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Pay for Performance

A Decision Guide for Purchasers

Final Contract Report

Many decisions go into the design of a pay-for-performance (or P4P) initiative. "Pay for performance" is broadly defined to include any type of performance-based provider payment arrangements, including those that target performance on cost measures. This Guide is intended to be used by public and private purchasers of health care services, including health plans, who are considering sponsorship of a P4P initiative.

Twenty questions, identified in collaboration with purchasers, are presented for consideration along with options and any available evidence for each. The questions are grouped into four phases: contemplation, design, implementation, and evaluation.

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The P4P Checklist
Phase 1. Contemplation
Phase 2. Design
Phase 3. Implementation
Phase 4. Evaluation
A Final Note—Sustaining Quality Improvement
Copyright Notice

The P4P Checklist

20 Questions for Purchasers To Consider

Phase 1. Contemplation

√   Question 1. Is our community ready?
√   Question 2. Should we partner with other purchasers or go it alone?
√   Question 3. When and how should we engage providers in P4P discussions?

Phase 2. Design

√   Question 4. Which providers should we target first? Hospitals or physicians? Specialists or primary care providers?
√   Question 5. For physicians, what are the advantages and disadvantages of targeting individual clinicians versus medical groups? In the case of hospitals, what are the advantages and disadvantages of targeting individual hospitals versus hospital systems?
√   Question 6. Should provider participation be voluntary or mandatory?
√   Question 7. Should we use carrots or sticks—bonuses or penalties—or a combination?
√   Question 8. How should the bonus be structured?
√   Question 9. Should we use relative or absolute performance thresholds?
√   Question 10. What are our options for phasing in pay for performance?
√   Question 11. Where do we find the money?
√   Question 12. How much money should we put into performance pay?
√   Question 13. What measure characteristics make them attractive candidates for inclusion in an initial measure set?

Phase 3. Implementation

√   Question 14. How do we address providers’ concerns about whether risk adjustment adequately captures the severity of illness of their patients?
√   Question 15. If we currently sponsor a private or public report card, will P4P offer more of an incentive? If we are considering both a public report and P4P, which should we pursue first?
√   Question 16. Should we tailor pay for performance for subsets of a particular group of providers, e.g., safety-net hospitals?
√   Question 17. How should we think about pay for performance and its relationship to benefit design, including tiered networks?
√   Question 18. Is there any special advice for Medicaid agencies and Medicaid managed care plans interested in pay for performance?

Phase 4. Evaluation

√   Question 19. How can we tell if the P4P program is working?
√   Question 20. What unintended consequences should we look for?

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AHRQ Publication No. 06-0047

Page last reviewed April 2006
Internet Citation: Pay for Performance: A Decision Guide for Purchasers. April 2006. Agency for Healthcare Research and Quality, Rockville, MD.