Dealing with unintended consequences of performance management in the public sector

The healthcare sector did not escape the wave of reforms introduced by New Public Management (NPM). The first performance management (PM) systems implemented and adopted during this period were influenced by a “product-dominant” logic. These systems led to unintended consequences, prioritizing the maximization of the volume of services provided, delivering avoidable treatments and creating a division between different types of healthcare providers. This study proposes the adoption of a public service logic (PSL) in designing and implementing PM in healthcare to cope with unintended consequences. Thus, the research explores the difference between product-oriented and public service-oriented PM by adopting a Dynamic Performance Management and Governance approach. Using a case study of a psychiatric organizational unit of an Italian public hospital, the results suggest that adopting a PSL approach can mitigate the unintended consequences associated with PM. Indeed, the current product-oriented PM system incentivizes hospital admissions over outpatient services, leading to a sub-optimization effect and compromising community-level outcomes. In contrast, adopting a PSL approach enables measuring outcomes important to service users and the target population, such as improved community health.