Pay-for-Performance and Accountability: Related Themes in Improving Health Care

By John W. Rowe, MD  Full story

Value-based purchasing, or pay-for-performance, is a major emerging theme in U.S. health care. Forces enhancing adoption of pay-for-performance programs include continued increases in medical costs beyond overall economic growth, a body of evidence that the quality of health care provided to patients is not directly related to the volume of services received, increasing evidence to serve as a basis for the development of standards against which to measure clinical performance, and increasing acceptance by physician organizations and individual practitioners of the rationale underlying these efforts. In this context, employers, government payers, and health plans are establishing a wide variety of pay-for-performance programs. This article reviews the critical design features of such efforts, describes the current types of programs on offer, and comments on the implications of this emerging movement for the future of health care in the United States.

Design of Value-Based Purchasing Initiatives

The design considerations in developing pay-for-performance programs include the clinical setting; the patient population; the specific incentives; the targets of the reward and the amount of the reward; and, particularly, the standards of performance (8). In addition, reliable data are central to the success of pay-for-performance. From this perspective, progress depends on widespread adoption.

Clinical Practice

The greater the proportion of the practice that is influenced by the payer (for example, health plan, Medicare, or Medicaid) implementing a pay-for-performance initiative, the more incentive physicians have to respond to the initiative (9). The prevalent mode of payment in the practice is also critical. If the quality improvement target requires additional physician actions (for example, tests, prescriptions, or reports), the likelihood of effectiveness in a practice setting in which these services are paid for individually will be greater than in a capitated practice. Conversely, capitated practices with salaried physicians would more easily adapt approaches aimed at reducing overuse of services. The patient population could affect the likelihood of success. Access to health care varies depending on race and ethnicity. Disparities in access might influence the effectiveness of pay-for-performance initiatives in groups with limited access (10).

Target of the Incentive

Incentive programs often pay only for superior performance. This approach runs the risk of merely redistributing funds from lower-performing physicians to superior performers without changing performance. Improving the overall quality of care in the community requires approaches that reward improvements even though the resulting performance may not be superior. Rosenthal and colleagues (11) described a health plan initiative that generously rewarded the highest-performing groups even though their performance did not change from its pre-incentive level. Lower-performing groups that improved received very modest payments. This type of experience can quickly erode support for pay-for-performance efforts. Programs should reward the level of performance and sustained improvement (12).

Form of the Incentive

Incentives come in different forms. Selection of the most effective incentive is influenced by many factors, including the magnitude of change that the pay-for-performance initiative requires to qualify for the reward. For instance, if the requirement for change is modest, a noncash incentive, such as lessening administrative burdens, may be effective. Channeling patients to preferred providers provides financial benefit to physicians but does not increase the unit cost to the payer. Reputational incentives include making providers’ process or outcome results available to patients. To date, public release of information has not significantly affected patient decision making about choosing a physician or health plan (8, 13).

Cash Incentives

An important issue for cash incentives, whether increased fees or bonuses, is the target of the payment. Payments are generally directed toward physicians, disease management entities, hospitals, or clinics. Because many initiatives relate to the performance of interdisciplinary clinical teams, especially for high-quality care for patients with chronic disease or those receiving complex treatment regimens, fair allocation of rewards across team members is important. Payers can reward patients for going to the best providers by lowering the amount they have to pay out-of-pocket.

How much should be paid? In a review of the U.S. experience, where most incentives are modest, the Agency for Healthcare Research and Quality failed to identify a consistent relationship “between the magnitude of the incentive and the response” (3). Most health plan efforts include financial incentives of less than 10% of physician income. The British National Health Service (NHS) has implemented a very substantial incentive for general practitioners, through which physicians can receive up to 25% of their income from quality-of-care–based incentives, a far greater commitment to performance-based payment than seen to date in the United States. Early results from this effort are discussed later in this article.

Development of Standards of Performance

To be acceptable to physicians, quality measures that will determine their rewards must be evidence-based; based on reliable, aggregated, observable performance information; transparent; and clinically important (14, 15). Many advocate a graded approach, starting by paying for merely reporting data rather than for specific levels of performance. In more advanced approaches, quality metrics include patient satisfaction, health care processes, adoption of computerized physician order entry in hospitals, and health outcomes, either alone or in combination.

Should metrics be simple or complex? Most current standards are simple. They state a basic clinical service that all patients with a certain condition should receive, such as prescription of ß-blockers after myocardial infarction. Approximately 5% of patients are responsible for 50% of health care costs. They are typically complex. Therefore, we need standards to evaluate management of patients with chronic disease and multiple comorbid conditions. To achieve this goal, we will need a much richer evidence base than is currently available. In addition, although most current standards are developed to evaluate primary care, specialty care accounts for a disproportionate share of health care costs. Standards must extend to specialty care and to complex patients with multisystem problems (15).

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