Evidence is accumulating that pay for performance does not perform. The problems are both endogenous (what happens to the particular performance targets at which the intervention is targetted) and exogenous (what happens to performance criteria beyond the designated targets).
First, the endogenous effects. Pay for performance does not seem to work (not even on its own terms) or its effects are short lived. Studies on both sides of the Atlantic have found that initially positive effects were short lived. 
Second, a recent article highlights the negative exogenous effects of payment for performance. The interventions particularly penalise hospitals at the bottom of the financial difficulty league, who tend to serve disadvantaged populations. They are unfair, since patients at these hospitals have greater morbidity (with more opportunities for error). Their patients are not as mobile as better-off people, and so they cannot as easily ‘vote with their feet’. Worse, there is a substantial volume of psychological work showing that financial rewards/penalties are demotivating, especially to intrinsically motivated people. Specific targets sometimes work, but burdensome lists of tick-box targets are often not effective in the long term, and can have negative spill-over effects.
— Richard Lilford, CLARHC WM Director
- Jha AK, Joynt KE, Orav EJ, Epstein AM. The long-term effect of premier pay for performance on patient outcomes. N Engl J Med. 2012; 366: 1606-15.
- Kristensen SR, Meacock R, Turner AJ, et al. Long-term effect of hospital pay for performance on mortality in England. N Engl J Med. 2014; 371: 540-8.
- Woolhandler S and Himmelstein DU. Collateral Damage: Pay-for-Performance Initiatives and Safety-Net Hospitals. Ann Intern Med. 2015; 163(6): 473-4.
- Brown C, Hofer T, Johal A, Thomson R, Nicholl J, Franklin BD, Lilford RJ. An epistemology of patient safety research: a framework for study design and interpretation. Part 3. End points and measurement. Qual Saf Health Care. 2008; 17(3): 170-7.
- Combes G, Allen K, Sein K, Girling A, Lilford R. Taking hospital treatments home: a case study of barriers and success factors. Implement Sci. [Submitted].