Financial incentives are extrinsic sources of motivation that exist when an individual receives a monetary transfer that is conditional on acting in a particular manner. The ultimate goal of using financial incentives is to increase quality of care and, by extension, improve patient outcomes, reduce costs, or improve access to care. To achieve this goal, financial incentives are increasingly used to persuade physicians to use evidence-based treatments and/or to change their clinical behaviour with respect to preventive, diagnostic and treatment decisions.

What different types of financial incentives are there?

The different types of financial incentives used in health care include the following:

• Salary or sessional payment: a lump sum payment for working for a specified time period
• Fee for service (FFS): payment for each service, episode of care, or patient visit
• Capitation: payment for providing care for a patient or for a special population
• Target payments and bonuses (pay for performance, PFP): payment for providing a pre-specified level or change in a specific behaviour or quality of care
• Mixed or blended systems: comprising more than one of the groups listed above

What is the behavioural response to financial incentives?

A financial incentive may create different types of behavioural response: it may be positive and result in the desired behavioural change, or it may be negative, thereby creating a “disincentive” that produces either no response or behavioural change in the opposite direction.

How can financial incentives affect professional practice?

Financial incentives are likely to have the twin aims of increasing the quality and efficiency of care, but it is not necessarily the case that an incentive will promote both. There may be tension between intrinsic motivation and financial incentives. For instance, financial incentives may “crowd out” or reduce intrinsic motivation, thereby leading to negative consequences for the overall quality of care.

What is the evidence for the effectiveness of financial incentives?

In an overview of reviews evaluating the effectiveness of financial incentives on professional practice, the results were mixed. FFS, capitation and PFP were all found to be “generally effective.” Mixed and other systems showed “mixed” effectiveness, and payment for working for a specified time period was shown to be “generally ineffective” in terms of changing clinician behaviour. For different categories of outcomes, financial incentives overall were “generally effective” in improving processes of care, referrals/admissions, and prescribing costs, but were of “mixed” effectiveness in improving consultation/visit rates and “generally ineffective” in improving outcomes related to guideline compliance.