Information or Compensation? Understanding the Role of Information Technology in Physician Response to Pay-for-Performance

Physician financial incentives and utilization of information technology are two key levers policymakers have considered to “bend the cost curve” and reduce health care cost growth in the United States. We study both of these levers empirically with a focus on how each can be used to improve both chronic disease management and the delivery of preventive health care screenings. We leverage a unique dataset from the Hawaii Medical Service Association, the largest insurer in Hawaii, that contains micro-level information on behavior of over 700,000 patients and over 1,000 primary care physicians. We exploit exogenous variation in both (i) physician pay for quality financial incentives and (ii) physician use of information technology to investigate the impact of these levers on the quality of medical care received. Specifically, we investigate a doubling of money at stake for potential quality related payments (from e.g. $30,000 to $60,000 for a busy primary care physician) as well as the large scale coordinated deployment of a sophisticated IT platform. Preliminary analysis reveals that financial incentives and IT are complementary, in the sense that use of IT improves physician responses to existing financial incentives. We present a range of analyses that treat physicians as information-constrained agents, and study the role of IT an information provision in relaxing those constraints.