Meet The Target? The Impact of Targeted Financial Incentives on Primary Care Physicians’ Labour Supply

This paper investigates primary care physicians' responses to targeted incentives. While these incentives are a common tool employed by governments to try to influence the delivery of health care, especially primary care, the nature and range of their effects are complex. Both theory and existing empirical evidence suggest that increasing the payment for a medical act does not necessarily lead physicians to increase their provision of the targeted procedure. Moreover, given the relatively broad scope of primary care physicians' practice, their responses to specific bonuses or premiums may also include changes to their activities in areas of care that are not directly targeted by the incentives. Exploiting the introduction of a premium that increased the remuneration for obstetric care in Ontario, I find that primary care physicians did not increase their provision of the services targeted by the premium following its introduction. On the contrary, doctors who were initially providing higher volumes of those services adjusted their provision downwards in response to the incentive. The results also suggest that the incentive might have negatively affected the provision of services in other areas of care by primary care physicians receiving the premium. These changes in practice style are in line with the predictions of a labour supply model in which income effects are relatively strong. At a time when health care budgets are growing at a pace that is often qualified as unsustainable, this paper contributes to understanding the potential broader impacts of targeted financial incentives on the delivery of care, and their alignment with governments' objectives.