An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Intrinsic Versus Extrinsic Motivation


Empirical meta-analyses of studies that examined incentive programs show that such programs have a mixed response; some studies show an impact, and many others show little or even a negative impact (Rothe, 1970; Deci, Koestner, and Ryan, 1999; Cameron, Banko, and Pierce, 2001). Researchers have tried to reconcile the mixed results by theorizing that they are caused by a conflict between intrinsic motivation, which is a person’s inherent desire to do a task, and extrinsic motivation, which is the external incentive—such as might be provided in a P4P program. Researchers theorize that instead of supporting intrinsic motivation, extrinsic incentive “crowds out” intrinsic motivation (Deci, Koestner, and Ryan, 1999). This theory is used to explain why financial incentives for blood donation are ineffective: they inhibit the altruistic benefit of blood donation (Titmuss, 1970). The explanation for this crowding-out effect is that when a task is tied to an extrinsic incentive, people infer that the task is difficult or unpleasant (Freedman, Cunningham, and Krismer, 1992). 

Empirical evidence of this effect was provided by a study in which students who were asked to collect money for a charity were put into two groups, one that was given an external incentive (a small amount of money), and one that was not. The group that was given the incentive collected less money than the other group did (Gneezy and Rustichini, 2000). A meta-analysis supported this study’s finding that performance-contingent rewards significantly undermine intrinsic motivation (Deci, Koestner, and Ryan, 1999), but the finding is not without critics (Cameron, Banko, and Pierce, 2001). Similar concerns have been raised about the effect of P4P in health care and how it may violate a physician’s sense of professionalism (Berwick, 1995). Application of this theory would imply that a small P4P incentive could actually lead to lower performance if it is tied to something hospitals are intrinsically motivated to improve, such as quality of care.

A potential way to address the crowding out of intrinsic motivation is simply to increase the size of the financial incentive. A very large external incentive will crowd out any inherent intrinsic motivation; but, in turn, it may create a greater behavioral response than would be obtained through intrinsic motivation alone. Gneezy and Rustichini, in “Pay Enough or Don’t Pay at All” (2000), illustrated this concept in a study of the average percentage of correct answers on an IQ test for four groups of college students that were given different incentives—one group received no incentive for each correct answer, one received a small incentive for each correct answer, one received a medium incentive for each correct answer, and one received a large incentive for each correct answer. The group given no financial incentive outperformed the group given the small financial incentive (56 percent versus 46 percent of questions correct, respectively), and the groups given the medium and large financial incentives (68 percent of questions correct in each group) outperformed both of the other groups.

The idea of using a large financial incentive to overwhelm the potential loss of intrinsic motivation is at odds with the recommendation to use low-powered incentives to mitigate the incentive to overfocus on measured areas of care to the detriment of unmeasured areas of care. 

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