Pay-for-performance reimbursement in health care: chasing cost control and increased quality through "new and improved" payment incentives.

AuthorMayes, Rick


Pay-for-performance (P4P) reimbursement has become a popular and growing form of health care payment built on the belief that payment incentives strongly affect medical providers' behavior. By paying more to those providers who are deemed to deliver better care, the goal is to increase quality and, hopefully, restrain cost growth. This article provides a brief explanation of: (1) how previous P4P plans in the U.S. have fared, along with their special relationship to primary care, and (2) how England's experience with P4P and newer versions of these kinds of plans being pursued in places such as Massachusetts might provide valuable case studies for how the U.S. and other countries can achieve meaningful reform of health care organization, delivery and finance.

Background, Performance of Early Plans, and Primary Care

P4P financially rewards medical providers who achieve, improve upon or exceed performance goals on specified quality benchmarks. It has developed largely in response to the cost control problems and perverse incentives associated with fee-for-service reimbursement, which is the dominant model in the U.S. (1) Instead of simply reimbursing providers more for greater volume and intensity of care, P4P pays more to providers whose care is deemed to be of higher (or sufficiently high) quality. (2) These plans are intended to lower health care costs over the long term by increasing preventative care, primary care and the improved treatment of conditions at earlier stages of development. (3) Most P4P approaches adjust payments to hospitals, individual physicians, networks of physicians or medical practice groups in one of three ways: (1) a bonus payment based on a percentage of all care delivered by a provider, (2) a bonus payment per patient member for a provider that has delivered what pre-determined measures would deem as "high quality" care, or (3) as a percentage of the total cost savings achieved relative to what costs would have been without achieving higher quality. (4)

The first generation of P4P plans that proliferated from the early to mid-2000s in the U.S. proved mostly ineffective in either increasing quality or controlling costs. (5) The bonus payments were arguably too small and the areas of clinical quality too narrow to foster significant behavioral change on the part of providers. (6) Moreover, complex patients with multiple medical problems posed unique dilemmas for physicians when their complicated conditions did not fit neatly within individual care guidelines, (7) and their care was (often minimally) coordinated among different clinicians. (8) Concerns emerged that "the methods used to measure the quality of care unfairly penalized providers caring for patients with multiple chronic conditions." (9) Studies found that some P4P plans did actually worsen existing disparities by discouraging physicians from caring for poorer, less compliant patients. (10) In short, some providers began "cherry picking"" to avoid those potential patients who they perceived were likely to lower their overall quality scores. (12) One of the most prevalent changes associated with the early P4P plans was increased documentation. (13) In other words, rather than increases in quality and use of preventive services, early P4P plans generated more record-keeping. "If pay for performance was a therapy," an observer noted in 2007, "its rapid diffusion thus far would have to be considered premature." (14)

One of the areas that P4P supporters have most hoped would benefit from this new form of payment is primary care. (15) Fee-for-service reimbursement has traditionally disadvantaged primary care by overpaying for procedures and intensity of care, (16) while...

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