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Paying for Performance in Hospitals


  • Hehenkamp, Burkhard

    () (Department of Economics and Social Sciences, University of Dortmund)

  • Kaarbøe, Oddvar

    () (Department of Economics and Health Economics Bergen, University of Bergen)


A frequent form of pay-for-performance programs increase reimbursement for all services by a certain percentage of the baseline price. We examine how such a “bonus-for-quality” reimbursement scheme affects the wage contract given to physicians by the hospital management. To this end, we determine the bonus inducing hospitals to incentivize their physicians to meet the quality standard. Additionally, we show that the health care payer has to complement the bonus with a (sometimes negative) block grant. We conclude the paper relating the role of the block grant to recent experiences in the American health care market.

Suggested Citation

  • Hehenkamp, Burkhard & Kaarbøe, Oddvar, 2008. "Paying for Performance in Hospitals," Working Papers in Economics 01/ 8, University of Bergen, Department of Economics.
  • Handle: RePEc:hhs:bergec:2000_000

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    Cited by:

    1. Aida Isabel Tavares, 2014. "Doctor-Nurse Teams, Incentives and Behavior," Notas Económicas, Faculty of Economics, University of Coimbra, issue 39, pages 9-35, June.

    More about this item


    Paying-for-Performance; Quality; Hospital Financing;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods


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