Ruhr Economic Papers

Ruhr Economic Papers #413

How Effective are Pay-for-Performance Incentives for Physicians? – A Laboratory Experiment

by Jeannette Brosig-Koch, Heike Hennig-Schmidt, Nadja Kairies-Schwarz and Daniel Wiesen

University of Duisburg-Essen, 05/2013, 34 S./p., 8 Euro, ISBN 978-3-86788-468-6 DOI: 10.4419/86788468



Recent reforms in health care have introduced a variety of pay-for-performance programs using financial incentives for physicians to improve the quality of care. Their effectiveness is, however, ambiguous as it is often difficult to disentangle the effect of financial incentives from the ones of various other simultaneous changes in the system. In this study we investigate the effects of introducing financial pay-for-performance incentives with the help of controlled laboratory experiments. In particular, we use fee-for-service and capitation as baseline payment schemes and test how additional pay-for-performance incentives affect the medical treatment of different patient types. Our results reveal that, on average, patients significantly benefit from introducing pay-forperformance, independently of whether it is combined with capitation or fee-for-service incentives. The magnitude of this effect is significantly infl uenced by the patient type, though. These results hold for medical and non-medical students. A cost-benefit analysis further demonstrates that, overall, the increase in patient benefits cannot overcompensate the additional costs associated with pay-for-performance. Moreover, our analysis of individual data reveals different types of responses to pay-for-performance incentives. We find some indication that pay-forperformance might crowd out the intrinsic motivation to care for patients. These insights help to understand the effects caused by introducing pay-for-performance schemes.

JEL-Classification: C91, I11

Keywords: Physician incentive schemes; pay-for-performance; fee-for-service; capitation; laboratory experiment