Using the Lessons of Behavioral Economics to Design More Effective Pay-for-Performance Programs

Published In: The American Journal of Managed Care, v. 16, no. 7, July 2010, p. 497-503

Posted on RAND.org on July 01, 2010

by Ateev Mehrotra, Melony E. Sorbero, Cheryl L. Damberg

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OBJECTIVES: To describe improvements in the design of pay-for-performance (P4P) programs that reflect the psychology of how people respond to incentives. STUDY DESIGN: Investigation of the behavioral economics literature. METHODS: We describe 7 ways to improve P4P program design in terms of frequency and types of incentive payments. After discussing why P4P incentives can have unintended adverse consequences, we outline potential ways to mitigate these. RESULTS: Although P4P incentives are increasingly popular, the healthcare literature shows that these have had minimal effect. Design improvements in P4P programs can enhance their effectiveness. CONCLUSION: Lessons from behavioral economics may greatly enhance the design and effectiveness of P4P programs in healthcare, but future work is needed to demonstrate this empirically.

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