We use the following formal definition for PBF:

“Performance-based financing is a systems approach with an orientation on results defined as quantity & quality of service outputs and inclusion of vulnerable persons. This approach entails making facilities autonomous agencies that work for the benefit of health or education related goals and their staff. It is also characterized by multiple performance frameworks for the regulatory functions, the contract development & verification (CDV) agency, and community empowerment. Performance-based financing applies market forces but seeks to correct market failures to attain health or other sector gains. PBF at the same time aims at cost-containment and a sustainable mix of revenues from cost-recovery, government, and international contributions. PBF is a flexible approach that continuously seeks to improve through empirical research and rigorous impact evaluations, which lead to best practices.

Footnote:  PBF draws from microeconomics, systems analysis, public choice and new institutional economics theories. The effectiveness can be enhanced by demand-side interventions such as equity funds, conditional cash transfer programs, voucher schemes and obligatory community based health insurance programs.