The concept of provider incentives for improving healthcare quality is beginning to gain momentum.

In 2001, The Institute of Medicine identified that current provider-reimbursement methods provide little financial reward for improvements in healthcare quality. Pay-for-performance (P4P) incentive programs, however, are designed to overcome these limitations by aligning financial reward with improved outcomes. These P4P programs differentiate payment among providers based on performance of quality and efficiency measures so that desired outcomes occur through changed behavior.

However, P4P programs today encompass more than 30 million members and beneficiaries. This represents 30% of all present HMO membership. The number of sponsoring organizations, such state governments, employer coalitions, and plans, are projected to increase 20% per year, from 40% in 2003 to approximately 80% by 2006.

Med-Vantage, a healthcare consulting firm and alliance partner to intelligence provider ViPS interviewed experts about provider P4P incentive programs. Interview findings were further corroborated with an analysis of 40 existent provider P4P programs.

Most health plans surveyed in the Med-Vantage study had positive experiences with P4P programs since the goals and measures used were modest. More than 80% of the P4P programs use administrative process measures such as HEDIS as a starting point, since they usually can be gleaned from existing transaction data. The study identified that not all programs continue evolving. Indeed, some P4P programs have stalled in their development and provider participation levels, having achieved relatively modest goals without strong impetus from employers or providers for continued expansion or refinement.

But purchasers such as CMS, large employers and affiliated organizations are dissatisfied with resurgent health inflation and substandard quality. Further, as consumer-directed initiatives shift more health costs to employees, purchasers also want greater transparency and disclosure of provider performance and cost information.

The study identified key lessons and success factors in P4P program design and deployment:

Select the "right" incentive measures

P4P programs are more effective when they use a balanced-scorecard approach that weighs concerns for quality, efficiency and infrastructure. Large employers and other health-plan purchasers are highly skeptical of implementing incentive programs based on quality process measures unless they save money within 18 months or less.

Provider acceptance

To justify the time and cost to providers and their support personnel, P4P programs should: 1) be clinically relevant and defensible; 2) offer meaningful incentives so that provider net margins improve; 3) provide sufficient patient volume to attract provider attention; and 4) use measures that avoid undue administrative burdens.

Operations and business processes

P4P programs are effective when coordinated with medical management, consumer benefit plan design, provider outreach, public report card disclosure, and provider honor-roll strategies. Providers believe that incentives are only part of an entire system of care and reimbursement. P4P programs should embed the process for quantifying, proving and validating ROI and outcomes. MHE

This section is underwritten by an unrestricted editorial grant from NMHCC.