Pay for Performance star rating

In this post, we explain “pay for performance reimbursement”, what it is, and how it measures quality of care. Then we’ll explore some working examples.

The concept of this method of reimbursement isn’t new; it’s been circling the healthcare industry for over a decade. Yet, studies continue to show that it offers mixed results.

In pay-for-performance reimbursement, financial incentives are associated with provider performance to encourage efficiency and overall patient satisfaction. Pay for performance is an umbrella term for initiatives aimed at achieving that goal. The concept is leading the charge in national healthcare strategy by pushing providers toward the concept of value-based care.


The Benefits and Challenges

A focus redirected on quality of care is a key benefit of a pay-for-performance program. It allows payers to redistribute funds to encourage the best overall patient outcomes. Pay for performance focuses on provider transparency by using known and publicly reported measurements. That can also encourage organizations to protect and strengthen their reputations. Competition in consumer-informed choices suggests that overall, providers will work harder for their patients.

That said, myriad studies suggest pay for performance has a negative impact on people living in low socioeconomic conditions. Pay for performance has been shown to reduce access for disadvantaged populations since healthcare facilities are more likely to turn them away to keep their numbers low. Those populations struggle, for example, with medication costs, transportation, and access to follow-up care. As such, providers who treat low-income patients will experience lower numbers on their scoring measurements.


How Pay for Performance Measures Quality of Care

For physicians and hospitals to successfully engage in pay-for-performance reimbursement, there must be a clear and conceptual understanding of the criteria on which they are evaluated.

Quality measures are grouped into four categories:

  • Outcome evaluates the effect of the care on the patient. Outcome measurements are often considered controversial in pay-for-performance approaches since it’s generally affected by a variety of factors, including social and environmental conditions that are considered outside the scope of treatment and beyond the control of the provider.
  • Patient experience is one of the easiest measurements to monitor since it can quickly determine patients’ perceptions (!) of the quality of care they receive. Self-reporting surveys allow patients to provide detailed explanations of their satisfaction with the provider and the care received. Surveys often center on the type of communication patients have with clinicians and other providers.
  • Process measures the performance of clinicians and their direct impact on patients’ quality of life. Because each provider should encourage a positive health outcome for a patient, measuring the process is a good way to evaluate it.
  • Structure measurement considers the overall environment and the physical facility where care has been rendered. That also includes the equipment used for treatment. Many pay-for-performance programs encourage providers to adopt paperless technology to reduce waste and improve efficiency.

Pay-for-performance programs can also be used as a tracking tool to encourage awareness and improvement over the course of treatment. For example, Medicare no longer reimburses hospital facilities that treat patients who acquired health conditions while in the hospital. This is intended to promote a hyper-awareness of hospital sterilization and medical best practices.


History and Examples

Pay for performance’s popularity has grown thanks in part to the Affordable Care Act (ACA) and its integration of private and public-payer systems, including Medicare and Medicaid. All of these systems encourage exploration and experimentation into what is most efficient for healthcare facilities.

Legislation surrounding incentive-based structures has been in the works for decades. The old fee-for-service approach, compared to value-based reimbursement, led to increased costs by rewarding providers and facilities for higher volume. The more complex a procedure was coded, the more the reimbursement. But, higher-cost care doesn’t necessarily result in higher-quality care. That’s the conflict pay for performance aims to correct.

In the 1990s, the healthcare industry attempted to address this problem with managed care. This approach aimed to reduce excessive care by paying providers a lump sum per patient, regardless of the number of procedures billed. Concerns about the quality of care and the inability of patients to see providers of their choice soon cut into the popularity of managed care.

Next, the industry looked into issuing bonuses to providers that met or exceeded expectations in incentivizing them to provide quality care in an affordable way.  And, that’s where we are today.

  • Pay for performance in public healthcare programs: The Centers for Medicare and Medicaid Services (CMS) is the most vocal supporter of pay for performance, with a variety of payment models. CMS is the largest funder of healthcare in the United States, responsible for almost half of all spending. To address its large influence, CMS has developed three key strategies for pay-for-performance programs.
    • Hospital Value-Based Purchasing Program (VBP): VBP has been around for nearly a decade. It aims to improve the quality of healthcare and the overall patient experience. Hospitals are encouraged to provide top-notch care and use best practices and policies. Its impact is measured by an assessment survey that considers safety, clinical care capacity, efficiency, and patient and caregiver overall experience.  The program is funded by an overall reduction of Medicare payments to acute-care hospitals. The overage is then redistributed to hospitals that rank the highest on a measurement scale of improvement and achievement. That improvement is measured by the hospital’s past performance rather than against other hospitals.
    • Hospital Readmissions Reduction Program (HRRP): HRRP began as a way for Medicare to penalize hospitals whose readmissions were excessive compared with other acute-care hospitals in the area. It applies only to specific care episodes, including treatment and management of heart attacks and heart failure, coronary surgery, hip and knee replacements, and chronic obstructive pulmonary disease or pneumonia. Hospitals with higher-than-average re-admittance rates will have their reimbursements reduced to 3% less than other hospitals in the area.
    • Hospital-Acquired Condition Reduction Program (HAC): HAC was established under the ACA to reduce by 1% the payments for hospital-acquired conditions such as surgical-site infections, pressure sores, and other complications associated with a hospital stay. Even that small percentage cut has saved Medicare many millions of dollars.

Six measurements of patient safety are evaluated as part of the criteria used to determine which hospitals the reduction effects. Patient safety is then measured by a composite measurement score.

  • Other CMS pay-for-performance programs: CMS also has several other value-based payment programs to help improve patient experience and reduce costs. They include:
    • End-Stage Renal Disease Quality Initiative,
    • Home Health Value-Based,
    • Skilled Nursing Facility Value-Based,
    • Value Modified/Value Modifier.

Of those four, the Value Modifier Program (VMP) is the only one directed specifically at Medicare Part B providers whose scores range across the board. The payment adjustments range is from zero to 4%, applied on a claim-by-claim basis. The program ostensibly is funded by penalties on low-paying providers.

  • Pay for performance in private health insurance: Pay for performance reimbursement isn’t exclusive to CMS. In 2017, nearly half of private-sector insurance reimbursements were part of a value-based program. Currently, more than 40 such programs are in place. Commercial payers often focus on reorganizing priorities to emphasize cost control. Quality of care is essential, so commercial payers try to standardize health plan resources. That’s based on determining where and when a performance bonus can be issued along with a shared-savings model to fund overages.
  • California pay for performance program: One of the largest and longest-running pay-for-performance private programs is the California pay for performance program, managed by the Integrated Health Association (IHA), a nonprofit group. The program aims to improve quality, accountability, and overall healthcare affordability, with much the same mission as CMS: to create incentives that help reduce overall costs.

Founded in 2001, the California program has some of the most detailed aggregated information available. The program represents 9 million patients and offers eight health plans. The current measurement set for IHA includes 73 measures for physicians and 21 others for collection and internal reporting.

  • Other private sector examples: In the private sector, Anthem’s pay-for-performance reimbursement rate amounted to nearly 60% for all of its business. Cigna also has attempted to control costs and was the first payer to adopt a value-based approach to pharmaceuticals through an incentive program that attempts to align clinical-based trial results with real-world results.  Blue Cross/Blue Shield (BCBS) in Arkansas created the value-based compensation Initiative as a pay-for-performance reimbursement program. It makes discount payments on fee-for-service claims, eliminating the potential for profiting from stand-alone services. The overage is used to subsidize high-value outcomes as determined by BCBS.


Keys to Future Success in Pay-for-Performance

Despite the concerns about the efficacy of pay-for-performance programs, there are ways to mitigate the problems. One is for the healthcare industry to adopt a standard set of measurements for pay-for-performance models with longstanding capacity while reducing redundancy. Gathering and sharing aggregated data enables evaluations of the successes and failures of a pay-for-performance reimbursement model.

Taking advantage of the principles laid down by the American Medical Association and the American Association of Family Physicians can create robust and more dynamic measurement criteria. Also, an acknowledgment and awareness of the challenges for disadvantaged populations should be built into any successful pay-for-performance program.

Social healthcare determinants and access to care require health-equity measurements. A careful understanding of particular socioeconomic regions and an additional incentive to facilities that perform well in those areas can help offset some of the challenges.

CMS and commercial payers are ultimately concerned with the total cost of care, including professional, hospital, pharmacy, and ancillary, in addition to administrative payments and adjustments. To mitigate unnecessary payments and provide the most quality care for patients, the total cost of care must be consistently evaluated and monitored for potential improvements.

Because the private sector is not aligned with CMS, it’s reasonable to suggest that health plans consider combining incentive programs. Creating a shared-savings initiative that covers private and public providers could expand the reach of a program and ultimately keep the total cost of care low.

In the end, a long-form view of the future of healthcare is fundamental to a successful implementation of a pay-for-performance reimbursement. The application of a single set of guiding principles can ensure that quality and efficient healthcare is available for all patients, in the private and public sectors.

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