Performance-based financing is not backed by credible theoretical justifications

Introduction: Pay-for-performance is expanding in many health systems, both in high-income countries and in low- and middle-income countries (LMICs) where it is commonly known as “performance-based financing” (PBF). PBF results are mixed and it has been criticised for its potential perverse effects. Yet, PBF promoters fail to provide a clear and consistent explanation of why and how it is supposed to produce results and to perform better than alternative approaches. The literature on PBF-related approaches is fragmented across disciplines and much of the current cross-disciplinary research on PBF and similar schemes lacks a sound theoretical basis.1Aim: This study explores the theoretical justifications advanced to legitimate the choice of PBF.Methods: We performed a systematic review of the scientific papers and grey literature on PBF so as to identify the theories utilised to justify it, and critically analyse them.Results: The theoretical approach that has most often been advanced to justify PBF is the principal-agent theory – arguing that its objective is to better align healthcare providers’ incentives with populations’ interests. Surprisingly, while many PBF promoters refer to this theory, a correct utilisation of it leads to the conclusion that considering the specificities of the health sector in LMICs, high-powered incentives (as are inherent to PBF) are not recommended. There is now growing consensus on the fact that the principal-agent theory is not appropriate to justify PBF – notably because it rests on wrong assumptions and does not take context into consideration. Other related (New Institutional) Economics currents have also been used to justified PBF, including property right theory, transaction cost economics, political economy theories, or behavioural economics. Non-economic approaches, relating to organisations sciences and management, have also been used to justify PBF (management control theory, operations and supply management).Conclusion: PBF is actually not justified by any credible “grand theory”, and not yet by convincing theories of change. If PBF cannot be justified neither theoretically, nor empirically, one can only conclude it is promoted on an ideological ground.Reference(s):1. Selviaridis K. Wynstra F. Performance-based contracting: a literature review and future research directions. International Journal of Production Research 2015; 53:12, 3505-3540.