Managing Pay for Performance: Aligning Social Science Research with Budget Predictability

By Rosenau, Pauline Vaillancourt; Lal, Lincy S. et al. | Journal of Healthcare Management, November/December 2012 | Go to article overview

Managing Pay for Performance: Aligning Social Science Research with Budget Predictability


Rosenau, Pauline Vaillancourt, Lal, Lincy S., Lako, Christiaan, Piselli, Caroline R., Journal of Healthcare Management


Pauline Vaillancourt Rosenau, PhD, professor, management, policy, and community health, University of Texas Health Science Center, Houston; Lincy S. Lai, PharmD, PhD, director, Healthcare Pipeline and Research, Optumlnsight; and Christiaan Lako, PhD, assistant professor, public administration, Radboud University, Nijmegen, The Netherlands

EXECUTIVE SUMMARY

Managers and policymakers are seeking practical guidelines for assessing the outcomes of emerging pay-for-performance (P4P) programs. Evaluations of P4P programs published to date are mixed-some are confusing-and methodological problems with them are common.

This article first identifies and summarizes obstacles to implementing effective P4P programs. Second, it describes results from social science research going back several decades to support evidence-based P4P best practices. Among the findings from this research, the zero-sum and "earn it back" P4P incentive systems have important drawbacks and may be counterproductive, neither reducing health system costs nor improving quality. The research suggests that punishing participants for low performance may further reduce individuals' performance, especially when involvement is required. We suggest that optimal P4P systems are those that reward all participants for performance improvements. Third, the article links P4P design to budgetary considerations. P4P program designs that provide incentives while improving quality and reducing costs are critical if budget neutrality is a priority for the organization and its resources are limited. In these types of P4P designs, cost calculations are straightforward: The greater the participation, the higher the savings. The article concludes by recommending an evidence-based P4P approach for practitioners that can be implemented without large upfront investment. More research on this topic is also advised.

INTRODUCTION

The variety of pay-for-performance (P4P) programs is vast, and practitioners need guidance in determining which types are most successful and where to begin implementing one (Young 2007). According to the Agency for Healthcare Research and Quality (2006), P4P payment systems are designed to "offer financial incentives to physicians and other health care providers to meet defined quality, efficiency, or other targets." The collective goal of the P4P approaches is to reduce health system costs while improving quality.

P4P incentive systems are having an enormous impart on healthcare delivery in the United States (Epstein 2007). P4P is among the most important developments in the US healthcare sector since managed care and capitation (Kellis and Rumberger 2010). It aims to change the behavior of physicians, patients, and those working in hospitals through a system of rewards and punishments. A P4P reward or bonus for physicians might take the form of a salary add-on to the general fee-for-service. A reward for hospitals might be payments beyond those received through the diagnosis-related group-based scheme. A punishment under the P4P system might mean reduced compensation or some other penalty.

The purpose of this article is to assess and prioritize P4P programs for practitioners. First, we summarize the main obstacles to achieving a successful P4P program. Second, we employ theoretical principles and research findings from behavioral science and business to demonstrate how to improve P4P results. Third, we show the link between P4P systems and budget predictability. Finally, we recommend to practitioners a viable P4P design that includes evidence-based best practices and does not require a large initial investment.

ISSUES SURROUNDING PAY-FOR-PERFORMANCE IMPLEMENTATION

Results Are Mixed

Taken together, the results of P4P programs in the United States can be characterized at best as mixed and at worst as inconclusive (Peterson et al. 2006; Wodchis, Ross, and Detsky 2007). Some studies outline clear evidence of P4P effectiveness (Abelson 2007; CMS 2008). …

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