Tag: reform

Poland’s Road to “High Income Country” Status: Lessons Learnt – Not Only for Other Countries

20180311 Poland Road to High Income Country Status Image 01

In this brief we summarize and discuss results presented in a recent World Bank Report focused on Poland’s path from middle to high-income country status. In the period until 2015, Poland’s economic development distinguished itself by its stability and consistency of the implemented reform package, and its inclusive nature. Poland became classified as a high-income country after only 15 years from gaining a middle-income status. At the same time, income inequality remained stable and absolute poverty levels fell significantly. The World Bank Report offers lessons from and insights for Poland, which are discussed from the perspective of the policies implemented by the governments in the last two years.

Poland’s status in the World Bank nomenclature has recently been “upgraded” from being middle to high-income country. While this categorization is only a nominal change, it reflects the country’s economic development over the recent decades and is an important recognition of the success of a wide range of reforms implemented across a broad number of areas. Notably, Poland moved from the middle to high-income status in a period of less than 15 years.

In a book recently published by the World Bank, it is argued that the Polish experiences from the reform process can serve as valuable lessons for countries that are in the process of, or have just embarked upon major socio-economic reforms, as well as for those, who have fallen into the so-called middle-income trap and are looking for solutions to their stagnant economies. At the same time, in comparison to other established high-income countries, there are a number of insights that Poland’s policy makers ought to bear in mind in order to stay on course of the reform process and continued stable growth.

Looking at policies of the recent governments, however, one gets a strong impression that some important insights have been ignored. As rapid population aging looms over the horizon, the lack of necessary adjustments combined with the risks to stability of the political and economic environment might in the medium run have significant implications for Poland’s further development.

The big picture

The key feature of the Polish socio-economic policy approach, over the period covered by the World Bank analysis (i.e. up to 2015), was a unique consistency of a broad direction taken by subsequent administrations. This allowed the reform process to develop without major breaks or U-turns, which ensured the overall stability of the socio-economic environment and provided stable investment prospects. The World Bank highlights the key role of institutions, including rule of law, property rights, and democratic accountability of different levels of government. Basic market institutions, including the respect for rules on price and product regulations, corporate governance and market regulations, as well as foreign trade and investment, have played a crucial role. This framework allowed for continued improvement in the efficiency of resource allocation – including the allocation between sectors of the economy, as well as between and within enterprises.

Crucially, Poland prepared well and took full advantage of the integration with the European Union. The EU accession was first used as a common anchor for stability of the reform process, and after 2004, the European funds became an additional engine of growth. At the macro level, stability of the fiscal framework with limited deficits and public debt were combined with appropriate regulation and supervision of the financial sector, an independent central bank, and close links to global markets.

Shared prosperity

While the above points provided the basis for Poland’s economic development, the Report highlights another unique feature of Poland’s success, namely the degree to which the fruits of the process have been equally shared among different groups of society. The overall income inequality has remained relatively stable, with the Gini coefficient actually falling slightly between 2005 and 2014, from 0.351 to 0.343. Relative income poverty levels remained stable over this period (at about 20%), and the levels of absolute poverty fell significantly. For example, the proportion of the population living on less than $10 per day fell from 51.3% in 2005, to 29.6% in 2014. Growing incomes were primarily driven by increases in labor earnings, but employment growth – in particular among older age groups –also made a contribution. The government’s labor market policy also played a role with a rapid increase in the level of the national minimum wage (NMW), which grew by 65% in real terms between 2005 and 2015, i.e. almost twice as fast as the average wage. While there is evidence that the rapid growth in the NMW had negative effects on employment – in particular among temporary, young, and female workers, these have been relatively modest. Additionally, the tax and benefit policy has contributed to reduced inequality. It has been estimated that nearly half of the reduction in the Gini coefficient, over the period 2005–2014, resulted from reforms of the tax and benefit system (Myck and Najsztub, 2017).

It is clear that human capital was one of the cornerstones of Poland’s success in recent years. Developments on the labor market, such as a rapid productivity growth, were facilitated by a well-educated labor force, which could respond and adjust to the changing conditions and requirements. In this regard, Poland’s advantage in comparison to many other low and middle-income countries has been the relatively high level of spending on public education and healthcare, not only since the start of the economic transformation in the 1990s, but also before that. Indicators, such as the infant mortality rate, were low in Poland already in the 1980s, and have since further improved (see Figure 1). For a long time, public spending on education has been at levels comparable to those in established high-income countries (see Figure 2). Additionally, a series of reforms to the education system since 1990, have resulted in improvements in the quality and coverage of education. This, in turn, has lead to a rapid improvement of scores in language, mathematics, and science in the PISA study (Programme for International Student Assessment), in which Polish students recently outperformed those from many other OECD countries (OECD 2014). Importantly, the improvements in the education results have been found across the socio-economic spectrum, which further stresses the inclusive character of the changes that have taken place.

Figure 1. Infant mortality rate (per 1,000 live births), 1980 and 2014

Notes: Countries grouped in the following manner: red – middle-income countries; blue – new high-income countries; green – established high-income countries. Horizontal lines represent group averages. Source: World Bank (2017), Figure 5.16, based on World Development Indicators.

Figure 2. Government expenditure on education, percent of GDP, 1990

Source: World Bank (2017), Figure 5.11, see notes to Figure 1.

Insights for Poland

“As economies enter the high-income group, weakness in economic institutions such as the rule of law, property rights, and the quality of governance become increasingly important to sustain convergence.”

World Bank (2017)

While the Polish reform experience, over the period examined in the World Bank Report, offers important lessons for other countries aspiring to the high-income status, the authors point out that Poland’s continued development needs to rely on further improvements in a number of key areas. The following policy areas have been highlighted in the Report:

  • Working on more inclusive political and economic institutions and enhancing the rule of law with the focus on the judiciary;
  • Adjustments to fiscal policy in particular to deal with the consequences of population aging;
  • Increasing the domestic level of savings to facilitate large investment needs;
  • Supporting innovation through more intense competition and high quality research education;
  • Improving social assistance programs and access to high quality health and education for low income groups;
  • Increasing the progressivity of the tax system to support inclusive growth;
  • Adjusting migration policies to bring in skills and innovative ideas and compensate for the country’s aging workforce.

“Sustaining Poland’s record of high, stable growth will require adjustments to fiscal policy (…). Government will need to create the fiscal space to deal with the increasing pressures coming from aging, the inevitable decline of EC structural funds for investment, and a more uncertain global context.”

World Bank (2017)

Lessons, insights and recent policies

While several of the Law and Justice majority governments’ policies since 2015 have been well in line with the World Bank recommendations, there have also been a number of questionable policy areas. One major concern seems to relate to the broad background of reforms of the judiciary, which have drawn significant criticism of the European Commission and other international institutions. Implications of such major changes for economic growth are uncertain but potentially very damaging.

Another long-term concern arises from the new pension age reform. From the socio-economic perspective, rapid ageing of the population is one of the main challenges facing the country. Between 2015 and 2030, the number of people aged 65+ will grow from 6.1 million to 8.6 million, i.e. by over 40%. This will put significant strains on the country’s public finances due to increasing public-pension expenditures and growing costs of health and long-term care. These pressures will only be exacerbated by the current government’s decision to lower the statutory retirement age to 60 for women and 65 for men, from the target uniform age of 67 legislated in the reform of 2012. Given the contributions-defined nature of the Polish pension system, this will result in significantly lower levels of pensions, especially among women, and a substantial drain on public finances resulting from lower levels of contributions and taxes.

The generous family benefits of the Family 500+ Program – implemented in 2016 and which cost about 1.3% of the GDP – have also been criticized on a number of grounds. They have undoubtedly changed the financial conditions of numerous families and limited the extent of child poverty. At the same time, they contribute to maintaining low levels of female labor-force participation and there is so far little indication that they have significantly changed Poland’s very low fertility rate. It seems that while the program may have positive long-term consequences resulting from reduced poverty, it is unlikely to shift the demographic dynamics.

Uncertainty also surrounds the consequences of a haphazard major education reform, which is another trademark policy of the Law and Justice party. The reform re-introduced the 8+4 system in place of the post-1999 three-level educational arrangement (6+3+3). The new system takes the number of years of general education back from 9 to 8 years, and instead extends by one year the length of secondary schooling. While the potential effects of such a change are difficult to foresee, the 8+4 system may be in particular disadvantageous to children from rural areas, who are most likely to continue their education in their rural primary schools for the two extra years.

A number of steps taken by the government since late 2015, and in particular those related to the redistributive policies implemented in the last two years, seem to be consistent with the World Bank insights. On the other hand, the approach towards the reforms of the judiciary, the general approach to the rule of law, and the reforms of education and pension regulations, quite clearly appear to ignore not only the insights, but also the lessons resulting from Poland’s own experience of the recent decades. Given the challenge of rapid aging in the Polish population, there seems to be much gained from taking them seriously if the current and future administrations want to ensure Poland’s continued inclusive growth and to secure its status as an established high-income country.


This policy brief draws heavily on the World Bank (2017) Report: “Lessons from Poland, Insights for Poland: A sustainable and inclusive transition to high-income status” (co-authored by Michal Myck) and the accompanying Working Paper by Myck and Najsztub (2016). Views and opinions expressed in this brief are the sole responsibility of the author and are not endorsed by the World Bank or CenEA.


  • Myck, M., and M. Najsztub (2016) “Distributional Consequences of Tax and Benefit Policies in Poland: 2005–2014.” CenEA Microsimulation Report 02/16, Centre for Economic Analysis, Szczecin.
  • OECD (Organisation for Economic Co-operation and Development) (2014) PISA 2012 Results: What Students Know and Can Do—Student Performance in Mathematics, Reading and Science (Volume I: Revised edition, February 2014). Paris: OECD Publishing.
  • World Bank (2017) “Lessons from Poland, Insights for Poland: A sustainable and inclusive transition to high-income status”, The World Bank, Washington.

Gaming the System: Side Effects of Earnings-Dependent Benefits

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Today policy makers in developing and middle-income countries face tremendous challenges in combating various forms of tax evasion. Increasingly it is proposed to tie social security benefits to the reported income and in this way increase tax compliance incentives. We use administrative data from Latvia to study generous childcare benefits, which depend on the reported wages in the pre-childbirth period. Our analysis reveals pronounced wage growth shortly before the childbirth, which we rationalize by the legalization of previously undeclared wages. Obtained results show that the wage growth is temporary and lasts only until the end of the period, which is taken into account when calculating parental benefits.

Today policy makers around the world are increasingly preoccupied with reducing various forms of tax evasion. To provide tax compliance incentives it is often proposed to tie social security benefits to declared wages. For example, Kumler et al. (2013) show that a reform tying future pension benefits to the payroll tax in Mexico increased tax payments after the reform. Similarly, Cruces and Bergolo (2013) and Bergolo and Cruces (2014) demonstrate that a reform tying health care insurance of children to the reported earnings of parents increased “legal” labor supply in Uruguay.

On the other hand, Kreiner et al. (2016) document inter-temporal wage shifting in Denmark to enjoy significantly lower marginal tax rates. In light of the results by Kreiner et al. (2016), it is possible that employees and employers collude to increase the wage during the period, which is taken into account when calculating social security benefits. If the wage increase is temporary then the result of tying social security benefits to wages might be a net loss to the government finances. Hence, the question of whether tying social security benefits to reported wages is a solution to the problem of payroll tax evasion is still open.

We demonstrate that tying social security benefits to the declared wages can backfire to the extent that it can lead to the excessive payments of social security benefits, while doing almost nothing to reduce payroll tax evasion, in this way producing net fiscal loss to government finances. More specifically, we show that if the contribution period that determines the size of the benefit is relatively short and social security benefits are generous, then by colluding, employees and employers can temporally increase the legal wage to extract generous benefits afterwards. This result can have implications for the design of social benefit systems in many countries, where relatively short contribution periods ensure generous long-lived benefits afterwards.

Institutional background and methodology

We illustrate this phenomenon by studying the childcare benefit in Latvia, which in 2005-2008 depended on parents’ declared wage in the pre-childbirth period. This system, introduced in 2005, replaced a universal (very modest in size) childcare benefit. The new rules foresaw that one of the parents could receive a benefit that was equivalent to the parent’s previous net wage until the child became one year old. The average wage that determined the size of the benefit was calculated over the 12-months period that ended three months before the childbirth (hereinafter – benefit qualification period) and therefore included 5 months of pregnancy. Initially the benefit was not compatible with employment but as of March 2007 it became possible to simultaneously work full-time and receive the benefit.

Presumably, the 2005 reform created incentives to report higher earnings before the childbirth, because of the generosity of the new benefit and because the benefit qualification period included pregnancy, i.e., the period when the mother knows if/when she will be eligible for the benefit. To uncover the effects of the incentives to report more income, we use administrative data on declared monthly wages and use three sources of identifying variation in a difference in differences setup.

First, we compare wage growth during pregnancy with wage growth of women who did not become pregnant. The identifying assumption is that, in the absence of pregnancy, the wages of women who became pregnant would follow the same trend as the wages of other women. Under this assumption, any difference in the wage growth can be interpreted as a legalization of previously undeclared wages. However, this assumption may not hold because pregnancy is not randomly assigned across women: women can anticipate a wage increase (e.g. anticipate a promotion) and adjust the decision to have a child. Therefore, we use a second source of identifying variation by comparing wage growth during pregnancy for women employed in the private sector with wage growth for women employed in the public sector, where tax evasion is presumably absent. Assuming that promotion anticipation effects in the private and the public sector are identical, this difference in wage growth can be interpreted as the growth of wages resulting from wage legalization.

Our previous assumption might be violated if promotions in the public sector can be easier to predict (which means that anticipation effects in the private and the public sectors are not necessarily identical). To address this challenge, we use a third source of identifying variation coming from the 2005 reform, which tied the childcare benefit to the previous earnings. Since this reform increased incentives to disclose higher earnings during pregnancy, the difference in wage growth in the private sector versus public sector should not be observed before the reform.

Estimations are based on a matched employee – employer administrative dataset, which covers monthly-declared earnings of all employed workers in Latvia from 1996 to 2010.


There are three main findings. First, wage growth during the first five months of the pregnancy in the private sector is always higher than that in the public sector. If we use this observation to obtain an estimate of the wage growth due to the legalization of previously undeclared wages, we find, depending on the regression specification, that it varies between 5 and 7 percent.

Second, this effect is mainly driven by the time period after the reform of 2005 (see Figure 1). Thus, if we use the time period before the reform of 2005 only to difference out permanent differences in the anticipation effects between public and private sector, our preferred regression specifications provide us with an estimate that varies from 5 to 6 percent.

Figure 1. Difference-in-difference-in-difference estimate by year, %

Note: difference in difference in differences estimate for a given year is calculated by first comparing wages of pregnant women with those of not pregnant before and during first five months of the pregnancy. Then this estimate is compared between public and private sectors. Everything is compared with respect to one year before the reform announcement – 2003.

The final finding shows that the sharp jump in the wage growth in private sector versus the public sector starts to appear exactly in the first month of the pregnancy (see Figure 2). It is important to note that we do not see any differential wage growth between the public and the private sector before the date of conception, indicating that potential anticipation effects are limited.

Figure 2. Difference-in-difference-in-difference-in-differences estimate by pregnancy month, %

Note: difference in difference in difference in differences estimate for a given month is calculated by first comparing wages of pregnant women with those of not pregnant in a given month with respect to one month before the date of conception. Then this estimate is compared between public and private sectors and finally previously calculated difference is contrasted before and after the reform tying parental benefits to reported wages.

Due to the fact that many women do not return to the same employer after childbirth, it is problematic to make inferences about the wage a woman receives once she returns to the labor market. To overcome this challenge we use the same social security data for men for the time period covering January 2007 until August 2010.

As explained previously, starting in March 2007 the childcare benefit became compatible with full time employment. The outcome of this reform was that many men started to receive the benefit, while continuing to work. This allows us to perform the previous analysis for the sample of men.

Results presented in the Figure 3 show that similarly as in the sample of women we see a sharp increase in the wage during the qualification period. Additionally, we see a slowdown in the wage growth once the qualification period ends. It is important to mention that displayed coefficients describe the difference between public and private sector in the change in wages between men whose partners became pregnant and those who did not with respect to the reference period (here one month before the conception date). We also record a sharp growth in wages in the public sector in the months following the childbirth. On the contrary, wages in the private sector stay the same, hence the large difference in the months following the childbirth.

Figure 3. Difference-in-difference-in-differences estimate for men by month of partner’s pregnancy, %

Note: difference in difference in differences estimate for a given month is calculated by first comparing wages of men whose partner became pregnant with those men whose partner did not become pregnant with respect to one month before the date of conception. Then this estimate is compared between public and private sectors


Drawing on the example of the childcare benefit in Latvia, we show that declared wages sharply increase during the period that is taken into account when calculating social security benefits. This wage growth is temporary and does not continue once the benefit qualification period is over. We interpret this phenomenon as the legalization of previously undeclared wages: this temporary legalization of earnings is possible, because the benefit qualification period is relatively short (12 months), and includes 5 months of pregnancy, which makes the average wage during the qualification period relatively easy to affect. Such setting creates bad incentives – an employee and an employer can collude to increase the average wage that determines the size of the benefit.

Additionally, our research casts doubts on policies tying parental benefits to declared earnings with an aim to reduce opportunity costs of high earners and increase their fertility. Researchers analyzing such policies should be very cautious when interpreting their results because the effect that they capture might not come from high earning women, but rather from women who manage to increase their income during pregnancy. Absent monthly data, it might be challenging to disentangle the two.

Many countries implement earnings-dependent benefits. Our results show that even very well designed social security benefits can and will be abused if people are given wrong incentives. Thus to achieve the best outcomes policy makers when deciding whether to tie social security benefits to declared earnings should take into account side effects described in this brief.



Pay-for-Performance and Quality of Health Care: Lessons from the Medicare Reforms

Pay-for-Performance and Quality of Health Care Policy Brief Image

Health care attracts major attention in terms of hospital and physician reimbursement, owing to the large share of public expenditures and the presence of welfare issues demanding regulation. The focus of this policy brief is quality adjustments of prospective payments in the health sector. Using the data on the 2013 reform in Medicare, we show differential effects of value-based purchasing, where price setting is related to benchmark values of quality measures. The theoretical and empirical evidence indicates that unintended effects appear for acute-care U.S. hospitals at the best percentiles of quality. The findings provide insights into benchmarking within pay-for-performance schemes in health care.


The Russian national project “Health”, which was started by the federal government a decade ago and has expanded to regionally financed hospitals, is an example of a public remuneration scheme targeted at increasing health care efficiency. The project emphasized the role of the primary sector and raised salaries of general practitioners. A part of salaries was linked to patients’ assessment of the quality of health care. The reimbursement was seen as a means to stimulate higher quality.

However, cautiousness is required in introducing such payment mechanisms. Indeed, international experience shows that quality-related pay in health care may lead to heterogeneous effects across different groups of providers. A recent CEFIR working paper uses administrative panels of the U.S. hospitals to analyze the changes in quality owing to the introduction of the quality-pay.

The U.S. Health Care Sector

Pilots of pay-for-performance

In the early 2000s, numerous private and public programs linking quality and reimbursements in health care existed in the U.S., mostly at employer or state level (Ryan and Blustein, 2011; Damberg et al., 2009; Pearson et al., 2008). A nationwide pilot of quality-performance reimbursement started with the Hospital Quality Incentive Demonstration, where quality measures for five clinical conditions (heart failure, acute myocardial infarction, community-acquired pneumonia, coronary-artery bypass grafting, and hip and knee replacements) were accumulated from voluntarily participating hospitals. Some of these quality-reporting hospitals opted for the pay-for-performance project (initially established for 2003-2006, and later extended to 2007-2009). The project provided respectively 2% and 1% bonus payments for hospitals in the top and second top deciles of each quality measure (as of the end of the third year of the project). Hospitals in the bottom two deciles, on the other hand, were to receive 1-2% penalties (Kahn et al., 2006). Overall, the financial incentives helped improving the quality of the participating hospitals, but the improvement was inversely related to baseline performance (Lindenauer et al., 2007). Moreover, low-quality hospitals required most investment in quality increase; yet, they were not financially stimulated (Rosenthal et al., 2004).

The accumulation of the measures within the Hospital Quality Incentive was followed by the launch of the Surgical Care Improvement Project (SCIP) and Hospital Consumer Assessment of Healthcare Providers (HCAHPS). HCAHPS was the first national standardized survey with public reporting on various dimensions of patient experience of care. The measures of the clinical process of care domain are collected within the Hospital Inpatient Quality Reporting (IQR) program. These are measures for acute clinical conditions stemming from the Hospital Quality Incentive (i.e. acute myocardial infarction, heart failure, pneumonia), as well as measures from the Surgical Care Improvement Project and Healthcare Associated Infections.

The 2013 reform of Medicare

The success of the pilot project in the U.S. in terms of average enhancement of hospital quality has resulted in the nationwide introduction of these reimbursement policies. Namely, a value-based purchasing reform started at Medicare’s acute-care hospitals in the fiscal year of 2013. The reform decreased Medicare’s prospective payment to each hospital by a factor α and redistributes the accumulated fund. As a result of this rule, all hospitals performing below the mean value of the aggregate quality are financially punished, as their so-called adjustment coefficient is less than unity. At the same time, hospitals above the mean value are rewarded (See details in the Final Rule for 2013: Federal Register, Vol.76, No.88, May 6, 2011.)

The aggregate quality – called the total performance score – is a weighted sum of the scores of the measures in several domains: patient experience of care, clinical process of care, outcome of care, and efficiency. The scores on each measure are based on the hospital’s position against the nationwide distribution of all hospitals. In short, positive scores are given to hospitals above the median, and higher scores correspond to performance at the higher percentiles. The scores are a stepwise function, assigning flat values of points to subgroups within a given percentile range. Hospitals above the benchmark (the 95th percentile or the mean of the top decile) are not evaluated according to their improvement relative to the performance in the previous year.

If one assumes that hospitals are only maximizing profit, then such a linear payment schedule should stimulate quality increases across all spectrums of hospitals. However, the theoretical literature generally separates the hospital management, interested in profits, from the physicians who make decisions affecting the level of quality. In particular, physicians are treated as risk-averse agents, who have a decreasing marginal utility of money; that is, their valuation of monetary gains of a certain size decreases as their income increases. In such behavioral model (Besstremyannaya 2015, CEFIR/NES WP 218) physicians’ decisions about the quality of care is shaped by the trade-off between the potential losses they may incur if fired in case of hospital budget deficit and/or bankruptcy and their own costly effort to maintain and improve quality.

In this respect, the reform introduced two mechanisms: (1) it decreased the level of reward for low-quality hospitals and increased it for high-quality hospitals; and (2) it established a positive dependence of reward on quality. We show that the two forces compete, and the first one may outweigh the second for physicians at hospitals with high quality. Indeed, in these hospitals improved budget financing makes the bankruptcy, and probability of firing, less likely. As a result, physicians may be satisfied with a given sufficient level of a positive reward and not willing to exert any further efforts to raise the amount of this reward. Furthermore, physicians may even become de-stimulated. As a result, in these higher quality hospitals, the quality of care stabilizes or even goes down after the reform.

To sum up, we hypothesize that quality scores increase at the lowest tails of the nationwide distribution, while it may stay stable or fall among the highest quality hospitals. The sign of the mean/median effect is ambiguous.


Data on quality measures and hospital characteristics such as urban/rural location and ownership come from Hospital Compare. The panel covers the period from July 2007 to December 2013, and consists of 3,290 hospitals (12,701 observations). We exploit first-order serial correlation panel data models – longitudinal models where the value of the dependent variable in the previous period (lagged value) becomes one of the explanatory variables (see notations and definitions of analyzed measures in Tables 1-2.) The empirical part of the study evaluates the impact of the reform on changes of the quality scores of hospitals belonging to different percentiles of the nationwide distribution of each quality measure.

Table 1. Patient experience of care

Comp-1-ap Nurses always communicated well
Comp-2-ap Doctors always communicated well
Comp-3-ap Patients always received help as soon as they wanted
Comp-4-ap Pain was always well controlled
Comp-5-ap Staff always gave explanation about medicines
Clean-hsp-ap Room was always clean
Quiet-hsp-ap Hospital always quiet at night
Hsp-rating-910 Patients who gave hospital a rating of 9 or 10 (high)

Notes: Score on each measure is the percent of patients’ top-box responses to each question.

Table 2. Clinical process of care

AMI-8a Primary PCI received within 90 minutes of hospital arrival
HF-1 Discharge instructions (heart failure)
SCIP-Inf1 Prophylactic antibiotic received within 1 hour prior to surgical incision
SCIP-Inf3 Prophylactic antibiotics discontinued within 24 hours after surgery end time
SCIP-Inf4 Cardiac surgery patients with controlled 6 a.m. postoperative blood glucose
SCIP-VTE2 Surgery patients who received appropriate venous thromboembolism prophylaxis within 24 hours prior to surgery to 24 hours after surgery

Notes: Score on each measure is the percent of percent of cases with medical criteria satisfied.

The results of the estimates offer persuasive evidence for a non-rejection of our hypotheses: quality goes up at 1-5th deciles and falls at the 6-9th deciles (see Figures 1-2).

Figure 1. Mean change of scores owing to value-based purchasing across percentile groups of hospitals


It should be noted that the hypotheses concerning differential effects also rely on the fact that there is a certain population of hospitals to which each of the step-rates apply (Monrad Aas, 1995). Hence, the threshold and/or benchmark value in the national schedule may be worse than the value in a given hospital. Therefore, reimbursement with benchmarking becomes an additional cause of undesired effects.

Figure 2. Mean change of scores owing to value-based purchasing across percentile groups of hospitals



Our analysis confirms the presence of adverse effects of quality performance pay in health care. A remedy may be found in establishing benchmark at the value of the best performing hospital or employing ‘episode-based’ payment, which rewards a hospital for treating each patient case with corresponding criteria satisfied (Werner and Dudley, 2012; Rosenthal, 2008).

While the above results are based on the US data, they suggest that cautiousness is required in applying the pay-for-performance schemes to healthcare financing also in transition countries, and much attention should be paid to the potential adverse effects.


  • Besstremyannaya, Galina, 2015. “The adverse effects of incentives regulation in health care: a comparative analysis with the U.S. and Japanese hospital data” (2015) CEFIR/NES Working Papers, No.218, www.cefir.ru/papers/WP218.pdf
  • Damberg, Cheryl L, Raube, Kristiana, Teleki, Stephanie S and dela Cruz, Erin, 2009. ”Taking stock of pay-for-performance: a candid assessment from the front lines”, Health Affairs, Volume 28, pages 517-525.
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