Physician performance pay: Experimental evidence

We analyze the causal effect of performance pay on physicians’ medical service provision and the quality of care. To address this effect, which is difficult to study in the field we conducted an online experiment with primary care physicians randomly drawn from a representative resident physician sample in Germany. Linking individual physicians’ behavioral data with administrative data enables us to identify how practice charac teristics account for the heterogeneity in individual physicians’ responses to performance incentives, which field data do not allow in general. We find that performance pay reduces underprovision of medical care compared to lump-sum capitation. The effect increases with patients’ severities of ill ness. Already small incentives are effective in enhancing the quality of care. Our results further indicate that physicians in high-profit practices and practicing in cities are most responsive to incentives.