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The Trouble With Pay-for-Performance

Philip Betbeze, for HealthLeaders Media, October 24, 2013

P4P Incentives Too Small
Another problem is if the incentives need to be larger, where is the money going to come from? Very few commercial insurers want to add new money so that means moving away from bonuses. After all, the larger goal is to reduce the cost growth of healthcare. New bonus money has to come from somewhere. Meanwhile, Medicare is trying to do incentives that are budget-neutral, Ryan says.

"The problem here is if we went to 5% or 10% [of revenues], that would get attention, but risk disadvantaging certain types of providers like the safety net. Some could get penalized a lot," he says. "It's a classic trade-off and I'm not sure what the sweet spot is as to the level of incentive anyway."

Another problem with getting traction from P4P on improving value is that such programs focus on process measures instead of outcomes, Ryan says. But measuring outcomes presents its own set of complications, which is one reason why P4P still gets so much attention.

"Providers often don't like outcomes because they argue they are largely out of their control," he says, adding that performance on outcomes measures is quite noisy statistically, "so you might have a rate that looks good one year and bad the next and is a result of statistical noise. There's not much of a quality signal there."

The other problem, of course, is that incentivizing outcomes also creates incentives to avoid providing care for certain types of patients.

"We have risk adjustment, and if it was perfect, we wouldn't have people contending reimbursement on outcomes is unfair, but it's not and never will be," says Ryan.

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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