Pay for performance in health care and teaching - we know how this ends

It seems pretty clear that if you want better quality healthcare, or better teaching, then you should pay professionals for the results they obtain. "Pay for Performance" is one of the mantras of healthcare reform. We saw the same arguments in 'No Child Left Behind', where paying principles to lower failure rates has worked so well.

There's been a lot of research in many industries about how well Pay for Performance schemes work in practice, but this historic statement from my archives says it best ...

(Thanks to Google, I didn't have to retype this ..)

... The planners tried various expedients,” wrote Alec Nove in his economic history of the Soviet Union. They issued instructions that user demand should be met; they modified bonus systems so that it was not enough to achieve purely quantitative targets; they experimented with value-added indicators. “Each of these “success indicators” had its own defect, induced its own distortions. Thus, insistence on cost reduction often stood in the way of the making of a better- quality product. A book could easily be filled with a list of various expedients designed to encourage enterprises to act in the manner the planners wished, and the troubles to which each of them gave rise...

Update 8/19/10: See also Fake graduation rates and other predictable outcomes of no child left behind