Measuring behavioural additionality in public contractors subject to performance incentives: an index of innovation capability

Abstract This paper introduces a novel Innovation Capability Index (ICI) that captures a set of diverse innovation-related capabilities within a single empirical measure. The index is applied to health-insurance contractors participating in the U.S. Medicare Advantage program, which ties financial incentives to annual performance ratings. Using survey data from plan managers supplemented by qualitative interviews, the study finds that innovation capability is positively associated with higher performance ratings. Qualitative insights support the plausibility of multiple causal pathways, including innovation as both a response to performance incentives and a means to sustain high performance under shifting regulatory conditions. While based on a modest sample, the ICI provides a replicable and policy-relevant framework for measuring behavioural additionality, the internal innovation capability changes induced by public policy. The approach offers a generalizable program-evaluation tool for evaluating how performance-based procurement programs may indirectly stimulate contractor innovation.