Pay-for-Performance in Prison: Using Healthcare Economics to Improve Criminal Justice

Abstract

For much of the last seventy-plus years, healthcare providers in the United States have been paid under the fee-for-service system, where providers are reimbursed for procedures performed, not outcomes obtained. The result has been a system that incentivizes resource consumption, not health improvements. Healthcare economists and policymakers have reacted by proposing a number of policies designed to control costs without sacrificing quality. One approach is to reimburse providers on the basis of health outcomes obtained. Under a pay-for-performance strategy, providers are incentivized to deliver healthcare in ways that are both efficacious and efficient. This means providers are no longer paid for simply doing a given “something” but, rather, are paid for doing “something effective.”

The criminal justice system is plagued by many of the same distorted individual and organizational incentives seen in health care. In all but a handful of jurisdictions, states wholly subsidize commitments to prison—the fee-for-service model of doing “something”—without tying any of these subsidies to outcomes obtained in prison. This means prison is paid for even if it is neither effective nor efficient. An outcome-oriented, pay-for-performance framework borrowed from healthcare economics might, if applied to criminal justice, improve its efficacy and efficiency.

This Article focuses on the similarities between health care and criminal justice, the ways in which an outcome orientation might provide a useful framework for controlling criminal justice costs without sacrificing public safety, and the suggestion that we begin considering sentencing choices within that framework.

Keywords: prisons, jails, economics, correctional free lunch, health care, health care economics, law and economics

JEL Classification: H11, H41, H43, H51, H73, I11, K14