Abstract: We present causal evidence on the effect of performance pay on medical service provision from an artefactual field experiment with a representative sample of German resident primary care physicians. In the experiment, we introduce performance pay, which is adjusted according to patients’ severities of illnesses, to complement capitation. Performance pay is granted if a health care quality threshold is met. In line with standard theory, we find that performance pay significantly reduces underprovision of medical services, and, on average, it increases the patients’ health benefit. The magnitude of these effects depends, however, on patients’ characteristics. Findings are robust towards variations in levels of performance pay. Beyond standard theory, we find evidence for a crowding-out of altruistic behavior when physicians receive performance pay. Physicians’ characteristics such as gender and practice location significantly affect crowding-out of altruistic behavior.