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The Trouble With Pay-for-Performance

Philip Betbeze, for HealthLeaders Media, October 24, 2013

P4P Shortcomings
And although P4P seems to make common sense, and P4P based programs are now widely used by both CMS and commercial payers, Ryan says one shortcoming is that they're probably too limited in scope and in scale.

"One of the problems with the programs that have been implemented to date is that incentives aren't high-powered," says Ryan. "P4P represents less than 1% of revenue for providers in some cases."

An analogy would go something like this: Two competitors are hired to build a fence. A high-quality fence would bring Competitor A $100, and a low quality one that built by Competitor B would bring him $99. The cheaper fence could be the worst fence in the world, and fall down tomorrow, but as long as it was standing today, Competitor B would be paid the agreed-upon $99. Competitor A might build the best fence ever and still been paid $100.

What incentive does Competitor B have to improve? Not much. What incentive does he have to continue to labor intensively for his high quality fence? Again, not much.

If it now seems ridiculous that providers would make the sorts of investments that would help them improve quality and attain such meager bonuses, it is, Ryan says.

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1 comments on "The Trouble With Pay-for-Performance"


Stefani Daniels (10/28/2013 at 3:46 PM)
First of all, the incentive/penalty cycle should not be directed at hospitals. Under that scenario it is presumed that the hospitals can control/influence medical practice and history has proven that its a hard nut to crack in the current culture. Second, the only strategy that has reaped real change over the years is transparency of data/outcomes. The literature if filled with studies on how hospitals and physicians have changed culture and processes when they know that the outcomes will be viewed by the payers and the rest of the world. Just look at NY State - until they published mortality data associated with open heart surgery, people were dying too frequently. Now, its quite a different story. Published physician specific data and they will change too