In recent years there has been a great deal of interest in payment systems that reward performance. For example, doctors may receive bonuses based on performance targets, such as high immunization rates, or low surgical complication rates. Other payment systems reward providers according to how well they perform relative to their peers on various cost or quality measures. In the United States, this has come to be called ‘pay for performance,’ often abbreviated P4P. P4P payment systems are commonly used by HMOs (Rosenthal et al., 2006). P4P systems calculate payments on patient characteristics, for broad sets of providers, using potentially fine (not coarse) distinctions among patient types.
There is mixed evidence on the impact of these performance-based payment systems. A recent study by Rosenthal et al. (2005) and a review by Dudley and Rosenthal (2006) provide up-to-date discussions of the challenges in the United States because of using P4P. Large demonstrations that are in progress in the United States and UK will also shed light on this new initiative.
There are many forms of P4P systems. Typically, primary care physicians are grouped into risk pools that share financial rewards and penalties; the size of the risk pool will influence a physician’s responsiveness to incentives. Sometimes bonuses are shared among a large pool of physicians; in other cases, individual physicians are eligible for incentive payments. The size of the risk pool affects the intensity of incentives as well as the financial risk borne by providers.
Performance-based payment attempts to overcome the problem whereby doctors who provide inadequate care receive the same compensation as doctors who provide excellent care. Proponents of these systems argue that instead of paying doctors according to their characteristics, their patients’ characteristics, or the type of service they provide, physicians should be paid according to their performance. Many believe that physicians will respond to performance incentives by providing higher-quality care.
For some medical conditions, such as diabetes and asthma, there are easily recognizable quality measures that gauge provider performance. For example, if bonuses are allocated to providers who track diabetics’ blood sugar levels, then doctors will be more likely to have diabetic patients’ blood sugar monitored. Similarly, asthmatic patients will receive high-quality treatment if physicians are given bonuses for prescribing the correct asthma medication. Performance-based payment can encourage providers to give high-quality care to patients with these two conditions.
However, there are challenges to performance-based payment systems. First, opponents argue that these programs increase selection. Because physician ratings are based on claims data, their ratings may not fully reflect a patient’s risk factors. If so, bonuses create incentives for doctors to drop risky patients within a payment category. Many doctors oppose performance-based payment systems because their payments rely too heavily on their patients’ risk factors as well as their patients’ actions (e.g., whether their patients take their prescription or return for a follow-up appointment). Another concern is that only a relatively small number of performance measures are typically used. Incentives that do well on these measures may not carry over to other actions that are not measured or rewarded.
One widely cited study examined doctors who were offered bonuses if they complied with basic public health guidelines, including guidelines on preventative care. In 2003, California doctors were evaluated according to levels of breast cancer screening, cervical cancer screening, and hemoglobin testing. The top-rated doctors split a bonus pool of $3.4 million. Compared to doctors in Oregon and Washington who were not offered bonuses, California doctors offered more cervical cancer screening. Although the quality of care increased in all three areas, only for cervical cancer screening was the improvement greater in California than in Oregon and Washington; this may have been because the financial rewards to quality were too low or because substantial quality improvements take time. Physician groups whose performance was initially the lowest improved the most, whereas physician groups who had previously achieved the targeted level of performance improved the least (Rosenthal et al., 2005).
Bokhour et al. (2006) investigated the impact of P4P systems implemented in Massachusetts. This qualitative study interviewed 28 practice executives who noted that physicians viewed quality incentives as more aligned with their natural tendency to provide good quality of care. The study revealed that physicians appear to be motivated more by professional standards of quality than financial incentives.
P4P measures have also been introduced in other countries. Since 1990, general practitioners in the United Kingdom have commonly been paid according to targets. Initially, narrowly defined P4P target payments remunerated general practitioners if they delivered a minimum predetermined level of services or care. Kouides et al. (1998) found that immunization rates rose 5.9% compared to a control group when PCPs received an additional 10% or 20% payment per shot for each immunization made over target rates. Ritchie et al. (1992) studied the effects of a lump sum payment received if a PCP immunized 70% of the eligible preschool population. However, according to their study, the target payment intervention did not have a significant impact on immunization rates. In 2004, the UK introduced a large P4P contract for family practitioners. This P4P payment system was much wider, with 146 quality indicators covering clinical care for 10 chronic diseases, organization of care, and patient experience. The National Health Service committed £1.8 billion ($3.2 billion) in additional funds for a three year period; the program was intended to increase family practitioners’ income by up to 25%. After the first year, the median reported achievement was 83.4% (Doran et al., 2006).
In Haiti, nongovernment organizations (NGOs) provide basic health-care services including immunizations and prenatal care. Historically, these organizations were fully compensated for all their costs; therefore, they were not accountable for performance. In 1999, providers began operating under a performance-based payment system. Under this new system, a portion of each NGO’s historical budget was withheld. Physicians could earn back the amount withheld plus a bonus if they met specific targets including a targeted 10% increase in child vaccinations. After the first year, the most striking result was the increase in immunization coverage in the NGO service areas. The doctors said that the shift in payment structure inspired them to question their model of service delivery; the possibility of earning bonuses sharpened their focus to achieving goals (Eichler et al., 2001).
In 1998, the Cambodian government began an experiment that provided additional financial incentives for some health-care workers based on performance. Historically in Cambodia, government health-care providers received insufficient and irregular salaries, forcing them to seek alternative sources of income. Since this insufficient payment did not depend on performance, health facilities in Cambodia performed poorly. As detailed by Soeters and Griffiths (2003), after three years of implementation, when combined with monitoring, P4P improved use of health services and decreased total family health expenditure.
Similarly, a new output-based payment system was implemented in the Kabutare district of Rwanda in 2003. Before the introduction of the performance initiative, staff members received a fixed bonus in addition to their salaries. Under the new payment system, individuals kept their base salaries but an output-based remuneration replaced the fixed-bonus system. Meessen et al. (2007) found that productivity sharply increased between 2001 and 2003; average individual productivity increased by 53% under the new system.
There is evidence that performance payments need to be carefully designed and meaningful to have an impact. Hillman et al. (1998) could not reject that small financial bonuses did not affect compliance with cancer screening guidelines for a group of Medicaid physicians in Philadelphia. The authors attribute the insignificant result to the lack of awareness of the payments among physicians and to the difficulty of affecting treatment protocols when physicians have multiple payers.
At present the evidence is mixed on the effectiveness of P4P on quality and quantity of care. The theoretical and empirical research literature has not kept up with recent innovations, and many innovations are still being implemented that have not yet been validated or the incentives modeled. This remains an area promising possibly dramatic advances and worthy of significant new research.
Trends For The Future
This research paper shows that provider payment systems vary in a number of dimensions, all of which deserve consideration when considering reforms or study. Incentives created by provider payment vary according to each of these dimensions. Market characteristics, including provider competition, also influence incentives and outcomes in provider markets.
Other authors have noted recent trends in provider payment systems. Many countries have moved away from salary and fixed budget systems, which only reflect provider characteristics, and toward service and patient based payment systems. Because FFS payments may lead to the overprovision of services, sophisticated payers are using capitation or blends of different information so as to control costs.
Many countries are making their payment formulas finer, with more gradations of payment categories, and broader, with payments being made to few providers, who are in turn asked to manage or monitor other providers more carefully than an independent payer is able to. Trends toward P4P, with finely defined categories of information and broadly inclusive payments, reflect the latest movement toward patient-based payments. Whereas the evidence is mixed about whether P4P will ultimately be widely adopted, the desire to create incentives for cost-effective, high-quality accessible care suggests that elements of this approach will remain part of the provider payment strategy in the future.
Bibliography:
- Bokhour BG, Burgess JF, Jr., Hook JM, et al. (2006) Incentive implementation in physician practices: A qualitative study of practice executive perspectives on pay for performance. Medical Care Research and Review 63(supplement 1): 73S–95S.
- Busse R and Riesberg A (2004) Health Care Systems in Transition: Germany. Copenhagen, Denmark: European Observatory of Health Care Systems.