Equitable healthcare distribution

Does Paying for Performance Widen the Healthcare Gap?

"New study examines if incentive programs unintentionally increase inequalities in healthcare access and quality across different providers."


Healthcare systems worldwide are constantly seeking ways to improve the quality of care and ensure better outcomes for patients. One popular strategy is "payment for performance" (P4P) programs, where healthcare providers receive financial incentives for meeting pre-defined performance targets. The idea is simple: reward good performance and motivate improvement.

However, the real-world impact of P4P is complex. While many studies have looked at the average effects of these programs, fewer have examined how they affect different types of healthcare facilities. Do P4P programs benefit all facilities equally, or do they inadvertently widen the gap between well-resourced and under-resourced providers?

A groundbreaking study in Tanzania sheds light on this critical question. Researchers investigated how P4P programs influenced service coverage and performance across a diverse range of health facilities. The findings reveal both the potential benefits and the potential pitfalls of P4P, offering valuable lessons for designing more equitable and effective incentive programs.

AI Search Multiple angles on this topic

Measuring Quality and Disparities

National tools from the Agency for Healthcare Research and Quality summarize healthcare quality and disparities and allow users to examine the individual measures behind those summaries. The Health Resources and Services Administration provides data on health facilities, health professions, resource scarcity, health status, economic activity, training programs, and socioeconomic and environmental characteristics. CMS also publishes information on flu-vaccine disparities among Medicare Fee-For-Service enrollees, while the CDC's Social Vulnerability Index identifies communities that may need support and may indicate health disparities.

Value-Based Payment and Its Limits

Pay-for-performance has become an important and controversial part of the shift toward value-based payment in American healthcare. A central concern is that program design and implementation may either narrow or widen existing disparities. Research reviews have examined value-based payment models in networks of care using PRISMA guidelines and searches of eight databases conducted in July 2021. One identified limitation is that performance payments may be too small to cover the cost of delivering high-quality care.

An Evolving Payment Debate

The development of performance-based payment reflects a broader movement toward linking healthcare financing with quality and value rather than relying only on traditional payment arrangements. Its history is best understood as an ongoing policy experiment, because the effects on equity depend on how measures, incentives, and implementation are designed. The foundational question remains whether rewarding measured performance improves care without disadvantaging patients or providers serving populations with greater needs.

Unintended Consequences: How P4P Can Increase Inequality

Equitable healthcare distribution

The Tanzanian study revealed that P4P programs initially favored better-equipped facilities. Hospitals and health centers, with more resources and wealthier patient populations, often received higher payouts than dispensaries. This created a situation where those already better off benefited even more, potentially exacerbating existing inequalities.

Several factors contributed to this initial imbalance:

  • Resource Advantage: Facilities with more medical supplies and better infrastructure were naturally better positioned to meet the performance targets and earn incentives.
  • Wealthier Catchment Areas: Facilities serving wealthier populations had an easier time increasing service use, as these communities often have better access to transportation, information, and resources.
  • Incentive Structure: The design of the P4P program itself played a role. Targets based on absolute coverage rates could be more easily achieved by facilities that were already performing well.
AI Search Multiple angles on this topic

What Recent Reviews Examine

A 2026 Frontiers review examines the theoretical lenses used to understand performance-based and value-based payment models in health systems. It considers how those frameworks explain behavioral, organizational, and system-level effects. A 2022 narrative review describes pay-for-performance as an important and controversial issue as American healthcare shifts toward value-based payment. This debate occurs within a U.S. system that spends $12,434 per capita while experiencing lower life expectancy and higher rates of preventable mortality, according to the cited healthcare-inequities review.

Risks of Performance Incentives

Critics argue that performance payment can produce unintended consequences when measured targets do not reflect the full difficulty or cost of caring for disadvantaged populations. Providers may face pressure to prioritize documented metrics over less easily measured needs, and organizations with fewer resources may struggle to respond to incentive programs. These concerns do not establish that every performance-based model fails, but they support careful evaluation of who benefits, who bears the costs, and whether reported improvements reflect equitable care.

Alternative Models and Equity Risks

The CMS Innovation Center develops and evaluates alternative payment models that test new approaches to healthcare payment and service delivery while rewarding participants for delivering value-based care. However, the National Association of Insurance Commissioners identifies a drawback when considering health disparities: incentives to exceed quality metrics or cut costs could lead some providers to avoid serving disadvantaged and marginalized populations. The comparison therefore turns on more than whether a model rewards value; it also depends on whether its incentives account for unequal treatment conditions and risks.

However, the study also uncovered a positive trend: these inequalities tended to decline over time. As the P4P program matured, facilities with lower baseline performance started to catch up, demonstrating the potential for P4P to drive improvement across the board. This catch-up effect was particularly evident in the coverage of institutional deliveries, where facilities with low initial rates showed the most significant gains.

Designing for Equity: Lessons from Tanzania

The Tanzanian study offers critical insights for designing P4P programs that promote equity and avoid unintended consequences. It underscores the importance of considering the existing disparities between healthcare providers and tailoring incentives to address these imbalances.

AI Search Multiple angles on this topic

Aligning Accountability With Equity

The evidence has prompted proposals for addressing disparities within performance accountability and value-based payment programs. The JAMA Health Forum source proposes a four-part approach that aligns measurement, reporting, and incentive payments with equity goals. This approach treats equity as something that must be built into the design of accountability systems rather than assumed to follow automatically from rewarding higher measured performance.

Tracking Disparities Over Time

Future work is likely to depend on examining how hospital value-based payment programs affect disparities across their designs, implementation histories, and available evidence. The Medicare hospital programs reviewed in the cited research provide a framework for assessing those effects rather than assuming that payment reform has a uniform result. The Commonwealth Fund's 2026 State Health Disparities Report adds a broader comparison by evaluating racial and ethnic disparities within states and between U.S. states.

The Economic Cost of Inequity

The American Hospital Association describes a connection between health disparities and healthcare costs and offers practical approaches for using data to identify priorities and opportunities for improvement. Its resource guide is intended for hospitals and health systems and goes beyond presenting data alone. This framing places payment reform within a wider institutional challenge: organizations must identify which disparities drive harm and cost while developing practical responses.

Who Bears the Consequences

Because health disparities remain a major national challenge, policymakers are urged to monitor how pay-for-performance policies affect populations that already experience poorer health outcomes. The American Hospital Association estimates that disparities in health outcomes accounted for $320 billion in annual healthcare spending in 2022 and projects that the figure could reach $1 trillion or more by 2040 if disparities remain unaddressed. These figures present equity as both a human concern and a substantial economic issue, although the projection is explicitly conditional.

One key takeaway is that a one-size-fits-all approach to P4P can be detrimental. Performance targets should be adjusted based on baseline performance levels, ensuring that all facilities have a realistic opportunity to earn incentives. 'Equity bonuses' can be used to provide additional support to disadvantaged facilities, helping them overcome resource constraints and improve their capacity to deliver quality care.

Ultimately, the goal of P4P should be to improve healthcare for all, not just the best-resourced providers. By carefully considering incentive design and addressing structural inequalities, policymakers can harness the power of P4P to create a more equitable and effective healthcare system.

About this Article -

Written with AI assistance from published research, and reviewed by the Mystum team. See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1093/heapol/czy084, Alternate LINK

Title: Does Payment For Performance Increase Performance Inequalities Across Health Providers? A Case Study Of Tanzania

Subject: Health Policy

Journal: Health Policy and Planning

Publisher: Oxford University Press (OUP)

Authors: Peter Binyaruka, Bjarne Robberstad, Gaute Torsvik, Josephine Borghi

Published: 2018-10-31

Everything You Need To Know

1

What are 'payment for performance' programs in healthcare?

Payment for performance programs, or P4P, are initiatives where healthcare providers are given financial incentives when they achieve specific performance targets. The primary goal is to improve the quality of care by rewarding good performance and motivating further improvement across various healthcare services.

2

According to the Tanzanian study, how can 'payment for performance' programs lead to increased inequality?

The Tanzanian study demonstrated that P4P programs can initially favor healthcare facilities that are already better equipped. This happens because hospitals and health centers with more resources and wealthier patient populations can more easily meet performance targets and receive higher payouts compared to dispensaries with fewer resources. This can inadvertently increase existing inequalities in healthcare.

3

What factors contribute to the initial imbalance observed in 'payment for performance' programs?

Several factors contribute to the initial imbalance in P4P programs. Resource advantage plays a key role, as facilities with more medical supplies and better infrastructure are better positioned to meet targets. Wealthier catchment areas also help because these populations have better access to transportation, information, and other resources. Additionally, the design of the P4P program itself, especially targets based on absolute coverage rates, can favor facilities that are already performing well.

4

Do 'payment for performance' programs always widen the healthcare gap, or can inequalities decrease over time?

Although P4P programs can initially widen healthcare gaps, the Tanzanian study found that these inequalities tend to decline over time. Facilities with lower baseline performance start to catch up, demonstrating the potential for P4P to drive improvement across the board. This catch-up effect was particularly noticeable in the coverage of institutional deliveries, where facilities with low initial rates showed significant gains. However, the speed and extent of this catch-up can vary, and specific design elements are needed to ensure equitable outcomes.

5

What lessons from the Tanzanian study can be applied to design more equitable 'payment for performance' programs?

The Tanzanian study emphasizes the importance of designing P4P programs that promote equity by considering existing disparities between healthcare providers. It suggests tailoring incentives to address these imbalances, ensuring that under-resourced facilities have the support needed to meet performance targets. This includes addressing resource limitations, modifying target setting approaches to account for baseline performance, and providing targeted support to improve service delivery in disadvantaged areas.

Newsletter Subscribe

Subscribe to get the latest articles and insights directly in your inbox.