Pay-for-Performance: The Future of Medicine?

September 26, 2007

dollar.jpgCommentary by Sandeep Mangalmurti MD, JD PGY-2 

“Pay-for performance” is the broadly encompassing term used to describe recent efforts to restructure physician compensation so that rewards are commensurate to performance. Initially limited to small pilot programs, pay-for-performance has rapidly expanded over the past decade; currently over half of all HMOs have implemented some form of it1, and plans are underway to introduce pay-for-performance measures into Medicare and Medicaid2.

There are various versions of pay-for-performance, and each presents its own advantages and disadvantages. The “traditional” version is also the most intuitive: compensate providers who keep costs down. One of the most common ways this is done is to give providers a monetary reward for limiting referrals to specialty providers. However, many physicians feel that incentive plans of this structure can compromise patient care by placing selective pressure on providers, and prefer a system that rewards for patient satisfaction instead3. In addition, paying physicians to reach a fixed common target may simply reward providers with higher levels of baseline performance instead of inducing improvements in care or efficiency.

Another version of pay-for-performance is more correctly thought of as “pay-for-participation.” Instead of direct individual rewards for individual performance, providers are compensated for participation in larger collaborative activities designed to improve outcomes. Providers receive regular feedback on their performance from peers, and then work collaboratively to improve efficiency, as well as collective morbidity and mortality. A highly effective program in interventional cardiology is currently in place in Michigan, with resultant improvements in mortality and post-procedure complications4. The major disadvantage, and a major point of contention, is public disclosure of provider performance. As expected, providers are strongly opposed to public reporting, and contend that disclosure results in avoidance of high-risk patients, and hinders open collaboration5. Others counter that public reporting helps create incentives for quality improvement and accountability6.

For surgical procedures, pay-for-performance presents unique challenges, as surgical outcomes are often more difficult to fairly quantify and compare. In response, a model based on “Centers of Excellence” has developed at sites nationwide, involving identifying and funneling patients towards hospitals and providers with proven track records of high quality care. One example is the Leapfrog Group, a consortium which has developed evidence based referral practices for five surgical procedures, based on risk-adjusted mortality rates, process measures, and minimum procedure volume7.

One of the most cutting edge pay-for-performance plans is the Geisenger Health System’s “guaranteed” elective coronary artery bypass grafts. Naturally, no hospital can guarantee favorable outcomes, but Geisenger comes close, by promising to meet 40 “benchmarks” for every patient undergoing CABG at one of its facilities. These benchmarks include screening for stroke risk, ensuring each patient receives the correct dose of beta-blocker and preoperative antibiotics, ensuring each patient is receiving appropriate post-operative rehabilitation and other post-discharge follow-up. More unusually, all post-operative complications within 90 days from the procedure are covered by the cost of the initial procedure. Naturally, this adds an element of financial uncertainty that many find troubling; however, to date Geisinger has been meeting 100% of their benchmarks, and has not suffered significant financial distress8.

Ultimately, the most important question is whether pay-for-performance is actually effective in either improving quality or efficiency. This remains a continuing area of controversy. For example, a recent analysis of the CRUSADE registry examined the effects of pay-for-performance on treatment of myocardial infarction, and found that pay-for-performance resulted in only limited improvement in quality of care or outcomes9. A more complete analysis of various pay-for-performance plans found mixed results, with no consistent improvement in quality in all plans10. Some fundamental problems included the fact that many of these programs seemed to permit adverse selection, by allowing providers or hospitals to exclude the sickest patients. The remaining patients only appeared to have improvements in quality; in reality, many of the improvements were simply due to improved documentation.

Much depends on the details of the plan, as all pay-for-performance plans face structural questions that must be correctly addressed prior to implementation. These include: should benefits be given to individual physicians or to organizations that will then distribute the benefits collectively? What is the correct compensation amount? How should performance be measured? Who should be rewarded for performance: all high performers or only the top marginal performers?11 To date, there are no consistent answers, and further research continues.



  1. Rosenthal ME, Landon BE, Normand S-LT, Frank RG, Epstein AM. Pay for performance in commercial HMOs. N Engl J Med. 2006;355:1895-1902.

  2.  Epstein AM. Pay for Performance at the Tipping Point.. N Engl J Med. 2007;356:517-519.

  3.  Grumbach K, Osmond D, et al. Primary Care Physicians Experience of Financial Incentives in Managed-Care Systems. N Engl J Med. 1998:339:1516-1521.

  4. Moscussi M, Share D, Kline-Rogers E, et al. The Blue Cross Blue Shield of Michigan Cardiovascular Consortium (BMC2) collaborative quality improvement initiative in percutaneous coronary interventions. J Interv Cardiol. 2002;15:381-386.

  5. Werner RM, Asch DA. The unintended consequences of publicly reporting quality information. JAMA. 2005;293:1239-1244.

  6. Chassin M, Hannan E, DeBuono. Benefits and hazards of reporting medical outcomes publicly. N Engl J Med. 1996;334:394-398.

  7. Barmier JD, Dimick JB. Potential benefits of the new Leapfrog standards: effect of process and outcomes measures. Surgery. 2004;135:569-575.

  8. Lee TH. Pay for Performance, Version 2.0? N Engl J Med. 2007;357:530-533.

  9. Glickman S, Ou F, et al. Pay for Performance, Quality of Care, and Outcomes in Acute Myocardial Infarction. JAMA. 2007;297:2373-2380.

  10. Petersen L, Woodard L, et al. Does Pay-for-Performance Improve the Quality of Health Care? Ann Intern Med. 2006;145:265-272.

  11. Rosenthal MB, Dudley RA.  Pay-for-performance.  Will the Latest Payment Trend Improve Care?  JAMA. 2007;297:740-743.

One comment on “Pay-for-Performance: The Future of Medicine?

  • Avatar of Mary Spence
    Mary Spence on

    I have a question as to why this system is necessary. Wouldn’t this system, no matter what version of it they use, be unfair to those who are below the marginal class of society? Shouldn’t doctors always be giving their best performance to the people that need their help? I hope that this system is scrutinzied a little more before it would go into effect.

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