An Incentive Program with Almost no Incentive: Overlooked Benefits of Pay for Performance*

Australia introduced the Service Incentive Payment (SIP) program for diabetes in 2001, which offers a trivial financial reward to general practitioners (GPs). We estimate the effect of the diabetes SIP on a wide range of healthcare utilisations of diabetes patients, with the aim of evaluating a pay‐for‐performance program more comprehensively than existing research. Using a large survey linked to administrative medical claims data, we compare a wide range of healthcare utilisation outcomes between areas with high SIP penetration and low SIP penetration. To uncover causal effects, we conduct a difference‐in‐differences analysis, which employs GPs who are ineligible for claiming a SIP reward as a control group. We find that concessional diabetes patients (who face low cost‐sharing and hence tend to use more services than the socially optimal level) in high‐SIP‐penetration areas tend to use less healthcare compared to those in low‐SIP‐penetration areas. Conversely, non‐concessional patients in high‐SIP‐penetration areas tend to use more healthcare than their counterparts in low‐SIP‐penetration areas. No compromise on health is observed, implying that despite the minor reward, the SIP program has improved systematic diabetes management and consequently enhanced social efficiency by nudging GPs.