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Annu Rev Public Health. 2009;30:357-71. doi: 10.1146/annurev.publhealth.031308.100243.

Quality-based financial incentives in health care: can we improve quality by paying for it?

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1
Department of Health Services, University of Washington, Seattle, Washington 98195, USA. dconrad@u.washington.edu

Abstract

This article asks whether financial incentives can improve the quality of health care. A conceptual framework drawn from microeconomics, agency theory, behavioral economics, and cognitive psychology motivates a set of propositions about incentive effects on clinical quality. These propositions are evaluated through a synthesis of extant peer-reviewed empirical evidence. Comprehensive financial incentives--balancing rewards and penalties; blending structure, process, and outcome measures; emphasizing continuous, absolute performance standards; tailoring the size of incremental rewards to increasing marginal costs of quality improvement; and assuring certainty, frequency, and sustainability of incentive payoffs--offer the prospect of significantly enhancing quality beyond the modest impacts of prevailing pay-for-performance (P4P) programs. Such organizational innovations as the primary care medical home and accountable health care organizations are expected to catalyze more powerful quality incentive models: risk- and quality-adjusted capitation, episode of care payments, and enhanced fee-for-service payments for quality dimensions (e.g., prevention) most amenable to piece-rate delivery.

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