Pay for performance (healthcare)

Pay for performance (healthcare)

Pay for performance is an emerging movement in health insurance (initially in Britain and United States). Providers under this arrangement are rewarded for meeting pre-established targets for delivery of healthcare services. This is a fundamental change from fee for service payment.

Also known as "P4P" or “value-based purchasing,” this payment model rewards physicians, hospitals, medical groups, and other healthcare providers for meeting certain performance measures for quality and efficiency. Disincentives, such as eliminating payments for negative consequences of care (medical errors) or increased costs, have also been proposed. In the developed nations, the rapidly aging population and rising health care costs have recently brought P4P to the forefront of health policy discussions. Pilot studies underway in several large healthcare systems have shown modest improvements in specific outcomes and increased efficiency, but no cost savings due to added administrative requirements. Statements by professional medical societies generally support incentive programs to increase the quality of health care, but express concern with the validity of quality indicators, patient and physician autonomy and privacy, and increased administrative burdens.

Preliminary studies and trends

Pay for performance systems link compensation to measures of work quality or goals. As of 2005, 75 % of all U.S. companies connect at least part of an employee's pay to measures of performance, and in healthcare, over 100 private and federal pilot programs are underway. Current methods of healthcare payment may actually reward less-safe care, since some insurance companies will not pay for new practices to reduce errors, while physicians and hospitals can bill for additional services that are needed when patients are injured by mistakes.The Commonwealth Fund: [ Five Years After "To Err Is Human": What Have We Learned?] ] However, early studies showed little gain in quality for the money spent, [cite journal | author = Meredith B. Rosenthal, PhD; Richard G. Frank, PhD; Zhonghe Li, MA; Arnold M. Epstein, MD, MA | year = 2005 | title = Early Experience With Pay-for-Performance: From Concept to Practice | journal = JAMA | volume = 294 | issue = 14 | pages = 1788–1793 | url = | accessdate = 2006-07-08 | doi = 10.1001/jama.294.14.1788 | format = abstract | pmid = 16219882 ] as well as evidence suggesting unintended consequences, like the avoidance of high-risk patients, when payment was linked to outcome improvements. [cite journal | author = M .B. Rosenthal and R. G. Frank | year = 2006 | title = What Is the Empirical Basis for Paying for Quality in Health Care? | journal = Medical Care Research and Review | volume = 63 | issue = 2 | pages = 135–57 | url = | accessdate = 2006-07-08 | doi = 10.1177/1077558705285291 | pmid = 16595409 ] [US Congress, House Committee on Employer-Employee Relations: Pay For Performance Measures and Other Trends in Employer Sponsored Healthcare, PDFlink| [ Testimony of Meredith B. Rosenthal, PhD] |31.5 KiB May 17, 2005]

The 2006 Institute of Medicine report "Preventing Medication Errors" recommended " that profitability of hospitals, clinics, pharmacies, insurance companies, and manufacturers (are) aligned with patient safety goals;...(to) strengthen the business case for quality and safety." [cite journal | year = 2006 | title = Preventing Medication Errors | last = The Institute of Medicine | journal = The National Academies Press | url = | accessdate = 2006-07-21 ] A second Institute of Medicine report "Rewarding Provider Performance: Aligning Incentives in Medicare" (September 2006) stated "The existing systems do not reflect the relative value of health care services in important aspects of quality, such as clinical quality, patient-centeredness, and efficiency...nor recognize or reward care coordination...(in) prevention and the treatment of chronic conditions." The report recommends pay for performance programs as an "immediate opportunity" to align incentives for performance improvement. [cite journal | year = 2006 | title = Rewarding Provider Performance: Aligning Incentives in Medicare | last = The Institute of Medicine | journal = The National Academies Press | url = | accessdate = 2007-04-15 ] However, significant limitations exist in current clinical information systems in use by hospitals and health care providers, which are often not designed to collect data valid for quality assessment. [Deloitt Center for Health Solutions: [ Paying For Performance, A Call for Quality Health Care] (Retrieved 2007-04-15)]

Commentary by physician organizations

In the United States, most professional medical societies have been nominally supportive of incentive programs to increase the quality of health care. However, these organizations also express concern over the choice and validity of measurements of improvement. The American Medical Association (AMA) has published principles for pay-for performance programs, with emphasis on voluntary participation, data accuracy, positive incentives and fostering the doctor-patient relationship, [American Medical Association: [ Principles for Pay-For-Performance Programs] (Retrieved 2007-04-15)] and detailed guidelines for designing and implementing these programs. [American Medical Association: [ Guidelines for Pay-For-Performance Programs] (Retrieved 2007-04-15)] Positions by other physician organizations reflect skepticism on the validity of performance measures, and promote accommodation for an individual physician's clinical judgement, protection for a patient's preferences, autonomy and privacy, and reversing the trend of health care cost reductions to accommodate the increased administrative costs required by participation in such programs.
*American Academy of Family Physicians: "there are a multitude of organizational, technical, legal and ethical challenges to designing and implementing pay for performance programs" [American Academy of Family Physicians: [ Pay-For-Performance] (Retrieved 2007-04-15)]
*American College of Physicians: "adoption of appropriate quality improvement strategies, if done right, will result in higher quality patient care leading to increased physician and patient satisfaction. But the College is also concerned that these changes could lead to more paperwork, more expense, and less revenue; detract from the time that internists spend with patients, and have unintended adverse consequences for sicker and non-compliant patients." [American College of Physicians: [ Quality Improvement, Pay-for- Performance and Practice Redesign] (Retrieved 2007-04-15)] "... concerned about using a limited set of clinical practice parameters to assess quality, especially if payment for good performance is grafted onto the current payment system, which does not reward robust comprehensive care."cite journal | last = Lois Snyder, JD & Richard L. Neubauer, MD | title = Pay-for-Performance Principles That Promote Patient-Centered Care: An Ethics Manifesto | journal = Annals of Internal Medicine | volume = 147 | pages = 792–794 | date = 2007 | url = | accessdate =2008-03-31 | pmid = 18056664 | format = abstract ]
*American Geriatrics Society: "quality measures (must) target not only care for specific diseases, but also care that addresses multiple, concurrent illnesses and (are) tested among vulnerable older adults. Using indicators that have been developed for a commercially insured population...may not be relevant" [American Geriatrics Society: [ What, exactly, is AGS' position on P4P?] (Retrieved 2007-04-15)]
*American Academy of Neurology (AAN): "An unintended consequence is that current relative payments are distorted and represent a misaligned incentive system, encouraging diagnostic tests over thoughtful and skilled patient care. The AAN recommends addressing these underlying inequities before a P4P program ia adopted. [American Academy of Neurology, Federal Legislation Position Statements: [ Pay-For-Performance] (Retrieved 2007-04-15)]
*The Endocrine Society: "it is difficult to develop standardized measure across medical specialties...variations must be allowed to meet the unique needs of the individual patient...P4P programs should not place financial or administrative burdens on practices that care for underserved patient populations" [The Endocrine Society position paper (July 19, 2006): [ Pay-For-Performance] (Retrieved 2007-04-15)]


United Kingdom

In the United Kingdom, the National Health Service (NHS) began a major pay for performance initiative in 2004, known as the Quality and Outcomes Framework (QOF). [National Health Service: [ Quality and Outcomes Framework data] Retrieved July 8, 2006] General practitioners agreed to increases in existing income according to performance with respect to 146 quality indicators covering clinical care for 10 chronic diseases, organization of care, and patient experience. Unlike proposed quality incentive programs in the United States, funding for primary care was increased 20% over previous levels. This allowed practices to invest in extra staff and technology; 90% of general practitioners use electronic prescribing, and up to 50% use electronic health records for the majority of clinical care. The first data show that substantially increasing physicians’ pay based on their success in meeting quality performance measures is effective. The 8,000 family practitioners included in the study earned an average of $40,000 more by collecting nearly 97% of the points available. [cite journal | author = Tim Doran, M.P.H., Catherine Fullwood, Ph.D., Hugh Gravelle, Ph.D., David Reeves, Ph.D., Evangelos Kontopantelis, Ph.D., Urara Hiroeh, Ph.D., and Martin Roland, D.M. | year = 2006 | title = Pay-for-Performance Programs in Family Practices in the United Kingdom | journal = The New England Journal of Medicine | volume = 355 | issue = 4 | pages = 375–384 | url = | accessdate = 2006-08-02 | doi = 10.1056/NEJMsa055505 | pmid = 16870916 ]

United States


Responding to public backlash to managed care in the 1990s, California health care plans and physician groups developed a set of quality performance measures and public "report cards", emerging in 2001 as the California Pay for Performance Program, now the largest pay-for-performance program in the country. [Integrated Healthcare Association (February 2006): [ Advancing Quality Through Collaboration: The California Pay for Performance Program] (Retrieved 2007-04-15)] Financial incentives based on utilization management were changed to those based on quality measures. Provider participation is voluntary, and physician organizations are accountable though public scorecards, and provided financial incentives by participating health plans based on their performance.


In the United States, Medicare has various pay-for-performance ("P4P") initiatives in offices, clinics and hospitals, seeking to improve quality and avoid unnecessary health care costs. [Medicare: [ "Pay For Performance (P4P) Initiatives"] ] The Centers for Medicare and Medicaid Services (CMS) has several demonstration projects underway offering compensation for improvements:
*Payments for better care coordination between home, hospital and offices for patients with chronic illnesses. In April 2005, CMS launched its first value-based purchasing pilot or "demonstration" project- the three-year Medicare Physician Group Practice (PGP) Demonstration. [Centers for Medicare and Medicaid Services: [ Medicare Begins Performance-Based Payments For Physician Groups] (Retrieved 2007-04-15)] The project involves ten large, multi-specialty physician practices caring for more than 200,000 Medicare fee-for-service beneficiaries. Participating practices will phase in quality standards for preventive care and the management of common chronic illnesses such as diabetes. Practices meeting these standards will be eligible for rewards from savings due to resulting improvements in patient management. The "First Evaluation Report to Congress" in 2006 showed that the model rewarded high quality, efficient provision of health care, but the lack of up-front payment for the investment in new systems of case management "have made for an uncertain future with respect for any payments under the demonstration." [Centers for Medicare and Medicaid Services, Medicare Physician Group Practice Demonstration: [ First Evaluation Report to Congress] (Retrieved 2007-04-15)]
*A set of 10 hospital quality measures which, if reported to CMS, will increase the payments that hospitals receive for each discharge. By the third year of the demonstration, those hospitals that do not meet a threshold on quality will be subject to reductions in payment. Preliminary data from the second year of the study indicates that pay for performance was associated with a roughly 2.5% to 4.0% improvement in compliance with quality measures, compared with the control hospitals. [cite journal | author = Peter K., et al | year = 2007 | title = Public Reporting and Pay for Performance in Hospital Quality Improvement | journal = The New England Journal of Medicine | volume = 356 | issue = 3 | pages = 486–496 | url = | accessdate = 2007-01-29 | doi = 10.1056/NEJMsa064964 | pmid = 17259444 ] Dr. Arnold Epstein of the Harvard School of Public Health commented in an accompanying editorial that pay-for-performance "is fundamentally a social experiment likely to have only modest incremental value." [cite journal | author = Arnold M. Epstein, MD | year = 2007 | title = Pay for Performance at the Tipping Point | journal = The New England Journal of Medicine | volume = 356 | issue = 3 | pages = 515–517 | url = | accessdate = 2007-01-29 | doi = 10.1056/NEJMe078002 | pmid = 17259445 ]
*Rewards to physicians for improving health outcomes by the use of health information technology in the care of chronically ill Medicare patients.

Negative incentives

As a disincentive, CMS has proposed eliminating payments for negative consequences of care that results in injury, illness or death. This rule, effective October 2008, would reduce payments for medical complications such as "never events" as defined by the National Quality Forum, including hospital infections. [Centers for Medicare and Medicaid Services: [ Eliminating Serious, Costly and Preventable Medical Errors] (May 18, 2006)] Other private health payers are considering similar actions; the Leapfrog Group is exploring how to provide support to its members who are interested in ensuring that their employees do not get billed for such an event, and who do not wish to reimburse for these events themselves. Physician groups involved in the management of complications, such as the Infectious Diseases Society of America, have voiced objections to these proposals, observing that "some patients develop infections despite application of all evidence-based practices known to avoid infection", and that a punitive response may discourage further study and slow the dramatic improvements that have already been made. [IDSA, SHEA and APIC: [ Comment on CMS Inpatient PPS Proposed Rule 1488P: Healthcare-associated infection] (June 13, 2006)]

Multiple providers for complex disorders

Pay for performance programs often target patients with serious and complex illnesses; such patients commonly interact with multiple healthcare providers and facilities. However, pilot programs now underway focus on simple indicators such as improvement in lab values or use of emergency services, avoiding areas of complexity such as multiple complications or several treating specialists. [American Academy of Neurology, Federal Legislation Position Statements: [ Pay-For-Performance] (Retrieved 2007-04-15)] A 2007 study analyzing Medicare beneficiaries’ healthcare visits showed that a median of two primary care physicians and five specialists provide care for a single patient. [cite journal | author = Pham HH et al | year = 2007-03-15 | title = Care patterns in Medicare and their implications for pay for performance | journal = The New England Journal of Medicine | volume = 356 | issue = 11 | pages = 1130–9 | url = | accessdate = 2007-03-16 | doi = 10.1056/NEJMsa063979 | pmid = 17360991 ] The authors doubt that pay-for-performance systems can accurately attribute responsibility for the outcome of care for such patients. The American College of Physicians Ethics has expressed concern:

Pay-for-performance initiatives that provide incentives for good performance on a few specific elements of a single disease or condition may lead to neglect of other, potentially more important elements of care for that condition or a comorbid condition. The elderly patient with multiple chronic conditions is especially vulnerable to this unwanted effect of powerful incentives.

Deselection, ethical issues

Present pay-for-performance systems measure good performance based on specified clinical measurements, such as glycohemoglobin for diabetic patients. [cite journal | last = Steven B. Leichter,MD,FACP,FACE | title = Pay-for-Performance Contracts in Diabetes Care | journal = Clinical Diabetes | volume = 24 | issue = 2 | pages = 56–59 | url = | accessdate = 2008-03-31 | doi = 10.2337/diaclin.24.2.56 | year = 2006] Healthcare providers who are monitored by such limited criteria have a powerful incentive to dismiss or refuse to accept patients whose outcome measures fall below the quality standard and therefore worsen the provider's assessment. Healthcare providers who are monitored by such limited criteria have a powerful incentive to "deselect" (dismiss or refuse to accept) patients whose outcome measures fall below the quality standard and therefore worsen the provider's assessment. Patients with low health literacy, inadequate financial resources to afford expensive medications or treatments, and ethnic groups traditionally subject to healthcare inequities may also be deselected by providers seeking improved performance measures.Citation | last = Cannon | first = Michael F. | title = Pay for Performance: Is Medicare a Good Candidate? | publisher = The Cato Institute | year = 2006 | url = | accessdate = 2008-04-02 .]


ee also

* Capitation
* Evidence based medicine
* Guideline (medical)
* Health maintenance organization
* Patient safety

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