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Financial incentives to physicians and hospitals to improve quality of care seem ineffective

A recent review finds little evidence to support the effectiveness of financial incentives to physicians and hospitals to improve performance. The studies suggest that small-scale bonus arrangements are insufficient to motivate substantial changes on the part of physicians and hospitals. Among the health care studies reviewed, many of those with the strongest research designs yielded null results, with only two positive findings. Five of the studies examined interventions that targeted relatively narrow sets of quality measures, such as compliance with preventive health care guidelines. The sixth study examined a single element of a larger-scale, multidimensional quality bonus program. What's more, the incentive dollar amounts per patient and shares of eligible patients involved were often small.

Nevertheless, the Harvard University researchers caution against generalizing these findings to the efforts currently being introduced in the commercial insurance market. The majority of previous studies targeted individual physicians, while current programs are more likely to be directed at physician organizations or health systems. Also, half the studies reviewed involved interventions around Medicaid populations, where reimbursements historically have been low.

Looking outside of health care for indirect empirical support for pay-for-performance, the authors also reviewed evaluations of school and job training incentive programs, as well as the extensive literature on executive compensation. Here they found similarly mixed results in terms of effectiveness and evidence of unintended (adverse) consequences.

The authors note that the U.S. health care system is characterized by a large number of overlapping contracts among payers (that is, health plans and government programs) and providers. As such, financial incentives introduced by any one payer must be a relatively large percentage of total reimbursement by that payer to justify any quality improvement effort with substantial fixed costs. In addition, physicians and hospitals have a limited ability to manage a large number of quality improvement initiatives from several payers at one time. In either case, some coordination among payers on the choice of quality targets may be desirable. Also, the Centers for Medicare & Medicaid Services can play an important role in providing incentives due to their leverage to spur quality improvement and their dominant market share, suggest the researchers. Their study was supported by the Agency for Healthcare Research and Quality (HS10803).

More details are in "What is the empirical basis for paying for quality in health care?" by Meredith B. Rosenthal, Ph.D., and Richard G. Frank, Ph.D., in the April 2006 Managed Care Research and Review 63(2), pp. 135-157.

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