The Institute of Medicine (2001) reported that there was a quality chasm the delivery of healthcare and cited a payment system that was determined by the quantity of care as an obstacle to improvement in quality and suggested that reimbursement policies should be associated with quality outcomes. As a result, the pay-for-performance was established as a quality improvement tool in healthcare facilities. Pay-for-performance is a reimbursement strategy aimed at rewarding physicians for attaining high performance in delivery of care to patients, based on established benchmarks. Therefore, pay -for-performance is a quality initiative that contrasts with the usual flat rate reimbursement given to physicians without considerations to patient outcomes. This program is aimed at strengthening quality measures, improving patient care, and maintains accountability among physicians. According to Epstein et al (2004), pay-for-performance functions to reward quality through creation of financial incentives for structural changes, effectuating changes in the healthcare system that are required for reduction of errors and costs, and improvement of quality and efficiency in care, encouraging physicians to widen delivery of care to patients beyond consultation time. Medicaid and Medicare use hospital and physician pay-for-performance initiatives as a way of aligning non-financial incentives and payment with enhanced quality of health care.
Goals of Pay-For-Performance Programs
These programs aim to address quality in terms of clinical outcomes, processes; structural and patient satisfaction measures (Hahn, 2006). The clinical outcomes determine whether preferred standards of care are followed in the delivery of healthcare. Process measures are aimed at addressing the appropriate delivery of services and practice patterns in healthcare (Hahn, 2006). Structural measures are used in determining adoption of health information technology, which ensures that electronic health records are created and utilized in clinical decision-making. Patient satisfaction measures are associated with the value placed on healthcare services patients, although, it has been argued that there is no direct relationship between quality of care and patient satisfaction (Chang et al, 2006). Therefore, pay-for-performance programs have established standards for determining the degree of quality in the above-mentioned measures for healthcare organizations.
Advantages and Disadvantages
Pay-for-performance programs are flexible implying that they can be incorporated into existing provider payment schemes such as salary, capitation and fee-for-service (Hahn, 2006). Therefore, payers do not need to overhaul their payment structures; rather, the pay-for-performance system is simply integrated into existing schemes. Hence, this may reduce costs associated with adopting new systems in an organization. Additionally, the standards and metrics set by pay-for-performance programs can greatly influence quality, efficiency and accountability in delivery of healthcare. Specifically, these programs provide rewards for high performance in the delivery of care implying that physicians and healthcare organizations will be motivated to offer quality on a continuous basis. For instance, the pay-for-performance programs are associated with cost savings on Medicaid program from shorter nursing home stays, improvements in cervical cancer screening, and improved immunization rates (Mannion & Davies, 2008).
On the other hand, pay-for-performance entails substantial administrative costs needed in documenting the metrics utilized by various programs. Hence, implementation costs are significantly high, whereas, it may take long to achieve the programs benefits. This is problematic in small hospitals, where the risks associated with participation in this program are not sheltered by the small incentives offered by the healthcare purchaser. These programs present problems of adverse selection, such that hospitals and physicians may avoid the severely ill patients to attain certain quality standards (Mannion & Davies, 2008). Moreover, these programs are promising in terms of improving quality in health care, but empirical results are contradictory. The implementation of this initiative in Medicaid and Medicare funded organizations has witnessed mixed findings in patient outcomes (Gilmore et al, 2007). For instance, an analysis of pay- for-performance programs within acute care settings did not find any significant differences in patient outcomes of quality of care in myocardial infarctions (Glickman et al 2007). Providers have to face challenges in managing the various completion programs offered by the purchasers. Specifically, the healthcare providers may have multiple programs in operations with different performance metrics and standards. Therefore, organizations may fail to match objectives and incentives; hence, these programs become counterproductive in the delivery of quality care to patients (Hahn, 2006).
There are various models in operation under the pay-for-performance program. This paper analyses three models including Medicare hospital gain sharing, physician group practice, and Premier hospital quality incentive models