CMS began its first pay-for-performance pilot program in 2003, and since then has had many demonstration projects that have tested a range of pay-for-performance models for different types of providers. The Affordable Care Act (ACA) expanded the use of pay-for-performance programs in Medicare and encourages experimentation in order to evaluate program effectiveness. The chart on this slide shows the implementation timeline for various value-based payment model programs. Let’s take a minute to discuss a few of the more significant programs to date:

2. Hospital Readmission Reduction Program. Also implemented in 2012, this program provides incentives to hospitals when they reduce unnecessary hospital readmissions (not including planned readmissions), which are costly and many times due to a lack of coordination between providers, poor discharge planning and a lack of follow-up with patients. The program can reduce payments by 1 percent for hospitals that exceed certain readmission rates for specific patients with acute myocardial infarction (AMI), heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), elective total hip and/or total knee replacement, and coronary artery bypass graft (CABG) surgery.17

3. Physician Value Modifier Program. This program pays physicians bonuses when their patient care performance attains specified measures of quality and cost. The adjustments are made on a per claim basis for items and services listed in the Medicare Physician Fee Schedule. CMS phased in the program in 2015 and has since extended the Value Modifier Program to all physicians and most healthcare practitioners.
4. Physician Quality Reporting System. This program incentivizes physicians and group practices to report information to Medicare about the quality of their services. The program applies a penalty to physicians and practice groups who do not report data on the quality measures specified in the program.18

 

Concerns

Pay for Performance seems like it is good for all involved in that providers get compensated for providing higher quality care at more cost effective levels, and insurers save money. However, there are some major concerns that have been brought to light by policy analysts.

 

First, there are challenges in measuring performance. Let's take a look at an example. While penicillin is very commonly used to treat bacterial infections, and is considered the standard course of therapy for many infections, about 10% of the population is allergic to this drug. The question then is, should a hospital be penalized if a patient is readmitted due to an allergy-induced anaphylaxis? For situations such as this example, some analysts believe that payment adjustments should be made for special circumstances.19

Second, some analysts feel the financial incentives in Pay for Performance need to be larger. Where the incentives for the Hospital Value-Based Purchasing Program are around 1%, in an effort for the providers to meet the standards required for the bonus payments they need costly data systems which the small incentive can’t cover. Consequently, if the financial penalties are too large, the providers begin to start avoiding patients with complicated situations or health histories.20

Third, critics fear that Pay for Performance will affect disadvantaged populations. Providers could choose to avoid (and not treat) patients who have a poorer chance of meeting the desired outcome, or those who are thought to be less adherent to their prescribed therapies.21

Fourth, there are mixed results regarding the success of Pay for Performance to improve quality and lower costs. An analysis by RAND reviewed 49 studies that looked at Pay for Performance and found results mixed, and while some providers did see positive results, they were small. 22

 

A Stepping Stone?

In 2014, a noted pediatrician wrote in the New York Times that Pay for Performance in the U.S. had shown "disappointingly mixed results”. Another paper published in 2018 in The British Medical Journal claimed similar results, stating that sometimes even large incentives could not change the way doctors practiced medicine. Sometimes incentives do change practice, but even when they do, clinical outcomes don't always improve. Pay for Performance, used most commonly in corporate management, is a standard of practice where the primary concern is profit. However, in medical practice, many important outcomes and processes such as spending time with patients are not so easily quantified--and so can show a lack of effectiveness when used within the confines of a system that is based on the old fee for service model.23

As we have seen, the pay-for-performance model still leaves the fundamental fee-for-service system intact, and does not address the issue of fragmentation in care delivery. So Pay for Performance may be merely a stepping stone toward a more value-based payment model.