Physician's altruism in incentive contracts: Medicare's quality race

The paper analyzes the impact of physicians' altruism and motivation on the outcomes of pay-for-performance schemes in healthcare, where a fixed price contract on quantity is supplemented with a relative performance contract on quality. Our theoretical model forecasts crowding out of most altruistic types. In an empirical application to the Medicare's nationwide natural experiment with a relative performance contract on quality for acute inpatient care since 2013, we observe the proof of this prediction. Namely, the quality dimensions, which are linked to patient's benefit, demonstrate higher deterioration among top-performing hospitals than other incentivized dimensions.