Innovative Health Reform Models: Pay-for-Performance Initiatives
Published Online: December 15, 2009
Seth W. Glickman, MD, MBA; and Eric D. Peterson, MD, MPH
What Is Pay for Performance?
The concept of linking financial incentives to the quality of healthcare provided has been termed pay for performance, or P4P. P4P has received significant national attention as a potential means of improving overall quality of care by narrowing gaps between what national care guidelines recommend and those treatments actually delivered in routine community practice.1-5 In an era of rapidly rising healthcare costs, P4P is also viewed as a tool to promote more efficient use of healthcare resources while improving patient outcomes. Over the past decade, commercial and federal payers have implemented a vast array of P4P initiatives. The structure of these programs is remarkably diverse, spanning a variety of payment models, intended targets (eg, hospitals, physician groups, individual providers), and clinical conditions. While a number of programs have shown promise, additional work is necessary to determine whether they achieve their intended long-term effects. The purpose of the article is to provide a brief overview of current P4P initiatives, discuss the evidence regarding their effectiveness, and provide insight into newer, innovative payment models that have emerged.
More than half of commercial health plans in the United States currently use P4P incentives in their provider contracts.6 Many of these programs involve joint efforts among employers, health management organizations, pharmaceutical companies, physician groups, academia, as well as for-profit and not-for-profit organizations (Table).2,7-13 Complementing efforts by the private sector, the Centers for Medicare & Medicaid Services (CMS) has sponsored P4P demonstration projects in a variety of clinical settings, including physician practices, acute care hospitals, dialysis facilities, nursing homes, as well as programs to increase the adoption of information technology and disease management. The largest demonstration project to date is the Hospital Quality Improvement Demonstration (HQID) Project, which offers financial incentives to hospitals based on the inpatient quality of care for 5 clinical conditions-acute myocardial infarction, heart failure, pneumonia, coronary artery bypass surgery, and hip and knee replacement. In addition to these US programs, P4P has gained significant traction overseas.14-16 For example, the National Health Service (NHS) in the United Kingdom has invested massive resources in P4P initiatives. The NHS's Quality and Outcomes Framework, which provides financial incentives to primary care physicians for 146 quality indicators related to chronic disease and patient experience, has distributed over £2 billion to providers since 2004.
Potential Benefits of P4P
Compensation models that link financial incentives to performance have been widely implemented in other industries and are a powerful lever to influence behavior. P4P is seen as a way to create a "business case" for quality by better aligning payment with quality of service instead of quantity of service.17,18 This helps address the issue that hospitals and physicians are not necessarily rewarded for delivering high-quality care. For example, hospitals that produce better health outcomes may paradoxically face lower margins through phenomena such as diagnosis-related group switching and a reduction in unplanned rehospitalizations for the chronically ill.19 P4P also holds promise because many of the traditional approaches to improving quality, such as physician education, provider certification, and consumerism, have failed, largely due to the fragmented nature of our healthcare delivery system.20 Linking financial incentives to quality is also viewed by many as a more palatable approach than traditional managed care models where financial incentives are provided to physicians to limit referrals and see more patients per day.21
Concerns About P4P
Despite the promise of healthcare quality, concerns have been raised that P4P may have potential unintended consequences for patients, physicians, and hospitals.22 For example, most P4P programs reward providers based on evaluation of a limited number of process performance metrics. If hospitals and physicians become too focused on these metrics, they may lose sight of the global goals of healthcare (analogous to students studying just what is on the test).23 Some have argued that forcing hospitals and providers to follow select process patterns could stifle innovation and the ability or willingness of organizations to develop creative solutions to improving quality.24 Others have worried that the large fixed costs required to support P4P data collection and quality improvement programs could deviate important resources away from patient care and have unintended consequences.25 In a similar manner, the financial incentives in P4P could paradoxically exacerbate healthcare disparities-either by financially penalizing hospitals that treat underserved populations or by prompting caregivers to avoid sick and "high-risk" patients from their practice.26,27
Evidence Regarding the Effectiveness of P4P
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