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

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


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.

Publication types

  • Research Support, Non-U.S. Gov't
  • Review

MeSH terms

  • Delivery of Health Care / economics
  • Delivery of Health Care / standards
  • Economics, Hospital
  • Hospitals / standards
  • Humans
  • Primary Health Care* / economics
  • Primary Health Care* / standards
  • Quality of Health Care / economics*
  • Reimbursement, Incentive* / economics
  • United States