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Successes and Failures of the “Pay for Performance” Health Care Model Research Paper

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Updated: May 5th, 2022


Pay for performance (P4P) is a health care model in which providers get rewards for achieving quality benchmarks. Physicians, institutions or groups may receive these payments. The program is meant to increase the quality of healthcare in the country over a long period of time. Incentives accorded in these programs are meant to prompt healthcare organizations to improve care quality through infrastructural upgrades, increases in the number of services offered or improvements in health outcomes. The report will analyze the successes and failures of the program, stakeholders involved, and ethical issues created. Recommendations will also be given on how to improve the policy.

Relevance from a health policy standpoint

The goal of any healthcare policy program should be to meet patient needs in an efficient and satisfactory manner. P4P programs were intended to meet the above goal by helping patients stay healthy for a long duration of time. Since some chronic conditions are quite costly, then they became the basis of these programs. Some of the conditions included asthma, heart failure, diabetes and coronary disease. Acute conditions life knee replacements and heart attacks also put a lot of financial pressure on patients, so they were included. The country required a program that would lead to tangible improvements in healthcare outcomes. P4P was the ultimate solution to these challenges because it is evidence-based and infrastructural-based. Additionally, because some patients receive treatments from various providers, then it is imperative for them to have a coordinated system. P4P assists such patients because some versions of the program facilitate coordination of care (Rosenthal, 2008).

It should be noted that for a healthcare policy to be effective, it should be tied to the healthcare provider’s returns. P4P programs meet this goal because they reflect patient behavior, and hence the financial outcomes of the concerned institution. Additionally, previous payment systems such as fee for service had their own deficiencies. It was necessary to adopt another system that met healthcare provider needs.

Perhaps the most important reason for introducing P4P programs was to encourage healthcare providers to provide as many healthcare services as possible. If providers receive incentives for every service they provide, then they will exercise discretion on those services. In the past, providers have taken on too many services due to fear of litigation, yet they did not get paid for them. Additionally, P4P programs can encourage healthcare providers to focus on preventive programs such as nutrition in order to contain healthcare costs.

Pay for performance was a solution to problems in healthcare quality in the United States. Stakeholders felt that they needed to give providers an incentive to boost performance. As a result, they decided to make it the main point of focus for all health professionals. An organization implementing the pay for performance program can choose one of three structures. It may compare its quality measures to those of other providers in the industry. Alternatively, it may predetermine quality targets and compare its current performance to those goals. Thirdly, individuals may choose to do quality improvements over a long period of time. Present performance should be better than past performance for healthcare providers.

Quality measures may be done on the basis of process, outcomes or structure. Structural measures focus on how providers utilize resources in order to improve care. For instance, an institution may purchase an electronic record system to manage medical information or it may hire nutritionists to help diabetic patients. Process measures are those initiatives that bring about better health outcomes. For example, an institution may choose to prescribe aspirin to all heart patients. Outcome measures dwell on clinical outcomes such as the number of readmissions for avoidable conditions or reductions of blood pressure cases among hypertensive patients. Alternatively, an organization may forgo these three measures and focus on cost efficiency. Therefore, it will receive reimbursements only when the cost of caring for certain patients is effective.

Individual physicians have the right to receive disbursements in the program. Additionally, hospitals or medical practice groups may also be the target of such payments. In certain respects, physician networks may coalesce and participate in pay for performance initiatives. As such, the payments will be directed to them. Sometimes these disbursements can be based on the total number of patients seen in a specific institution. On the other hand, they may be done on the basis of a select number of patients who have specific diagnoses. These individuals have to be identified as the main determinants of the pay for performance measures. In other scenarios, a healthcare provider may focus on cost savings and use them as a basis for payments. In the event that a certain institution fails to meet its quality targets, healthcare payers will reduce reimbursements made to them relative to their peers.

Successes and failures of the program

Some P4P programs have led to improved healthcare outcomes among the groups concerned. However, these results have been divergent and few in number. Christianson et al. (2008) carried out an analysis of nine P4P programs that had physicians alone. The doctors received bonuses based on quality benchmarks while others dwelt on quality improvement. This study analyzed how the physicians performed with regard to diabetes care. Several of the physicians got disbursements due to quality improvements. One of them even received payments because of meeting his quality benchmarks and improvement goals concurrently. Therefore, the analysis revealed that in certain circumstances, P4P works.

Another analyst also studied improvements in a Hawaii-based P4P program over a four-year period. She examined 17 hospitals that used different outcomes for their programs. Some of them relied on outcomes; others centered on structure, patient satisfaction or processes. The hospitals reported a declining length of stay for patients who underwent surgical procedures. They also reported a reduction in the risks associated with surgery (Rosenthal, 2008).

One of the main problems with P4P programs is their narrow focus. Quality measures do not cover a range of patient groups or service groups. This means that healthcare organizations may be tempted to focus simply on those aspects of care that are covered by the P4P programs. As a consequence, the overall performance of the institution will be undermined.

Since pay for performance programs involve a wide range of providers using a diverse array of quality measures, then it may be difficult to coordinate the initiative effectively. Incentives work best when financial incentives are well coordinated. If this is not true, then the incentive may become ineffective. As noted earlier, some patient groups require heightened coordination of care, and since P4P cannot deliver on this promise, then it will continue to harm such patients.

Pay for performance systems are not efficient enough to act as incentives for healthcare improvements. Companies that still rely on fee for service payment systems have found that the funds available through those systems are sufficient enough for them. P4P programs contribute only a small percentage towards recipients’ funds. Some of the older systems account for efficiency as well as volume, and this makes them more effective.

Sometimes an incentive-based system that measures certain health outcomes may cause the concerned company to cherry-pick patients. Because of the obsession with P4P measures, payers may cause healthcare providers to treat healthy patients alone. Extremely sick patients may put a health organization at a greater risk of being penalized. Furthermore, because certain patients get their treatments from a series of institutions, then P4P participants may be tempted to choose those patients who do not have other doctors that ascribe to a P4P program. This may be done to avoid the risk of someone else taking credit for their input. In the end, patients who really need care may be prevented from accessing it, and this may undermine their health.

Experts doubt the statistical accuracy of P4P measures; many of these programs measure narrow clinical conditions for a relatively small group of patients. Provider-level estimates may seem higher than they are when one payer is dealing with the program. Therefore, disbursements paid do not match the quality improvements that healthcare institutions implement. This situation is aggravated by the use of measurements that have a short time frame.

Ethical issues

The key ethical issue with this program is that it will shift physicians’ attention from the well-being of their patients to their bottom line. Most of them will constantly worry over how their treatment choices will perform in the P4P program, and this may occur to the detriment of the patient. Patients may not see any difference between doctors who treat them based on a bonus and those who prescribe drugs that are made by firms that pay the doctor.

Issues of privacy can also arise when implementing P4P programs. Storing and collecting patient information in order to assess P4P outcomes may violate a patient’s right to privacy as their information will not just be available to the treating institution; it will involve other third parties that have nothing to do with their well being.

Pay for performance programs largely depend on industry benchmarks, which are usually created by medical experts. It is likely that most of these experts focus on their self-interests and their biases in medicine when making those plans. Consequently, one can find that the benchmarks may not always be in patients’ best interest.

If policymakers insist on applying this program to various institutions, then chances are that doctors will be locked into an impossible situation of cutting down costs and predefining their treatment processes (Christianson et al., 2008)


Most evaluations done on P4P programs rely on ineffective research methods. They typically involve before-and-after studies and lack comparisons across groups. Therefore, new research on P4P outcomes should not just focus on one type of program; they ought to compare outcomes in implementing institutions with control groups. Additionally, because most of these studies are done on a voluntary basis, it is likely that they may result in volunteer bias. Researchers ought to use randomized trials in order to minimize falsehoods. The public has a right to know whether the programs they use have tangible outcomes. This will allow them to make strong conclusions about the effects of their policy.

The lack of similar quality standards is the biggest problem in this healthcare policy. Physicians have not agreed upon the number of times that they need to implement a certain quality program or the nature of diseases covered in them. Further, some specialists may prescribe different treatment outcomes for the same disease. Reducing a doctor’s choices to some few checkboxes on a form is unfair to these professionals. Payers will need to iron out these discrepancies among providers by selecting diseases that have relatively simple treatment paths. Doctors will need to come together and make a consensus on what matters and what does not.

Stakeholders should critically evaluate the use of outcome-based incentives. As mentioned earlier, rewarding hospitals for clinical outcomes, like low mortality rates, punish institutions for admitting sicker patients. In fact, some institutions that focus on terminally ill patients will always perform poorly when such rubrics are used. It would be more effective to use past performance as a measure of present outcomes. Institutions should compete against themselves as they all have differential goals.

In addition to the above, payers should ensure that hospitals do not achieve high rewards simply by diverting resources from unmeasured aspects of care. P4P payers should double-check such institutions.


The P4P model is characterized by uneven performance benchmarks, narrow focus, and poor coordination. This leads to diffusion of financial incentives as well diversion of resources to measured outcomes. Unless healthcare institutions improve their level of coordination and move away from outcome-based measures then this policy will continue to yield unsatisfactory results.


Christianson, J., Leatherman, S. & Sutherland, K. (2008). Lessons from evaluation of purchaser pay-for-performance: A review of the evidence. Medical Care Research and Review, 65(6), 5-35.

Rosenthal, M. (2008). Beyond pay for performance: Emerging models of provider payment reform. New England Journal of Medicine, 359(12), 1197-1200.

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