Cheating is the downside of targeted P4P, study says

July 28, 2010 — 9:58am ET

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pay-for-performance
value-based purchasing
P4P
cheating

As government and private payers look to pay-for-performance (P4P)--also called value-based purchasing--as the payment model that will push providers to produce higher-quality patient care at a lower cost, a study suggests one P4P approach might not always work as planned. Paying employees to perform better according to a target-based model can entice them to cheat, finds researchers with Ryerson University and the University of Guelph, both based in Canada.

"The dark side of behavior can be affected by pay-for-performance schemes," said Fei Song, co-author of the study and a business professor at Ryerson's Ted Rogers School of Management.

The researchers gave more than 200 students at the University of Guelph anagrams and asked them to create as many words as they could in one minute. Three groups of students completed this task using different pay-for-performance schemes.

Those who followed a linear piece-rate system received a bonus for each unit they produced. Under a tournament-based bonus system, payment was tied to a person's performance compared to others'. Under a target-based model, people would not be compensated unless they achieved pre-set goals for performance.

The researchers found that students cheated significantly more when the target-based compensation system was used compared to the other two incentive plans. What's more, the closer the participant's actual performance was to the target, the more often they cheated.

"We speculate that people feel much worse if they miss a target by only a small margin rather than a large one," Song said.

To learn more:
- see the study abstract in the Berkeley Electronic Press Journal of Economic Analysis and Policy
- check out this related article from Ryerson University's Ted Rogers School of Management