Performance Incentives in Provider Purchasing and Contracting Arrangements: Rationale and Experiences

The paper describes performance-based incentive contracting schemes that have been implemented to improve results for a range of interventions from time-limited immunizations to chronic conditions that require significant lifestyle changes, such as diabetes. It finds that limited interventions with results or actions that can be measured and that require minimal changes in lifestyle seem to be well suited for performance-based incentives. It argues that performance incentives are a viable and potentially more powerful solution than typical input-oriented approaches to dealing with under-utilization, poor quality, and low efficiency.

As the policy communities in wealthy and poor countries alike search for ways to improve health outcomes, increasing attention is being given to establishing contracts between those who finance and those who provide or consume health services. Contracts are seen as a means of creating a legally binding set of mutual expectations, defining ex ante what package of services will be delivered and what the corresponding advance payment or reimbursement will be. They are flexible instruments that can permit public sector funders—for example, ministries of health—as well as social, community-based, or private insurers and nongovernmental organizations (NGOs) to support the provision of services through the private sector, guaranteeing a defined “benefit package” to specific groups.

Starting with a short vignette, this paper first describes the types of problems in low- and middle-income environments that can be (partially) solved with contracting arrangements that incorporate performance incentives. In the second half of the paper, we articulate the reasons that performance incentives hold promise, from a conceptual perspective, and review illustrative experiences with the real-world application of performance incentives. 2 The paper is based largely on the work of the Center for Global Development’s Working Group on Performance-Based Incentives.

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