Evaluating the Effectiveness of Government Mandated Performance Management Systems: A Field Experiment

Abstract

The public sector has attempted to improve organizational performance by borrowing elements of performance management systems (PMS) from the private sector and imposing those systems on organizations. The health care sector has provided the setting for numerous implementations of such systems aimed at improving quality. However, the effectiveness of those PMS is unclear. We analyze the effectiveness of government mandated PMS by addressing two research questions. First, does the public disclosure of relative performance information (RPI) improve firm performance? Second, is there an incremental effect of mandated pay-for-performance (P4P) plans? We study two such concurrent initiatives in health care to tease out the respective effect of RPI and P4P: the reporting and public disclosure of relative performance measures by acute hospitals (implemented nationwide by CMS, the Centers for Medicare & Medicaid Services) and the Massachusetts P4P plan (implemented by MassHealth).Examination of process measures of quality used in the United States over a six-year period demonstrates the effectiveness of RPI. Yet, the Massachusetts P4P plan does not appear to be associated with incremental performance improvement. These results are consistent with our argument that the P4P plan implemented by MassHealth might have been crowded out by the CMS reporting and disclosure plan and did not provide sufficient motivation to individual employees to improve above and beyond the informational effect of RPI. Findings from this study are especially important as CMS is revamping its payment system and focusing on value-based purchasing.