[Pay for performance explained by transaction costs theory]

To evaluate the ability of transaction costs theory to explain incentives in the health care chain.

We performed a case study of CPS, a health insurance company in Bogota (Colombia), which preferred not to publish its name.

CPS moves in the environment of high transaction costs and uses the hybrid form of governance at the outpatient level. Incentive intensity, administrative control and the contract all agree with the theory. At the hospital level, the market is used, despite greater uncertainty. Because of the discrete form (1.0) of the incentives and the absence of administrative control, it is difficult for CPS to relate payment to hospital performance.

Transaction costs theory explains the configuration of incentives. Another contribution made by this theory to the literature is the criterion to differentiate between the market and the hybrid. We propose that the market uses discrete-type (1.0) incentives, while the hybrid uses continuous, commission-like incentives.