Pay for Performance – Models

Pay for Performance – Models


Pay-for-performance (“P4P”) is a term that describes health-care payment systems that offer financial rewards to providers who achieve, improve, or exceed their performance on specified quality and cost measures, as well as other benchmarks. In November 2007 there were 160 pay-for-performance (P4P) programs active (up from 39 in November 2003). Despite the proliferation of experiments, Pay-for-Performance models are based on a common set of design elements:

  • Performance measurement
  • Incentive design
  • Transparency and consumer engagement

Performance Measurement

In health care, quality of care measures falls into three categories: structure, process or outcome. Structural measures include patient access to care, use of electronic systems within and/or across practices, and patient experience of care. Clinical process measures are frequently used given the availability of the data through claims, the reduced reporting burden to providers and the breadth of endorsed measures by the National Quality Forum (NQF). However, as important as structural and process measures are, according to a study published in the American Journal of Managed Care, payers should design P4P programs with an emphasis on measures that have high economic value, for example blood pressure.

Incentive Design

Incentives can be financial or non financial. Financial incentives can be funded either through existing payments, generated savings or an investment of “new money”. A combination of these approaches can also be used by payers in a phased implementation; for example providing an upfront investment in health information technology in the first phase followed by incentives paid out of shared savings for reduced complications and demonstrated performance. Non-financial incentives, such as network distinction, public recognition, technical assistance and patient incentives to use high-performing physicians are also important to include. At the end of the day, the incentive must be commensurate with the incremental costs made by providers to exceed the benchmarks. Read more.

Incentives to providers are triggered based on the P4P program established benchmarks. The pros and cons of the type of benchmark used is important to consider especially if the mission is to reward not just early adopters but also encourage all providers to improve. Research by Meredith Rosenthal and Adams Dudley state that payers could establish a more effective lever for change by offering all providers an additional fee for each appropriately managed patient or for each recommended service. Regardless of the type of incentive, the target should be attainable, and clear and transparent upfront.

Transparency and Consumer Engagement

It is widely accepted that consumers will be active consumers of health care when the decisions involved impact their wallet and access, or choice of provider. However, research on how to compose and deliver the information in a meaningful way to patients continues to evolve. For example, Judy Hibbard and Shoshanna Sofaer have reported that presenting cost data alongside easy-to-interpret quality information and highlighting high-value options improved the likelihood that consumers would choose a high-value provider. Incentivizing patients to high-value providers can be an indirect, but powerful incentive for providers to improve their performance. Even a small shift in patients to another practice can represent a significant revenue risk.