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pay for performance (P4P)

Contributor(s): Matthew Haughn

Pay for performance (P4P), in healthcare, is a payment model where hospitals, physicians and other healthcare workers are given financial incentives for meeting performance objectives. P4P is also known as value-based purchasing.

P4P programs are supported by insurance providers, Medicaid or Medicare. P4P creates a system that rewards healthcare for efficiency and penalizes for increased costs, poor patient outcomes and medical errors. Since 2005, over 75% of United States healthcare has tied at least part of employee pay to performance. Over 100 private and federal P4P pilot programs exist.

P4P attempts to address two problems in United States healthcare: falling quality of care metrics and skyrocketing healthcare costs.

Clinical outcomes can be difficult to measure comparatively with different approaches to healthcare. To overcome this difficulty, P4P focuses on consistency, process quality and efficiency as performance indicators. For example, the Centers for Medicare and Medicaid Services (CMS), which covers healthcare for millions of Americans through Medicare, Medicaid, and the Health Insurance Marketplace, has four metrics collected from claims or administrative data that is used to evaluate provider performance:

  • Patient and caregiver experience, such as timely care and communication from staff;
  • Care coordination and patient safety, such as patient readmission rates and use of electronic health records (EHR);
  • Preventive health, such as cancer screenings and vaccinations;
  • And treatments for at-risk population, such as controlling high blood pressure for patients with hypertension.

Some problems exist in in P4P. Doctors express support for the effort to improve, but many also voice concerns that the health indicators chosen to measure performance are not tied to patient outcomes. Another issue is the fact that insurance companies do not pay for new practices as a method of reducing errors. From the client perspective, there is concern that high-risk patients could be avoided when pay is linked to clinical outcome improvements. According to critics, P4P also fails to address overinflated medication prices and, in the end, can put the burden on frontline workers when negative performance is punished. Critics say that, in general, improvements in outcomes and efficiency have failed to materialize except briefly with most P4P systems.

This was last updated in June 2017

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