Thursday, 14 November 2013

Does “pay for performance” work? - Dr Lucia Corno, Lecturer in Economics at Queen Mary University of London

It’s become a stock piece of management consultant’s advice to public authorities: “Design a pay scheme to reward people for performing better and that’s just what they’ll do”. But is that true?

Take the National Health Service in the UK. In April 2004, the NHS introduced a performance related pay (PRP) scheme as part of something called the Quality and Outcome Framework. The idea was to reward doctors, anesthetists and nurses who achieved or exceeded their targets for quality with bonuses worth between a quarter and a third of their salary. There were no fewer than 136 quality indicators. These covered everything from how chronic conditions are managed, through the way that practices are run, all the way to the patients’ experience of care.[i]

This is hardly the first time that primary care doctors or hospital clinicians have been put on a PRP scheme.

Recently, a team of researchers from Harvard University investigated the effect of a PRP scheme on almost half a million patients’ records.  They reasoned that that if PRP schemes are working, we should be able to see the results in the information we have about how patients fare, by looking at their medical records. The results must have disappointed any management consultant who can’t think beyond the stock advice. They found that patients were no healthier than they would have been if there had been no bonus scheme at all. In other words, if the doctors were motivated by extra cash, it didn’t show up in better outcomes for their patients. Another team did a systematic and comprehensive review of seventeen US PRP schemes in healthcare.[ii] Their conclusion was much the same: there were no clear benefits for patients’ health.
So, if financial incentives won’t work, what might? A recent study by Imran Rasul and Daniel Rogger from University College London begins to give us some answers.[iii]
They decided to look at Nigeria. The West African state is an interesting case for a question like this, because the Control of Corruption Index declares the country to be one of the most corrupt in the world.[iv] So we’d expect cash to be a big motivator there. And if it isn’t, then discovering what motivates people there might well tell us quite a lot about what motivates people to perform better more generally. Instead of focusing just on health care, Rasul and Rogger wanted to look more broadly. So they examined almost five thousand public projects. These were mostly construction and development initiatives ranging from boreholes through buildings to big projects such as dams and major roads. A great advantage of looking at big projects is that they usually involve several organizations. So we can compare agencies which are run in different ways but which work on the same project, to see whether the way they’re run makes a measurable difference to the quality of the work people do.
The researchers’ hunch was that if cash doesn’t necessarily improve performance, maybe workers want more autonomy to make decisions about their work, and maybe if they get it, they’ll do better work. To test the idea, they came up with a measure of autonomy. Their index captures two different things that tend to get rolled together in the idea of autonomy. First, the researchers measure how much opportunity bureaucrats have to influence the development of policy and the design of implementation. Next, their index scores how far agencies have the flexibility to re-organise their staff to suit the needs of particular projects. Next, they developed separate scales for performance – for example, whether the project was completed at all or anywhere near on time.
What they found is extremely important. The key finding was that giving incentives and relying on heavy monitoring of workers makes for worse rates of completion of projects that allowing both agencies and workers within them more autonomy. Put another way, performance management makes for worse performance than trusting people would.
We know what the management consultants will say, of course. Maybe the incentives are just poorly targeted. Maybe the project managers are monitoring the wrong things. Just hire us to design better performance management, and it will work. But Rasul and Rogger argue that, because public projects are unavoidably complex and always have ambiguous goals, it is very hard to design well-targeted performance incentives without creating other distortions. Allowing professionals some discretion gives them the chance to focus on the main goals and to strike intelligent trade-offs between all the things that otherwise become obsessive targets.
After yet another hospital scandal in the NHS when the pursuit of waiting time targets led managers to pressurise clinicians in a cancer care unit to falsify patients’ records. Perhaps it’s time to take Rasul’s and Rogger’s findings seriously. There really are better ways to get better outcomes – whether that means healthier patients or dams getting built on time – than cash, targets and terror.

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