Pay-for-Performance in Public Healthcare: Costs and Benefits

Pay-for-performance is a relatively new invention in the field of human resource management. Unlike a fee-for-service approach that has dominated most markets and business fields, this compensation strategy encourages the quality of the service rather than its quantity. To increase the service quality, many business entities switch to pay-for-performance as a better alternative that fuels positive change, employee development, and customer satisfaction. The public health sector is one of the areas where this novelty has been implemented as a key to better patient care. When the medical staff is paid for the quality of patient outcomes rather than quantity, people are more likely to receive better treatment. This switch in outlook on healthcare staff compensation has yielded productive results in the form of improved care. However, this human resource management change also has its costs and disadvantages for multiple stakeholders. This research paper will examine how pay-for-performance can be measured in the context of public healthcare, as well as discuss its disadvantages and advantages from both administration’s and employee’s perspectives.

Pay-for-Performance Plan Measurement

To examine the effects that pay-for-performance compensation plans can have on the healthcare system, one must understand how the plan’s success will be assessed and measured in the public healthcare sector. According to Soucat et al. (2017), “pay-for-performance (P4P) is defined as financial incentives to hospitals, physicians, and other health care providers aimed at improving the quality, efficiency, and overall value of health care” (p. 75). From the definition, it is evident that the focus of the incentives approach is to measure care quality. Therefore, evaluating medical staff’s performance includes “measures of care processes (ordering hemoglobin tests in diabetic patients), health outcomes, or fulfillment of work responsibilities (timely completion of training activities)” (Kondo et al., 2016, p. 61). Another factor that Mendelson et al. (2017) highlighted as essential in determining the quality of care in a pay-for-performance framework for nursing staff is assessing and analyzing the risk of hospital-acquired infections. From the examples given above, it can be concluded that the performance of healthcare professionals and the success of the implementation can be measured by the quality of care and patient outcomes that they ensure.

Pay-for-Performance: Employees’ Perspective

The employees’ perspective on pay-for-performance is the first aspect of the implementation that needs to be addressed. As per the advantages, healthcare professionals are financially compensated based on their performance rather than meeting a hospital’s quantitative goal (Kondo et al., 2016). They receive a competitive salary that is determined by a lot more factors than in fee-for-service management; thus, medical staff has more control over their pay, encouraging engagement and professional growth (Kondo et al., 2016). Consequently, being recognized and financially rewarded for high levels of effort leads to employee satisfaction and loyalty, making the healthcare workforce more effective in ensuring that every patient receives the needed care.

However, when addressing the disadvantages, some underlying downsides of the implementation like ethicality and statistical manipulation become more evident. For instance, difficulties in overseeing and evaluating the quality of the medical field’s performance can become an issue in assessing and determining a fair salary. More specifically, some healthcare aspects can be hard to assess in a short one-month period, which will cause unfair performance assessment. Additionally, this issue is perpetuated by the easily distorted statistical data: knowing that the competitive salary relies on specific criteria, medical staff might overreport their achievements, causing problems in ethics (Kondo et al., 2016). If the information on employee performance is not publicly available and “individuals cannot easily access and question information provided by public bodies,” a risk of “statistical fiction” increases (Soucat et al., 2017, p. 76). Therefore, employee morale, ethics, a sense of fairness, and, consequently, actual patient outcomes might suffer.

Pay-for-Performance: Employers’ Perspective

An essential part of the discussion about pay-for-performance strategy implementation is its advantages and disadvantages from the employers’ side. As it concerns the benefits, the pay-for-performance approach is greatly beneficial for the public healthcare sector due to the enhancement of strategic objectives, meeting the organizational goals, autonomy, and cost-effectiveness. Unlike the “bureaucratic inertia associated with budget allocation,” the pay-for-performance approach ensures that hospitals do not concentrate on executing the needed budgets but operate with a “data-driven output orientation” (Soucat et al., 2017, p. 75). This also leads to financial consequences: hospitals that make their financial decisions based on performance rather than a quoted number of patients also have better budgeting, resource allocation, and patient outcomes (Shakir et al., 2018). Lastly, this human resource management approach also greatly affected autonomy. More specifically, pay-for-performance presupposes that each public hospital will act as an independent business entity in setting its organizational goals, monitoring them, and allocating budget (Shakir et al., 2018). As a result of the three aspects mentioned above, pay-for-performance is beneficial for employers in public healthcare.

On the other hand, issues with fitting this human resource management strategy within a greater context of health reforms and the healthcare system can be considered a problem. For instance, Mendelson et al. (2017) claim that while pay-for-performance is successful from a financial perspective, it does not suit the strategic goals and vision of the public health sector. According to Mendelson et al. (2017), pay-for-performance “has been designed as separate projects, frequently without due consideration to the rest of the health system and of how these link to public finance reform” (p. 342). As a result, it can cause misunderstandings and ultimately lead to a clash of interests between individual public health entities like hospitals and the overall healthcare system.


In conclusion, it is evident that the pay-for-performance approach is a viable option in increasing employee effectiveness and enhancing customer satisfaction. In the public healthcare field, specifically, this human resource management strategy is efficient due to its numerous advantages to employees like competitive salary, increased happiness, and business loyalty. The approach is also widely popular due to its organizational benefits: employers experience more financial freedom and autonomy, which improves their strategic goal setting and quality of care. On the other hand, some disadvantages like dissonance with an existing healthcare system regulations and reforms and a possible decline in ethics make pay-for-performance a risky implementation in need of constant evaluation and correction.


Kondo, K., Damberg, C., Mendelson, A., Motu’apuaka, M., Freeman, M., & O’Neil, M. et al. (2016). Implementation processes and pay for performance in healthcare: A systematic review. Journal of General Internal Medicine, 31(1), 61-69. Web.

Mendelson, A., Kondo, K., Damberg, C., Low, A., Motúapuaka, M., & Freeman, M. et al. (2017). The effects of pay-for-performance programs on health, health care use, and processes of care. Annals of Internal Medicine, 166(5), 341-345.

Shakir, M., Armstrong, K., & Wasfy, J. (2018). Could pay-for-performance worsen health disparities? Journal of General Internal Medicine, 33(4), 567-569. Web.

Soucat, A., Dale, E., Mathauer, I., & Kutzin, J. (2017). Pay-for-performance debate: Not seeing the forest for the trees. Health Systems & Reform, 3(2), 74-79. Web.

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