Target‐Setting, Pay for Performance, and Quality Improvement: A Case Study of Ontario Hospitals’ Quality‐Improvement Plans

• Author: Sylvia Hsingwen Hsu,Yee‐Ching Lilian Chan
• Date: 01 March 2019
• DOI: http://doi.org/10.1002/cjas.1474
• Published date: 01 March 2019

Target-Setting, Pay for Performance, and Quality

Improvement: A Case Study of Ontario Hospitals’

Quality-Improvement Plans

Yee-Ching Lilian Chan*

McMaster University

Sylvia Hsingwen Hsu

York University

Abstract

This study examines whether diff‌icult targets and quality

indicators in executives’pay-for-performance (P4P) plans

affect performance. The impact of target-setting and P4P

plans on quality improvement in the public sector is unclear.

The Ontario government initiated the Quality Improvement

Plan (QIP), which requires hospitals to set targets for

quality indicators annually and link executive pay to target

achievement since 2011. Analyzing Health Quality Ontario’s

database and hospitals’2012–2013 QIPs, this study shows

greater quality improvement in hospitals with diff‌icult

targets than hospitals with easy targets or without assigned

targets; however, the positive impact disappears for high-

performance hospitals relative to their peers. We f‌ind no

signif‌icant effect of the use of quality indicators in

executives’P4P plans on quality improvement. Copyright

© 2018 ASAC. Published by John Wiley & Sons, Ltd.

Keywords: target setting, pay for performance, performance

improvement, Ontario’s hospital sector, quality improve-

ment plan

Résumé

L’objectif de la présente étude est de déterminer si les cibles

diff‌iciles et les indicateurs de qualité dans les plans de

rémunération au rendement (P4P) des cadres supérieurs

inf‌luent sur le rendement. L’impact de la f‌ixation d’objectifs

et des plans P4P sur l’amélioration de la qualité dans le

secteur public n’est pas évident. Depuis 2011, le

gouvernement de l’Ontario a lancé le Plan d’amélioration

de la qualité (QIP), qui exige que les hôpitaux f‌ixent des

objectifs annuels en matière d’indicateurs de qualité et lient

la rémunération des cadres supérieurs à l’atteinte des

objectifs. L’analyse de la base de données de Qualité des

services de santé Ontario et les plans d’amélioration de la

qualité 2012-2013 des hôpitaux permet de montrer que

l’amélioration de la qualité est plus marquée dans les hôpitaux

ayant des cibles diff‌iciles que dans ceux ayant des cibles

faciles ou sans objectifs assignés; toutefois, pour les hôpitaux

à haut rendement et par rapport à leurs pairs, l’impact positif

disparaît. L’étudenerévèleaucuneffetsignif‌icatif de

l’utilisation d’indicateurs de qualité dans les plans P4P des

cadres sur l’amélioration de la qualité. Copyright © 2018

ASAC. Published by John Wiley & Sons, Ltd.

Mots-clés: établissement d’objectifs, rémunération au

rendement, amélioration du rendement, secteur hospitalier

de l’Ontario, plan d’amélioration de la qualité

This study analyzes the effect of target-setting and the use

of patient safetyindicators in executives’pay-for-performance

(P4P) plans on health-care organizations’quality improve-

ment. In 2010, the Government of Ontario enacted the

Excellent Carefor All Act (ECFAA), which requireshospitals

to submit annually their Quality Improvement Plans (QIPs) to

Health Quality Ontario (HQO), an independent agency of the

government. In their QIPs, hospitals are required to identify

and prioritize the performance targets for quality indicators.

They are also required to propose action plans to improve

each chosen indicator and report on the progress of quality

improvement. Moreover, to enhance transparency and

accountability, hospitals have to formulate incentive pay for

their executives and link such pay to the achievement of the

performance targets for quality indicators.

QIP is an application of New Public Management

(NPM), which advocates explicit and measurable perfor-

mance targets to motivate employees in the public sector

toward achieving their organization’s objectives (Bevan &

*Please address correspondence to: Yee-Ching Lilian Chan, McMaster

University, DeGroote School of Business, 1280 Main StreetWest, Hamilton,

Ontario, L8S 4M4,Canada. Email: ylchan@mcmaster.ca

Canadian Journal of Administrative Sciences

Revue canadienne des sciences de l’administration

36: 128–144 (2019)

Published online 22 January 2018 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/CJAS.1474

Can J Adm Sci

36(1), 128–144 (2019)Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd. 128

Hood, 2006; Newberry & Pallot, 2004). The legislated envi-

ronment under the ECFAA, therefore, provides a unique op-

portunity to examine whether explicit and measurable

performance targets are suff‌icient to motivate health care

employees to achieve their organization’s objectives for the

performance improvement of specif‌ic quality indicators.

This study examines two research questions. First, what

is the association between the improvements in quality per-

formance and target diff‌iculty? Specif‌ically, we compare

the quality improvement among hospitals that set a target

better than current performance, hospitals that set a target

equal to or worse than current performance, and hospitals

that do not set a target. Second, do hospitals that incorporate

specif‌ic quality indicators in their executives’P4P plans

have a greater improvement in that indicator? We identify

f‌ive patient safety indicators, core quality indicators

stipulated by HQO for hospitals’QIP: Clostridium diff‌icile

Infection (CDI) rate, Central Line-Associated Primary

Bloodstream Infection (CLI) rate, Ventilator-Associated

Pneumonia (VAP) rate, Hand Hygiene compliance (HH

compliance), and Surgical Safety Checklist compliance

(SSC compliance).

1

We collect data on these indicators for

the f‌iscal years 2011–2012 and 2012–2013 from the HQO

database (HQO, 2014a). We also collect the target for each

indicator reported in the hospitals’2012–2013 QIPs. The re-

sults show signif‌icant performance improvement from f‌iscal

year 2011–2012 to 2012–2013 for hospitals that assign

diff‌icult targets (that is, targets better than current perfor-

mance) for patient safety indicators in their 2012–2013

QIPs. However, the positive impact of target diff‌iculty

disappears in high-performance hospitals (that is, hospitals

that perform above the median performance of their peer

groups). Moreover, we do not f‌ind any signif‌icant difference

in performance improvement between hospitals that use or

do not use a specif‌ic patient safety indicator in their execu-

tives’P4P plans.

The contribution of this study to the extant literature on

management control and new public management lies in

four areas. First, we contribute to the goal-setting literature

by providing empirical evidence from 115 acute-care

hospitals (with 175 sites, as some hospitals have multiple

sites) that are in the public domain. Most empirical studies

that explore the relationship between target-setting and

performance improvement are based on observations of

experiments on students or from f‌ield-based studies of a

single company (for instance, Cooper, Phillips, Sutherland,

& Makin, 1994; Kleingeld, van Mierlo, & Arends, 2011;

Locke & Latham, 2006). Research that examines this

relationship using data from multiple organizations is

limited. The legislated environment under the ECFAA

provides a natural experimental setting; hence, we are able

to apply archival data from the public domain, that is,

HQO’s database on specif‌ic patient safety indicators, to

examine this relationship. Analyzing the data of 175 hospital

sites in Ontario, our study provides evidence that diff‌icult

targets have positive impact on quality performance im-

provement, while easy targets (that is, targets equal to or

worse than current performance) may have a negative

impact. The f‌indings on the relationship between target

diff‌iculty and performance improvement of patient safety

indicators f‌ill a research void.

Second, our results show that target diff‌iculty does not

substantially improve quality performance in high-

performance hospitals, suggesting the constraint of the use

of target diff‌iculty in enhancing performance. These f‌indings

may provide potential explanations regarding recent debates

on the effects of overprescribing goals (Locke & Latham,

2009; Ordóñez, Schweitzer, Galinsky, & Bazerman, 2009).

A diff‌icult target motivates people to excel in productivity

and performance when there is sizable room for improve-

ment. However, the motivation effect driven by a diff‌icult

target may become tenuous when performance approaches

excellence. Management may need to carefully apply goal-

setting theory in certain situations.

Third, extant research on performance-based compensa-

tion focuses on studying the use of f‌inancial performance

measures and the impact of CEO compensation on f‌inancial

performance (for instance, Ely, 1991; Ittner & Larcker,

1995; Ittner & Larcker, 1997; Lambert & Larcker, 1995).

Research suggests that the majority of f‌irms place a greater

weight on f‌inancial measures than on non-f‌inancial measures

(De Angelis & Grinstein, 2015; Ittner, Larcker, & Rajan,

1997). The choice of non-f‌inancial measures in bonus

contracts depends on the CEO’s employment horizon, the

f‌irm’s characteristics and strategies, and the competition

intensity of industries (Chen, Matsumura, Shin, & Wu,

2015; De Angelis & Grinstein, 2015; Ittner, Larcker, &

Rajan, 1997; Matejka, Merchant, & Van der Stede, 2009).

Our study further assesses the change in the performance

of quality indicators to examine the impact of the use of

non-f‌inancial measures in executives’P4P plans. Finally,

unlike most empirical studies that look at for-prof‌it organiza-

tions, this study examines the impact of target-setting and

the use of patient safety indicators in executives’P4P plans

on hospital performance in one of Ontario’s largest public

sectors, the health-care sector.

The remainder of the paper is organized as follows.

First, we include a brief description of the Ontario govern-

ment’s initiative to increase the health-care sector’s account-

ability in the delivery of high-quality patient care. Next, we

provide an overview of the literature on New Public

Management and goal-setting theory, specif‌ically on the

relationship between target-setting and performance. Addi-

tionally, we look at the literature on target-setting and pay-

for-performance and identify the hypotheses examined in

this study. Then, we describe our research methods, analyze

the QIPs, and present and discuss the f‌indings on hospital

performance on specif‌ic quality indicators included in the

QIPs. The paper concludes with a discussion of the practical

implications of the QIP initiative.

TARGET-SETTING, QUALITY PERFORMANCE IMPROVEMENT CHAN & HSU

Can J Adm Sci

36(1), 128–144 (2019)Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd. 129