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Converting financial incentives into quality

Pay-for-performance in health care seeks to correct the unconscionably low level of quality provided to some patients. In practice, achieving quality through financial incentives continues to prove a difficult endeavor.

Pay-for-performance (P4P) in healthcare emerged as a result of two major reports by the Institute of Medicine, among others, that highlighted serious deficiencies in the quality of health care in the United States.  The premise of P4P is to use financial incentives to shift provider behaviors from a system rewarding volume and complexity of care to one rewarding a focus on quality by providers.  Now, roughly ten years from its inception, with major public initiatives such as the and the Physician Group Practice Demonstration, as well as 40 private sector P4P programs, we continue to , and attempt to draw conclusions from mixed results.

Pay-for-performance programs may provide bonus payments or impose financial penalties based on improvements or harms which are the result of provided care.  Incentives are based on process measures (activities demonstrated to contribute to improved health outcomes), outcome measures (quantifiable measures related to the health of the patient), patient experience (whether or not the patient is satisfied with the care he or she has received), and structural measures (those changes in facilities, staffing, and equipment geared toward improving health care quality).  Additional complexities stem from determining the organizational level of incentive payments, the size of the payments and when they should be provided, whether to reward benchmark achievement or quality improvement, determining how incentive payments lead to improved quality, how to prevent such as denial of care to sicker patients who may affect payment, or how to account for patient variables beyond a provider’s control.

These variables and the need to alter complex behaviors account for the inconclusive body of evidence for P4P.  For example, the Premier Hospital Incentive Demonstration study rewarded hospitals for improved quality related five specific conditions and compared them to similar hospitals without rewards between 2003 and 2009.  Initial results demonstrated improvements with incentive payments, but found no differences between incentive hospitals and controls by the fifth year of the study.  A separate study of this demonstration examined 30-day mortality for certain conditions between 2004 and 2009 and found no difference between demonstration and control groups.  Other studies, including one on the Medicare Physician Group Practice Demonstration, were able to show improvement in quality with modest reductions in spending growth when physician groups were rewarded for quality and cost control.  Still, others found that patient specific factors such as transportation and language barriers influenced quality more so than financial incentives.


Pay-for-performance initiatives seek to address a number of provider-specific behaviors to achieve their intended goals.  The current question is, do financial incentives steer providers toward behaviors that improve quality?  A more interesting question is: how do financial incentives translate into quality improvement?

Financial incentives and public reporting may have been the catalyst promoting quality, but the behavioral innovations spurred by incentives are the key to determining how to move forward.  For instance, it is becoming more difficult to visualize the downstream effect financial incentives have on patients in a system that does not account for patient behavior, essentially ignoring it as a variable of care, or at best, discussing it as an afterthought.  As a result, we are seeing initiatives that focus on patient-centeredness and care coordination such as which provides reimbursement for behavioral innovations that focus on altering or managing patient behavior.  Such programs may provide the link between the use of financial incentives for provider behavior and their translation to better patient outcomes.


Patrick Fitzgerald, MPH

Patrick Fitzgerald, MPH
About Patrick Fitzgerald, MPH

Mr. Fitzgerald currently works as an analyst for UCare, a Managed Care Organization serving Medicaid and Medicare recipients in Minnesota and western Wisconsin. Contact: Facebook | More Posts

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