Problem with financial incentives for physicians

Incentive or performance pay has been a common tactic in the business world to entice workers mainly the sales force to increase productivity. The pay for performance (P4P) language started becoming common in the medical world a couple of decades ago. Certainly, private practice and increasingly now some academic practices have incentive bonuses for productivity in employment contracts.

I am more interested in the macro environment in healthcare rather than individual employment contracts although as I have argued, there is a powerful conflict sometimes between institutional versus physician interests if incentives are not aligned. See “Physician incentives may not be aligned with their health system employer. What is a physician to do?” at

There are some positive and some unintended consequences of incentive pay in medicine. Now, we are migrating from productivity pay to quality based reimbursement and compensation.

An older Harvard Business Review article  lays out some interesting arguments on this topic arguing that incentive plans cannot work. The author points out that research shows that incentive plans do work but temporarily. They change behavior only while the incentives last and that the work output is not any better. At the executive level, the author says, there is often a negative correlation between pay and performance! The points they make are: rewards ignore the reasons for the behavior desired, discourage risk taking and rupture relationships.

Do these conclusions apply to medicine? Who knows? Reach your own conclusions.