A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation analyzes pay-for-performance initiatives, including provisions in the Affordable Care Act, that provide financial incentives to doctors and hospitals for meeting or exceeding specific quality and performance measures. The concept of pay-for-performance is designed to address shortcomings of traditional fee-for-service payment, which inherently incentivizes a greater volume of treatments regardless of patient outcomes. The brief assesses studies done to date on pay-for-performance that show mixed results and discusses needs for further research that could help shape more effective programs in the future.

Topics covered in the brief include the following:

  • What’s the background? The brief details the evolution of pay-for-performance initiatives since they began more than a decade ago. It examines both private-sector initiatives, such as the California Pay for Performance Program, and public-sector demonstrations, including those launched by the Centers for Medicare and Medicaid Services (CMS). Early pay-for-performance experiments tended to focus on quality improvement with relatively less attention on costs. The Affordable Care Act expands the use of pay-for-performance approaches in Medicare in a number of ways, including through accountable care organizations, and encourages experimentation to identify designs and programs that are most effective.
  • What are the concerns? Questions have been raised about the design of pay-for-performance programs, including whether they offer incentives large enough to motivate providers to improve or change their behavior. One study recently published in Health Affairs, for example, found that Medicare’s Hospital Value-Based Purchasing Program will alter payments to almost two-thirds of acute care hospitals by only a fraction of 1 percent—not enough, the authors argued, to motivate providers to change. Other studies and analyses have raised questions about the impact of pay-for-performance approaches on providers serving poor or disadvantaged populations, as these institutions are often already financially challenged and could face problems meeting patient needs if they become subject to financial penalties.
  • What’s next? With implementation of the Affordable Care Act and growing attention in all quarters to the costs and quality of health care, pay-for-performance programs are likely to become more commonplace. The evidence so far shows that more research is needed to determine, for example, what size rewards will bring about the desired changes and how the improvements in performance can be sustained over time. Future evaluations will identify unintended consequences and differing impacts on various health care markets.

About Health Policy Briefs. The Briefs are aimed at policy makers, congressional staffers, and others who need short, jargon-free explanations of health policy basics. The Briefs, which are reviewed by experts in the field, include competing arguments on policy proposals and the relevant research supporting each perspective

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You can sign up for e-mail alerts about upcoming briefs. The briefs are also available from the RWJF’s Web site. Please feel free to forward to any of your colleagues who are tracking health issues. And after you’ve taken a look, we would welcome your feedback at hpbrief@healthaffairs.org.