Pay-for-performance project showed early gains but tapered in the fourth and fifth years

Research Activities, September 2011, No. 373

Pay-for-performance approaches reward hospitals that provide high-quality care with higher payments. In contrast, fee-for-service approaches pay providers for the volume of services they provide. Hospitals that participated in a Centers for Medicare & Medicaid Services (CMS) pay-for-performance demonstration project showed early gains in performance. However, hospitals not participating in the project also improved their scores over time. Thus, by the fourth and fifth year of the project, both sets of hospitals had nearly identical performance scores.

CMS deployed the pay-for-performance demonstration project in 260 hospitals nationwide in 2003. Participating hospitals received bonuses; reported quality data publicly; and received higher payments for meeting quality standards when treating Medicare patients with heart attacks, heart failure, pneumonia, coronary artery bypass grafts, and hip and knee replacements. These hospitals showed performance improvements through 2006. But by 2007, the participating hospitals' performance scores were similar to 780 hospitals that did not participate.

Rachel M. Werner, M.D., Ph.D., of the University of Pennsylvania School of Medicine, and colleagues suggest that this eventual performance parity may have been a result of a performance improvement boom that occurred during the demonstration project's term as forward-thinking hospitals began preparing for a widespread deployment of pay-for-performance. Incentives appear to be effective in improving scores only until performance actually improves, the authors find. That is, once hospitals excel, additional performance gains are difficult to eke out. The authors suggest that once performance scores are reached, incentives may be better used to target other areas in need of improvement. Not surprisingly, larger incentives spurred performance improvement at hospitals. This study was funded in part by the Agency for Healthcare Research and Quality (HS18409).

See "The effect of pay-for-performance in hospitals: Lessons for Quality Improvement," by Dr. Werner, Jonathan T. Kolstad, Ph.D., Elizabeth A. Stuart, Ph.D., and Daniel Polsky, Ph.D., in the April 2011 Health Affairs, 30(4), pp. 690-698.

Current as of September 2011
Internet Citation: Pay-for-performance project showed early gains but tapered in the fourth and fifth years: Research Activities, September 2011, No. 373. September 2011. Agency for Healthcare Research and Quality, Rockville, MD.