Ruhr Economic Papers

Ruhr Economic Papers #923

Physicians’ Incentives, Patients’ Characteristics, and Quality of Care: A Systematic Experimental Comparison of Fee-for-Service, Capitation, and Pay For Performance

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

UDE, 09/2021, 52 S./p., 8 Euro, ISBN 978-3-96973-079-9 DOI: 10.4419/96973079

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Abstract

This paper systematically studies how performance pay, complementing either baseline fee-for-service or capitation, affects physicians’ medical service provision and the quality of care. Using a series of controlled experiments with physicians and students, we test the incentive effect of performance pay at a within-subject level. A discrete bonus is granted if a quality threshold is reached, which varies with the patients’ severity of illness. We find that performance pay significantly reduces non-optimal service provision and enhances the quality of care. Effect sizes depend on the patients’ severity of illness and whether the baseline is fee-for-service or capitation. Health policy implications, including a cost benefit analysis of introducing performance pay, are discussed.

JEL-Classification: C91, I11

Keywords: Fee-for-service; capitation; pay for performance; heterogeneous patients; artefactual field experiment; laboratory experiments

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