Health Care Costs and Financing

Pay-for-performance incentives were adopted by half of U.S. HMOs, but their use depends on health plan type and physician payment arrangements

More than half of the Nation's health maintenance organizations (HMOs) used pay-for-performance programs in their contracts with doctors or hospitals in 2005, according to a new study supported by the Agency for Healthcare Research and Quality (HS13335). Researchers found that nearly 90 percent of health plans with pay-for-performance programs included these arrangements as part of their physician compensation and 38 percent 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.

Researchers from the Harvard School of Public Health and Harvard Medical School in Boston surveyed health plans with at least 100,000 HMO enrollees that offered commercial HMO products in 41 U.S. markets. 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 answered 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 (the average enrollment in each sample plan was 323,553). HMOs that required enrollees to designate a primary care physician as a gatekeeper to specialty services were more likely to use pay-for-performance programs compared with those who did not require this designation (61 vs. 25 percent).

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 predetermined performance threshold. The bonus potential for physicians in these programs was generally equal to 5 percent of payments from the plan.

See "Pay for performance in commercial HMOs," by Meredith B. Rosenthal, Ph.D., Bruce E. Landon, M.D., M.B.A., Sharon-Lise T. Normand, Ph.D., and others, in the November 2, 2006, New England Journal of Medicine 355(18), pp. 1895-1902.

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