Pay-for-Performance: Toxic to Quality? Insights from Behavioral Economics

Abstract

Pay-for-performance programs aim to upgrade health care quality by tailoring financial incentives for desirable behaviors. While Medicare and many private insurers are charging ahead with pay-for-performance, researchers have been unable to show that it benefits patients. Findings from the new field of behavioral economics challenge the traditional economic view that monetary reward either is the only motivator or is simply additive to intrinsic motivators such as purpose or altruism. Studies have shown that monetary rewards can undermine motivation and worsen performance on cognitively complex and intrinsically rewarding work, suggesting that pay-for-performance may backfire.