Emerging Trends in Quality Purchasing Through Pay for Performance in the Hospital Sector in the United States

Pay-for-performance (P4P) has emerged in the US as a key strategy for improving quality of care. The basic concept is to give providers, typically hospitals or physicians, financial incentives to achieve assigned quality goals. This paper compares and contrasts a broad set of quantitative and qualitative analyses that my research team and I have conducted on the impact and implementation of the P4P strategy in hospital settings as well as physician organizations to set the context for P4P in the US at present. For example, in one such analysis, we conducted site visits to a sample of hospitals that were participating in the P4P program sponsored by the largest health plan in the state of Michigan. The site visits were designed to obtain information about the role of the financial incentives in motivating higher quality performance, facilitators/barriers to responding to such financial incentives, changes in clinical systems to achieve the assigned goals, and what (if any) internal arrangements were created to distribute incentive money to individual physicians and other health providers for purposes of achieving the goals. Study results indicated that the motivating effect of the incentives differed substantially across hospitals in relation to such characteristics as mission, market position, and financial status. We also found that hospitals seeking to achieve the goals did so largely without developing internal incentive arrangements for members of their own clinical staff. Quantitative analyses of P4P in other settings suggest that the impact of these programs may often be quite modest in the form of a one-time gain on a given measure (i.e., increase of 5 or less percentage points) without changing the long-term trend for improvement. Large-scale surveys and interviews to assess the attitudes of providers toward P4P programs reveals that providers by and large are comfortable with the concept of P4P but have substantial concerns about the way many programs have been designed and implemented regarding the structure of financial incentives, communication about the program itself and the extent to which assigned goals are within their scope of control. The paper also highlights our recent work with officials for the Medicare program to design a plan that will establish P4P as a central feature of hospital reimbursment with the the country's largest health insurance program