Mak, Henry Y., 2018. "Managing imperfect competition by pay for performance and reference pricing," Journal of Health Economics, Elsevier, vol. 57(C), pages 131-146.
    4. Michele Fioretti & Hongming Wang, 2023. "Performance Pay in Insurance Markets: Evidence from Medicare," The Review of Economics and Statistics, MIT Press, vol. 105(5), pages 1128-1144, September.
    5. repec:spo:wpecon:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    6. Bauhoff,Sebastian Peter Alexander & Kandpal,Eeshani, 2021. "Information, Loss Framing, and Spillovers in Pay-for-Performance Contracts," Policy Research Working Paper Series 9687, The World Bank.
    7. repec:hal:wpspec:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    8. Steenhuis, Sander & Groeneweg, Niels & Koolman, Xander & Portrait, France, 2017. "Good, better, best? A comprehensive comparison of healthcare providers’ performance: An application to physiotherapy practices in primary care," Health Policy, Elsevier, vol. 121(12), pages 1225-1232.
    9. repec:spo:wpmain:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    10. Luigi Siciliani & James Gaughan & Nils Gutacker & Hugh Gravelle & Martin Chalkley, 2021. "Paying for health gains," Working Papers 183cherp, Centre for Health Economics, University of York.
    11. Bell-Aldeghi, Rosalind & Chopard, Bertrand, 2021. "Hospital multi-dimensional quality competition with medical malpractice," International Review of Law and Economics, Elsevier, vol. 68(C).

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