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Anthony Scott Melbourne Institute of Applied Economic and Social Research The University of Melbourne. Using financial incentives to improve health system performance. Funding is acknowledged from an ARC Future Fellowship.

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Anthony Scott

Melbourne Institute of Applied Economic and Social Research

The University of Melbourne

Using financial incentives to improve health system performance

Funding is acknowledged from an ARC Future Fellowship


“That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity.”

(George Bernard Shaw, The Doctor’s Dilemma, 1911)

  • National Health Reform
    • Increased emphasis on performance measurement and public reporting of performance
    • Changes to payment systems (ABF and Co-ordinated Care for Diabetes Pilot)
  • Increasing use of pay for performance in other countries
    • Quality and Outcomes Framework (UK)
    • CMS Premier Quality Initiative (US)
    • Primary Care Medical Home (US)
  • Need to re-aligning funding arrangements to meet health system objectives
  • Changing the level and method by which health care providers are paid has the potential to address:
    • health workforce shortages
    • the mal-distribution of health professionals across specialties, sectors, and geographic areas
    • improve the quality and costs of health care provided.


Type of payment

does the amount level of pay matter
Does the amount/level of pay matter?
  • Evidence of effects on:
    • hours worked for doctors and nurses
    • specialty choice
    • workforce participation
  • Backward bending labour supply
  • How are pay levels set?
    • Flexibility of pay and EBAs
  • Incentives in salary scales, career structures and subjective performance evaluation
do different methods of payment matter
Do different methods of payment matter?
  • FFS or salary or capitation?
  • Pay for performance
    • Primary care
      • Scott et al, 2011
      • Eccles et al, 2011
    • Hospitals
      • Scott and Ouakrim, 2011
      • Eccles et al, 2011
  • Quality of evidence
unresolved questions
Unresolved questions
  • Doubts about the use of financial incentives to change health care providers’ behaviour
    • Quality of the evidence
    • Poorly designed incentive schemes
      • Political
      • Assumes providers are largely motivated by money
      • Potential unintended and undesirable

consequences (‘gaming’, ‘multi-tasking’)

activity based funding
Activity-based funding

Independent Hospital Pricing Authority

Australian Government

Efficient price

National Funding Pool

Local Hospital Networks

ABF: Fixed price per DRG

Service Agreement

State and Territory Health Departments

Non-ABF payments (block funding)

National Health Performance Authority

will it work
Will it work?
  • Depends on:
    • What happens now in each State/Territory
    • Hard or soft budgets?
    • Level of fixed payment from funding pool and % of hospitals with costs above or below the price
    • Performance assessment framework – where are the teeth?
    • Percentage of hospitals which continue to be ‘block funded’ (eg in rural areas)
    • Special pleading (IHPA takes submissions - lobbying)
    • All of the above will vary across States/Territories and so behavioural effects will be different across States/Territories
  • Role for P4P?
co ordinated care for diabetes
Co-ordinated care for diabetes
  • 2 year pilot starts in 2012
  • Three elements
    • Voluntary patient enrollment
    • Flexible payment per patient
    • Pay for performance
  • Design of scheme (including level and type of payments) not pre-specified
factors influencing success
Factors influencing success
  • To encourage practices to participate and enroll patients, changes in expected revenue must be greater than expected costs
  • Three key elements of payment design
    • Paying for improvements in quality
    • Avoiding cream skimming – risk adjustment
    • Avoiding exception reporting
3 avoiding exception reporting
3. Avoiding exception reporting
  • QOF, for diabetes,
    • a median of 5.4% (0-40%) of practices exception reported patients
    • median gains of between £1,700 and £15,000 per practice
  • Solution – only pay for the numerator
    • Payment for each patient who achieves target
other issues
Other issues
  • Who receives the payment, and what is it used for?
  • A single funder strengthens the effect of incentives
  • A stable/enrolled population strengthens the effect of incentives
  • No magic bullets
    • complex interventions recognising that money isn’t the only, or main, motivation
  • Both the quality of evidence and design of schemes are poor
  • Effects of ABF depend on States
  • Effects of CCDP depend on payment design
issues for research
Issues for research
  • Policy design (as well as policy evaluation)
  • Careful thought about behavioural effects
  • Qualitative as well as quantitative