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Pay-for-Performance Incentives Adopted by Half of U.S. HMOs, but Use Depends on Health Plan Type, Physician Payment Arrangements

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Press Release Date: November 1, 2006

More than half of the Nation's health maintenance organizations (HMOs) used pay-for-performance programs in their contracts with doctors and hospitals in 2005, according to a new study supported by the Department of Health & Human Services' (HHS) Agency for Healthcare Research and Quality (AHRQ). More specifically, the study, which is being published in the November 2 issue of the New England Journal of Medicine, found that nearly 90 percent of those included these arrangements as part of their physician compensation and more than one-third of HMOs with these programs included them in their hospital contracts.

Pay-for-performance arrangements are an increasingly popular way for payers to reward doctors and hospitals for adhering to evidence-based standards of clinical care. According to the study findings, these arrangements are more often associated with HMOs that use primary care physicians as gatekeepers to specialty care, use "capitation" arrangements that give primary care doctors set payments each month based on the number of patients they have in a given health plan, or are themselves rewarded by performance-based incentives.

"This study is the first to assess the prevalence of pay-for-performance programs among HMOs and describe how they are used among physicians and hospitals," said AHRQ Director Carolyn M. Clancy, M.D. "The findings are exceedingly valuable and come at a time when the federal government is beginning to develop a value-based hospital payment system for Medicare enrollees," she said.

Researchers from the Harvard School of Public Health and Harvard Medical School in Boston surveyed health plans that offered commercial HMO products in 41 U.S. markets with at least 100,000 HMO enrollees. The markets in the sample represented 91 percent of U.S. HMO enrollees and 78 percent of the U.S. metropolitan population.

Health plan respondents generally included medical directors or directors of quality management. They responded to a series of questions about characteristics that might be associated with the use of pay-for-performance arrangements and their scope and structure.

For example, information pertaining to physicians' participation in pay-for-performance programs focused on the magnitude and structure of incentive payments, the types of performance indicators included (clinical quality, patient satisfaction, information technology and cost/efficiency), and whether physicians practiced individually or as a group.

For hospital pay-for-performance programs, researchers asked about three specific measures promoted by the Leapfrog Group, a quality improvement organization. Those measures included intensive care unit staffing, use of computerized physician order entry systems, and volume standards for high-risk procedures.

Of the 242 HMOs surveyed, 52 percent said they used pay-for-performance in provider contracts in 2005. The 126 HMOs using these programs represented 81 percent of enrollees in the sampled plans (average enrollment in each sample plan was 323,553). Nearly two-thirds of HMOs that require the majority of enrollees to designate a primary care physician as a gatekeeper to specialty services used pay-for-performance programs, compared with 25 percent of HMOs that do not require the majority of their enrollees to select a primary care physician.

Among 113 HMOs using pay-for-performance programs for physicians, 13 percent focused on the individual doctor as the unit of payment. One-third of programs were designed to reward only the top-rated physicians or physician groups. Nearly two-thirds offered rewards for attaining a pre-determined performance threshold. The bonus potential for physicians in these programs was generally equal to 5 percent of payments from the plan.

Nearly all health plans with physician programs included measures of clinical quality (100 percent of capitated plans; 79 percent of non-capitated plans). Use of information technology and patient satisfaction measures were relatively common elements of physician incentive programs, the study found.

Although 38 percent of health plans said they used pay-for-performance programs in hospital contracts, use of Leapfrog Group's measures was relatively low. Nearly three-quarters of HMOs said they relied on other measures of hospital quality.

The findings of the study, Pay-for-Performance in Commercial HMOs, have significance outside the commercial HMO sector as the federal government looks to incorporate pay-for-performance into traditional Medicare by 2009, according to researchers.

Note to Editors: Additional research and resources on pay-for-performance incentives are available on AHRQ's Web site at

For more information, please contact AHRQ Public Affairs: (301) 427-1539 or (301) 427-1855.


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