Early Experience With Pay-For-Performance: From Concept to Practice

Abstract

The adoption of pay-for-performance mechanisms for quality improvement is growing rapidly. While there is intense\ninterest in and optimism about pay-for-performance programs, there is little published research on pay-for-performance in\nhealth care. In this study, we examine the impact of a prototypical physician pay-for-performance program on quality of\ncare. We evaluate a natural experiment with pay-for-performance using administrative reports of physician group quality\nfrom PacifiCare Health Systems for both an intervention group (California physician groups) and a contemporaneous\ncomparison group (Pacific Northwest physician groups).\nCompared to physician groups in the Pacific Northwest, PacifiCare’s California network demonstrated greater quality\nimprovement after the pay-for-performance intervention only in cervical cancer screening (a 3.6 percentage point difference\nin improvement (p<.05)). In total, PacifiCare awarded $3.4 million (27% of the amount set aside) in bonus payments\nbetween July 2003 and April 2004, the first year of the program. For all three measures, physician groups with baseline\nperformance at or above the performance threshold for receipt of a bonus improved the least but garnered the largest share\nof the bonus payments. We conclude that paying providers to reach a common, fixed performance target may produce little\ngain in quality for the money spent and will largely reward those with higher performance at baseline. Paying explicitly for\nquality improvement may be a more effective means to induce accelerated improvement in quality.\nThis evaluation is developed from and is informed by a decade-long collaboration between the researchers (affiliates of\nHarvard’s Sloan Center for Managed Care Industry Research) and PacifiCare that began with a series of in-depth site visits\nto the physician groups in PacifiCare’s network, followed by a survey of those groups that examined the use of organizational\nand financial mechanisms for managing care.