Interest in ways of linking aspects of provider payments to achieving performance targets has grown in health care and other public services in an attempt to solve the cost-quality conundrum. It is therefore important to review the process of designing, implementing and evaluating pay-for-performance (P4P) in these services.
The design of P4P in the public sector is more difficult than in the private sector, as the production of public services usually involves the pursuit of several different objectives simultaneously that may be more or less easy to identify, measure and trade off. This tends to reduce the relevance and benefits of private sector financial incentives such as performance pay. Design is also complex because of the different dimensions along which any scheme can vary.
Effective communication of the rationale for the P4P programme is crucial to successful implementation. Appropriate monitoring systems are also key and the right balance needs to be found between providing accurate data that will avoid manipulation and ensure that the programme is credible, and limiting additional administrative burden on providers. Lessons are starting to emerge on potential success factors, typically involving a long lead-in time to plan, test and reflect carefully on the different elements of the programme.
To date, the evaluation of P4P schemes in public services has produced limited and mixed evidence of their effects. There is little evidence on the cost-effectiveness of schemes, and also some evidence of perverse effects of P4P. The jury is still out on whether the benefits of P4P schemes in public services exceed their costs. Indeed, it may not be wise to attempt to reach an overall verdict about P4P since the performance of each scheme is highly likely to be the product of the interaction between the detail of its design, the specifics of the setting, and the particulars of the provider and the service being delivered.