Hospital Fee Models Make Pay-for-Performance Problematic

Attempts by healthcare payers to incentivize quality care by providers are nothing new. However, a study on pay-for-performance programs, as they are called, indicates that the practice may not improve the quality of patient care to the intended extent.

Most hospitals currently operate pay-for-service models, in which providers receive a set amount for each service provided. This model tends to encourage quantity over quality and time-intensity over efficiency. Pay-for-performance, which Medicare has already implemented through its Hospital Readmissions Reduction Program, flips the traditional fee model on its head and reimburses facilities for “quality” treatment – or, in the case of the HRRP, penalizes hospitals that fail to meet established benchmarks for patient care.

There are several issues with pay-for-performance, from what to measure to the size of the incentive offered, and the model’s impact on hospitals’ performance is mixed.

What “performance” is measured?

Many payers in this model focus on measuring adherence to processes rather than patient outcomes. A facility may qualify for incentives because they follow procedure accurately, but that does not necessarily reflect added value. Providers will prioritize the care for which they will be rewarded, while showing no change or a negative change in other measures.

Measuring outcomes, meanwhile, can lead to an artificially inflated or deflated result because the care provided is only one element of patient outcomes. In addition, facilities working for certain outcomes may be risk averse to treating patients unlikely to see a positive outcome.

How should incentives work?

Andrew Ryan from Weill Cornell Medical School claims that in most pay-for-performance models, the incentives offered are insufficient to compel providers to improve their practices. On the other hand, increasing incentives may be cost-prohibitive to many facilities.

Either way, even the best pay-for-performance program may not motivate caregivers to improve their practices. One suggestion to overcome this obstacle is to leverage providers’ risk aversion by paying incentives up front, and requiring providers to pay back money for standards they fail to meet.

Is there a better way?

System-wide change to the payer-provider relationship may be a better path to higher quality care than tweaks to payer methods. Individual providers may lack the resources or motivation to attack systemic issues, but payers and providers can collaborate and cooperate with one another to address those problems together and build a system that provides the quality care that patients deserve without relying on financial incentives to do so.

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