The Cost‐effectiveness of Using Financial Incentives to Improve Provider Quality: A Framework and Application

Abstract

Despite growing adoption of pay-for-performance (P4P) programmes in health care, there is remarkably little evidence on the cost-effectiveness of such schemes. We review the limited number of previous studies and critique the frameworks adopted and the narrow range of costs and outcomes considered, before proposing a new more comprehensive framework, which we apply to the first P4P scheme introduced for hospitals in England. We emphasise that evaluations of cost-effectiveness need to consider who the residual claimant is on any cost savings, the possibility of positive and negative spillovers, and whether performance improvement is a transitory or investment activity. Our application to the Advancing Quality initiative demonstrates that the incentive payments represented less than half of the £ 13 m total programme costs. By generating approximately 5200 quality-adjusted life years and £ 4.4 m of savings in reduced length of stay, we find that the programme was a cost-effective use of resources in its first 18 months.

In Tanzania, The Many Costs Of Pay-For-Performance Leave Open To Debate Whether The Strategy Is Cost-Effective

“…Few previous studies have measured the costs of payfor-performance management. Although the setting and program design are very different, Rachel Meacock and coauthors found that management costs in the United Kingdom exceeded incentive payments by a slightly lower magnitude (1.4 times) 8 than found in our study. Incentive payments were found to exceed administration costs in a program to incentivize performance in hospitals in the United States.…”

“…8 However, it is conceivable that if their motivating effects are to be maintained, incentive payments may have to increase over time. The rollout of pay-forperformance initiatives in low-income countries is being funded by International Development Association concessional loans from the World Bank.…”

“…[5][6][7] Only fifteen studies examining the cost of pay-for-performance programs have been published. 8,9 Only two of these cost studies were conducted outside of the United States and Europe. 9,10 Only nine of the studies considered costs beyond financial incentives, [10][11][12][13][14][15][16][17] and only two included in their analysis the costs of developing and setting up the program.…”

Variations in mortality across the week following emergency admission to hospital: linked retrospective observational analyses of hospital episode data in England, 2004/5 to 2013/14

“…Second, the methodology probably overestimates the potential QALY gains from an averted death as it assumes that those surviving would enjoy the same quality of life and life expectancy as the general population, conditional on their age and sex. 17 Third, our calculations represent the scenario where benefits to patients admitted at the weekend are achieved without any detrimental effect on outcomes for those admitted during the week.…”

Capsule Commentary on Goetz et al., The Effect of Charge Display on Cost of Care and Physician Practice Behaviors: A Systematic Review

“…The significance of the study by Goetz et al (2015) would have been further enhanced had the authors 1 included the economic literature on payment mechanisms and provider behaviors. [2][3][4][5] In addition, an assessment of the quality of studies included in the review would be helpful for explaining the implications of the different methodological designs used (Cross-sectional, Cohort, Case-control studies). The literature review could also discern the effect of including studies conducted in distinct health care systems (USA, South Africa, Sweden, France), assessing a variety of health care services (laboratory test, imaging and radiology, pharmaceuticals, emergency visits), provided in different health care settings (hospital, outpatient, emergency), to different patients (adult, pediatric).…”