News Ticker

P4P in Nursing Homes

Nursing homes receive the majority of their income through Medicaid. Thus, state administrators wield a powerful lever for improving quality in nursing home care through pay-for-performance programs.

Amidst increasing pressure for higher quality and lower cost health care, monetary incentives for quality health care have become more popular, especially from public payers such as Medicare and Medicaid.  Termed pay-for-performance (P4P), this type of incentive program is being used across many health care settings.  Nursing homes have been theorized to be the most impactful setting for state Medicaid payers because Medicaid is the largest payer in this market (representing half of all payments) and  reimburses for over 65 percent of all nursing home bed-days.  Despite the  increasing use of P4P, very little is known about its optimal design or ultimate efficacy.   Only two reviews of state Medicaid departments describe their use of P4P.  One peer-reviewed study from 1992 analyzed whether or not P4P in nursing homes increased quality of care; it concluded that nursing homes respond to payment incentives.  Studies looking at payment incentives in other care settings have yielded mixed results.

The current study provides a comprehensive description of presently implemented or planned P4P programs in nursing homes across all 50 states.  The authors interviewed state Medicaid directors (or other relevant personnel) from each of the 50 Medicaid departments in regards to planned or implemented P4P programs for nursing home care.  Since 2000, nine states (CO, GA, IA, KS, MN, OH, OK, UT, VT) have had such programs and five more (AZ, IN, MD, TX, VA) are planning to implement programs.  Interestingly, these P4P nursing home programs vary greatly from state to state based on how they measure quality, how they define quality, and how they reward quality.  All programs use three or more clinical (resident pain scores, new pressure sores, restraint use, etc.) or non-clinical (staffing retention, regulatory deficiencies, home-like culture, etc.) measures of quality.  Individual nursing homes get “points” for either having better quality than other neighboring nursing homes or by surpassing a quality benchmark set by the state.  Nursing homes get bonus pay either as a percentage of their base reimbursement or a fixed dollar amount.

The nine participating states spent between 0.1 and 1.8 percent of their state Medicaid budgets on incentive programs for P4P, in the case of Ohio, over  $18 million.  This incentive money came either from redistribution of previous Medicaid funds or from money added to the Medicaid budget.

Some worry that these P4P programs may result in unintended consequences.  Traditionally, nursing home facilities that care for a disproportionate share of Medicaid beneficiaries are relatively underfunded. They therefore often provide lower quality care.  An unintended effect of P4P may be perpetuating this cycle: fewer quality bonus payments would go to nursing homes predominately composed of Medicaid beneficiaries.  In effect, P4P might continue to pay nursing homes that already provide high quality care and would only serve to exacerbate existing disparities.  The authors suggest incentive payments to reward improvements in quality rather than merely a set benchmark level of quality care.


With so much policy talk, and now action, around P4P, it is surprising how little is known about the use of P4P in nursing home care settings, let alone the efficacy of the various P4P strategies in use.  The metrics different states use to measure quality range from care processes thought to produce quality outcomes (staff retention) to actual outcome measures of quality (resident satisfaction).  As P4P programs focus on the quality, not cost, of care, it seems more intuitive to reimburse for actual outcomes, leaving it up to inventive and resourceful care providers how best to reach those goals.  Similar to systems of bundling payments, reimbursing for outcomes rather than processes will allow for more innovation and hopefully less costly care delivery systems over time.

Werner, RM, Konetzka, RT, and Liang, K. “State Adoption of Nursing Home Pay-for-Performance.” Med Care Res Rev 2010; (67): 364 -377.


Lisa Maurer, MD


Lisa Maurer, MD
About Lisa Maurer, MD

Dr. Maurer is an attending physician with Emergency Medicine Specialists in Milwaukee, WI where she serves as Legislative Liaison. Contact: Facebook | More Posts

2 Trackbacks & Pingbacks

  1. Webmaster
  2. MassHealth’s P4P Program Fails to Produce | Policy Prescriptions

Comments are closed.