Pay for performance - learning from mistakes from the past

This article appears in the November edition of the Australian Health Review, the peer reviewed journal of the Australian Healthcare and Hospitals Association.

"As part of the Rudd Government's ambitious program of health reform, it has flagged that it will be re-orienting health funding towards paying for outcomes of care, rather than processes. This is likely to include pay-for-performance programs," according to author, Associate Professor Ian A Scott, Princess Alexandra Hospital.

"Pay-for-performance (P4P) programs, which reward clinical providers with incentive payments based on one or more measures of quality of care, are now common in the United States and the United Kingdom. In the US there are currently more than 150 P4P programs in various stages of implementation and in the UK over 8000 general practices have entered into funding agreements which allow them to increase their income by up to 25% depending on their performance.

"In Australia, the only significant P4P initiative to date has been Medicare Australia’s Practice Incentive Payment scheme targeting general practice which, despite initiation in 1998, has not ever been formally evaluated. More recently, in Queensland, a phased program for paying incentives to public hospitals to participate in quality improvement activities and improve processes and outcomes has been initiated.

"The empirical evidence demonstrating effectiveness of such programs is limited and many existing programs have not had rigorous outcome evaluation. This increases the risk of introducing more P4P funding systems at a time when the design features of such systems, which predict success or failure, are not fully understood.

"Risks involved with P4P programs include that clinicians may avoid sick or challenging cases, or engage in other “gaming” strategies such as reclassifying patient conditions or “ticking the box”, even when care has not been given or has been incompletely administered. This could have an adverse effect on disadvantaged populations as clinicians or institutions serving such populations see revenues fall because quality thresholds used to award incentive payments are beyond their reach.

"Another risk is that overemphasis on process-of-care measures may promote inappropriate over-treatment in patients with multiple diseases and divert efforts away from co-ordinated care of chronic illness across different sectors. Financial incentives may further undermine morale and professional altruism and erode holistic approaches to care as emphasis is given to “treating the measure” rather than the patient.

"To reduce these risks and maximise the chances of success, future P4P programs should incorporate the lessons and insights obtained from previous experience. Based on a review of published trials, program evaluations and position statements, I have synthesized the following principles that should be followed when designing future P4P programs:

1) Formulate a rationale and a business case for P4P;

2) Use established evidence-based performance measures;

3) Use rigorous and verifiable methods of data collection and analysis;

4) Define performance targets using absolute and relative thresholds;

5) Use rewards that are sufficient, equitable and transparent;

6) Address appropriateness of provider responses and avoid perverse incentives;

7) Implement communication and feedback strategies;

8) Use existing organisational structures to implement P4P programs;

9) Attribute credit for performance to participants in ways that foster population-based
perspectives; and

10) Invest in outcomes and health service research.

"By following these principles, new P4P programs are more likely to be supported by clinicians and managers and hence more likely to be successful in improving quality of care," Associate Professor Scott said.