Effect of Physician-Specific Pay-for-Performance Incentives in a Large Group Practice

Published Online: February 01, 2010
Sukyung Chung, PhD; Latha P. Palaniappan, MD, MS; Laurel M. Trujillo, MD; Haya R. Rubin, MD, PhD; and Harold S. Luft, PhD

Objective: To assess the effect of a physician-specific pay-for-performance program on quality-of-care measures in a large group practice.

Study Design: In 2007, Palo Alto Medical Clinic, a multispecialty physician group practice, changed from group-focused to physician-specific pay-for-performance incentives. Primary care physicians received incentive payments based on their quarterly assessed performance.

Methods: We examined 9 reported and incentivized clinical outcome and process measures. Five reported and nonincentivized measures were used for comparison purposes. The quality score of each physician for each measure was the main dependent variable and was calculated as follows: Quality Score = (Patients Meeting Target / Eligible Patients) × 100. Differences in scores between 2006 and 2007 were compared with differences in scores between 2005 and 2006. We also compared the performance of Palo Alto Medical Clinic with that of 2 other affiliated physician groups implementing group-level incentives.

Results: Eight of 9 reported and incentivized measures showed significant improvement in 2007 compared with 2006. Three measures showed an improvement trend significantly better than the previous year’s trend. A similar improvement trend was observed in 1 related measure that was reported but was nonincentivized. However, the improvement trend of Palo Alto Medical Clinic was not consistently different from that of the other 2 physician groups.

Conclusions: Small financial incentives (maximum, $5000/year) based on individual physicians’ performance may have led to continued or enhanced improvement in well-established ambulatory care measures. Compared with other quality improvement programs having alternative foci for incentives (eg, increasing support for staff hours), the effect of physician-specific incentives was not evident.

(Am J Manag Care. 2010;16(2):e35-e42)

Various well-established quality-of-care indicators demonstrated continued improvement during a trial of physician-specific quality financial incentives.

  • In the context of other organization-level quality improvement efforts, physician-specific incentives seem to have some incremental effect of improving quality of care.
  • These changes occurred in a practice setting relying on fee-for-service payment to physicians and with many of the quality goals unassociated with additional tests or procedures.
  • Alternative foci of incentives for quality improvement (eg, increasing staff hours to assist physicians’ quality improvement activities) need to be explored.

In recent years, a growing number of health plans and payers in the United States have adopted pay-for-performance (P4P) mechanisms to encourage improvement in quality of care. Despite its promise and growing popularity, empirical evidence on the effectiveness of P4P is inconsistent. Some studies1-9 have demonstrated the hoped-for positive effects, but others found no effect10-12 or unintended negative effects.13 These inconsistent findings may in part arise from heterogeneities in the scope of targeted quality dimensions and in the design and implementation of the program. Pay-for-performance programs are increasingly targeting multiple measures rather than focusing on 1 or 2 measures. Targeted measures are often process measures but sometimes include outcome measures.2,5,13 Recent studies2,3,5-8 tend to demonstrate small effects of P4P, but even these are not uniform across all measures evaluated.

Most P4P programs in published studies were designed and implemented by a payer rather than by the physicians subject to the incentives. The buy-in to such externally determined specific performance measures and associated incentives by physicians may be limited. Payerdriven incentive schemes are typically designed to work across a wide range of sites and data systems. This “least common denominator” approach may not always seem clinically applicable to those physicians who believe they have better data. Eligibility restrictions on incentive payments (eg, only applicable to enrollees of certain insurers) may lead to focused attention on just those patients or to a failure to change practice because too few patients would be involved. Studies1,6,9,11,12 typically assess the effects of a modest group-level incentive compared with no incentives. Increasingly, studies2,3,5,7 are assessing individual physicianlevel incentives again compared with no incentives. However, it is unknown whether the target of incentives (ie, group level vs physician specific) would make a difference. The present study explores this last question.

The primary objective of this study was to assess the effects of physician-specific P4P incentives versus group-level incentives on various quality measures. The P4P program examined in this study is similar to other P4P programs, but its specific implementation was physician led rather than payer driven. It was designed via a consensus process among representatives of the participating physicians with regard to the definitions of quality measures, the inclusion and exclusion rules among patients for each measure, and the incentive formulas. Although the measures implemented are similar to those required by and reported to payers, the physicians used criteria for inclusion and exclusion and for targets of success that they believed were more relevant to their clinical practice. For example, completion of colon cancer screening in their version could be confirmed by patient self-report or by documents verifying completion in a different institution rather than just through services provided by the group. For patients with diabetes mellitus, the physicians chose a more stringent glycosylated hemoglobin target of 7.0% instead of the externally set target of 8.0%. Most important, all patients of the primary care physicians (PCPs) (regardless of insurer) were considered for the performance evaluation so that work flow could be altered for all patients. The data used in the study came from electronic health records, which generally provide more accurate and precise data on clinical procedures and outcomes than billing data.14


Study Setting

The study was conducted at Palo Alto Medical Foundation (PAMF), a not-for-profit healthcare organization. In 2007, PAMF contracted with the following 3 multispecialty physician groups: Palo Alto Medical Clinic (PAMC), Camino Medical Group, and Santa Cruz Medical Group. Although 25% to 30% of PAMF patients are enrolled in capitated programs, the physicians in the groups contracting with PAMF were paid based on relative value units of service regardless of the patient’s coverage. All 3 physician groups, located at clinics in adjacent counties, had a roughly similar mix of primary care and specialty physicians and served patients of similar demographic composition. The physician-specific P4P incentive program was implemented at PAMC in 2007. PAMC provides coverage at 5 clinics operating within 3 counties in the San Francisco Bay Area, California, serving approximately 13% of the general population in the underlying geographic area, with low patient turnover (3% per year).

Design of the Physician Incentive Program

In 2007, all PCPs (n = 179) at PAMC practicing family medicine, general internal medicine, or pediatrics participated in the physician incentive program. The bonus amount was based on individual physicians’ performance on 15 ambulatory quality measures, with a composite score calculated using an algorithm developed by the incentive program leadership.15 In brief, the physicians set targets for each measure. Physicians received

varying points for achieving minimal, average, and stretch goals based on the percentage of their patients achieving the target. The bonus was based on the percentage of potentially achievable points actually earned. The maximum achievable bonus was $5000/year, or about 2% of the PCP annual salary. The design and implementation of the program were discussed at the physician partnership meeting and at primary care department head meetings.

Since 2003, PAMF has been participating in the P4P program sponsored by several California health plans and operated by the Integrated Healthcare Association (IHA) (http://www.iha.org). PAMF retained a portion of the IHA P4P incentive for its organization-wide quality improvement (QI) efforts, and the remainder (roughly $4000 per physician) was distributed to each of 3 physician groups. The PAMF portion went to support the considerable central organizational services provided by PAMF for QI interventions on behalf of physicians.

Three physician groups independently decided on the allocation of the remainder of the funds. Until 2006, the allocations to the physician groups were not passed on to individual physicians. In 2007, PAMC decided to distribute a portion of the IHA payments to individual PCPs based on their performance scores on measures that were internally defined by the group and had been used at least since 2005. The other 2 physician groups continued using the IHA measures and definition of eligible patient populations in assessing grouplevel or department-level performance.

Quality Monitoring and Reporting

Although the physician-specific financial incentive was newly implemented in 2007, monitoring and quarterly reporting of quality indicators in the PAMC system had been in place since 2003. Physicians were alerted by e-mail with an electronic link to a detailed quality score workbook with their scores, peer physicians’ scores, and rank relative to other physicians in a distribution curve for each quality measure. In these reports, physician identities are disclosed to each other.

Before the implementation of the physician incentive program at PAMC, the program leadership convened several meetings to decide on the performance measures to use, details about each measure, and target levels of performance to incentivize and then selected 15 clinical measures representing clinical outcomes and processes. The present study focuses on 9 reported and incentivized clinical outcome and process measures that had been already evaluated and reported at least since 2005. The other 6 measures, which were specific to pediatric patients, were newly adopted for the 2007 program; the present study excludes these 6 measures without the prior year data needed for identification of the program effect. The 9 incentivized measures analyzed in this study were 3 outcome measures for patients with diabetes and 6 process measures (Table 1).

Several of 9 measures were similar to those used in the IHA’s P4P program (http://www.iha.org), which was developed from evidence-based practice guidelines such as the 2007 Healthcare Effectiveness and Data Information Set indicators by the National Committee for Quality Assurance. The specific definitions of the measures used in the PAMC program were somewhat different, reflecting the group’s organizational goals, high standard of quality of care, and information technology capacity. For example, it set stricter thresholds for the diabetic control indicators than did the IHA (eg, 100 vs <130 mg/dL for low-density lipoprotein cholesterol [LDL-C] control; to convert cholesterol level to millimoles per liter, multiply by 0.0259). In contrast, patients whose completed screening tests could be verified through other providers were coded as completed, whereas the IHA required that the tests be performed by the physician group.

Our analysis uses 5 comparison and nonincentivized measures reflecting similar dimensions of care reported since 2005 or earlier but not included in the physician-specific incentive program. These include the following 5 measures: 4 outcome measures (1 for patients with hypertension and 3 for patients with diabetes [the same indicators as were incentivized but with less stringent targets]) and 1 process measure focused on a different target population (patients with hypertension) (Table 1).

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