Medical care delivery in workers’ compensation suffers from a combination of poor incentives that promote overtreatment of injuries, particularly major surgical interventions, and shelters ineffective medical providers from quality and value based choices by purchasers. These malincentives include the lack of copayments by injured workers, the disconnection between the payer and the choice of service provider, and setting payments for services performed without regard to the effectiveness of the treatment. Finally, the selection of provider is very frequently made by the injured worker without any regard to the cost of service, and often little knowledge about the pattern of effectiveness and quality of care for that doctor. This paper focuses on the principles needed to govern a realignment of payment incentives and evidence on how well these principles have worked in the context of workers compensation medical treatment. An assessment is made of how current payment practices depart from ideal incentives for improving clinical behavior in the treatment of occupational injury.