Insights June 2022

Rethinking Physician Contracts: A Focus on Non-Financial Incentives

Yewande K. Ogundeji, Amity E. Quinn and Braden Manns


Role of Physician Incentives in Achieving Health System Priorities 

Improving health outcomes and fiscal sustainability are required by all healthcare systems. Physicians direct health system activity through their decisions about what tests to order and treatments to use, including medications, procedures and hospitalizations. These decisions directly impact health outcomes and costs, and intentional strategies are urgently required for desired improvements. 

In Canada, and globally, there has been an emphasis on physician payment models and other financial incentives over the past decade to encourage health system improvement. Non-financial incentives (e.g., audit and feedback, peer reporting, team-based care) have received less attention and are less widely used and studied. Many provinces in Canada have implemented physician payment reforms in an attempt to improve care and outcomes and manage rising healthcare costs. For example, Ontario, Alberta and Manitoba are seeking to move from traditional fee-for-service models toward alternate payment models

Need for a Broader Approach to Achieve System Change

Physician compensation will remain an important consideration for the healthcare system. However, current evidence suggests that on their own, payment models have a limited impact on physician practice, and will not be enough to bring about significant practice-related changes. The impact of payment models on improving healthcare outcomes also appears to be influenced by other factors, including physicians’ characteristics, values and beliefs. 

Other types of physician payment (such as pay for performance) also have been found to have limited effectiveness. The UK’s Quality and Outcomes Framework, a pay-for-performance strategy, led to modest improvements in quality of care for diabetes and asthma, but these were similar to the rate at which care was already improving before the framework. It is unclear if the improvements were due to other quality improvement programs being implemented at the same time, such as annual physician assessments, audits and public reporting.  

A Closer Look at Non-Financial Incentives 

In a series of recent studies exploring perspectives of urban specialist physicians on payment models in Canada, non-financial incentives were more important motivators than income itself. Specialist physicians’ preferences were influenced significantly by their perceptions of non-financial incentives (e.g., work-life balance, team support, and autonomy) associated with a particular payment model. 

Other studies provide evidence to support a blended approach (i.e., non-financial and financial incentives). Lee and Cosgrove (2014) argue that no single incentive will motivate all individuals and that a combination of incentives is likely needed to achieve long-lasting, system-wide change. Studies by Twardella and Brenner (2007) and Green et al. (2004) involved a combination of financial and non-financial incentives (improved training opportunities, physician profiling) for primary care physicians. In both studies, the blended approach was effective in achieving quality targets, such as smoking cessation and adhering to recommended patterns of antibiotic use. 

How Behavioral Economics Can Help Us Understand Non-Financial Incentives

Theories from behavioral economics show the potential effectiveness of non-financial incentives such as professional development, quality reporting and accountability measures. Theories involving “target income” are widely supported, but previous research suggests reward inflation may occur when physicians are continually rewarded with money. This is especially true for physicians who have reached their target income and are no longer motivated by further income growth. 

Some physicians may be motivated by psychological needs related to professional growth and fulfillment, including (1) autonomy (a physician’s need to feel in control of their practice and decisions); (2) relatedness (their desire to connect to others or experience a sense of belonging); and (3) competence (a feeling of mastery of tasks or skills). This is referred to as the “self-determination theory”, and further suggests that individuals are more likely to carry out their responsibilities and perform better when they are held accountable. Taken together, these concepts suggest that approaches that hold physicians accountable for their decisions in a way that supports their psychological needs may be more likely to improve quality of care than using financial incentives. 

These themes align with non-financial incentives, including quality and performance measurement, peer reporting and physician well-being. Quality and performance measurement and reporting to physicians and their peers (e.g., through audit and feedback) support physicians’ motivation to maintain and improve their competence

Time to Rewrite Physician Contracts to Include Broader Supports and Accountability Measures

Physician payment reforms should consider (and evaluate) a more prominent role for non-financial incentives, including:

  • Embedding non-financial incentives in physician contracts. Incentives that promote physician well-being, professional development and support should be prioritized. These may include team-based approaches to care and peer reporting. Studies show that team-based care can improve patient satisfaction while also supporting connections among providers (relatedness) in a way that enables physicians to engage in activities they are most interested in (provider satisfaction) and most trained to do (competence). Mentorship programs are one option for peer reporting and can be effective in improving compliance with desired practice, reducing costs and unnecessary resource use.
  • Including quality reporting in contracts to strengthen accountability. Several Canadian provinces have initiated quality reporting for family physicians (primary care) and specialty care, but currently, there is no obligation for physicians to use the reporting system to improve their performance. To increase effectiveness, provinces could consider incorporating (and requiring) quality reporting as part of physicians’ contracts. This is currently being pursued outside of physician contracts by the Royal College of Physicians and Surgeons of Canada, which is mandating ongoing professional development to maintain physician competence. Any changes to physician contracts should be implemented using a phased approach that starts with an active engagement with physicians and relevant stakeholders to develop and prioritize performance indicators. Additional attention will be required if these indicators will be used as part of physician contract reforms. 


Physician contracts that blend non-financial incentives with alternative physician payment models may support and encourage physicians to practise within their full scope, enhance patient care and improve physician experience. These should be designed in close collaboration with physicians and thoroughly evaluated to ensure that the intended objectives are achieved.

About the Author(s)

Yewande Kofoworola Ogundeji, PhD, is a postdoctoral fellow in the Department of Community Health Sciences, Cumming School of Medicine at the University of Calgary in Calgary, AB.

Amity Quinn, PhD is a postdoctoral fellow in the Department of Community Health Sciences, Cumming School of Medicine at the University of Calgary in Calgary, AB.

Braden Manns, MD, MSc, is a professor in the O'Brien Institute of Public Health and Libin Cardiovascular Institute, Cumming School of Medicine at the University of Calgary in Calgary, AB. Braden can be reached by e-mail at


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