Pay for Performance

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Pay For Performance
Jentry Pippin
HCS/531
December 24, 2012
Jody Sklar

Pay For Performance
Prior to the 2000s, fee-for-service systems dominated how health care providers received payment for providing care to patients. Under the fee-for-service system, physicians received payments, according to the volume of patients and the complexity of services. Two reports written by the Institute of Medicine clearly substantiated serious deficiencies in the quality of health care in the United States. The findings prompted the need to develop initiatives to pay health care workers based on quality. The following discussion defines pay-for-performance, explains the effects of reimbursement under this approach, details the impact of system cost reductions on the quality and efficiency of health care, the effects of this model on health care providers and customers, and the effect pay-for-performance will have on the future of health care.

The Definition of Pay for Performance
Pay for performance models reward providers, such as physicians, other health care providers, hospitals, and medical groups under contract for meeting pre-established performance measures to improve quality and efficiency in health care delivery. It is popular among policy makers and private and public payers, such as Medicare and Medicaid. The first initiative adopted by one of the nation’s largest health care plans, PacifiCare Health Systems, began paying medical groups in California bonuses for meeting or exceeding 10 clinical and service quality targets in 2003 (Meredith, Richard, Zhonghe, & Arnold, 2005). Service quality targets included five patient-reported measures of service quality, five ambulatory care quality indicators, and a set of hospital quality measures for referring patients to high-quality hospitals. The criteria in the first year required medical groups to acquire a minimum of 1000 PacifiCare Commercial and 100 Secure Horizons enrollees.

Research showed the network of California medical groups, under contract to improve performance goals, outweighed the performance measure of another medical group not under contract, Pacific Northwest, for cervical cancer screening by a significance of 3.6%.

Of 163 eligible physician groups, 97 (60%) received a distribution of funds from the program related to at least 1 physician group quality performance target in the first quarter of the QIP. In the last payout based on the original set of targets (April 2004), 129 of 172 (75%) groups reached at least 1 physician group quality target. (Meredith, Richard, Zhonghe, & Arnold, 2005, para. 26)

Only 14 medical groups exceeded more than half of the performance targets. The pay-for-performance approach showed an inverse relationship where physician groups with lower performance improved the most whereas physician groups that previously achieved target goals improved the least.

The Effects of Reimbursement under Pay for Performance
The article Early Experience With Pay-For-Performance: From Concept to Practice (Meredith, Richards, Zhonghe, & Arnold, 2005) argues this approach to improving the quality of care fulfills multiple objectives. One positive impact of pay-for-performance suggests paying health care providers for meeting certain quality indicators increases performance. The authors claim low-performing health care providers improved because they viewed the landscape of health care delivery changing by the mounting pressure of payees to improve their health care systems and decided...
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