Gaming and Effort in Performance Pay

Health insurers often tie payments to providers’ quality of care. Although payers do this to elicit more effort from providers, some providers may game the system by avoiding patients who would cause their quality scores to fall. We use annual variation in the criteria for Medicare’s Quality Incentive Program in dialysis to distinguish strategic patient dropping from higher-quality care. Patients who would reduce their facilities’ scores are 14.3–71.5% more likely to switch facilities, often to ones that suggest the move was involuntary, while under certain conditions facilities exert more effort to improve their scores by providing better care.