Study finds pay-for-performance now common among US HMOs

Survey may help medicare as it considers adopting this approach

Boston, MA -- Pay-for-performance plans, which aim to improve the value of health care by paying providers based on quality and cost measures, have been a hotly debated topic in recent years. The Centers for Medicare and Medicaid Services (CMS) is considering adopting pay-for-performance for physicians and health plans, and the private sector has been implementing these plans around the country. But until now, there hasn't been a systematic study of how much national penetration these plans have among commercial HMOs in the U.S. In a new study, researchers from the Harvard School of Public Health (HSPH) have found that pay-for-performance plans are increasingly common--their survey found that 52.1% of health plans representing 81.3% of people enrolled in HMOs used pay-for-performance programs in 2005. The study also identified important details about these programs and the types of commercial HMOs that are implementing them.

"This is the only national estimate we have of pay-for-performance and thus the best information on current models for private health plans and agencies such as Medicare as they move toward adoption of pay-for-performance," said Meredith Rosenthal, associate professor of health economics and policy at HSPH and lead author of the study.

The study appears in the November 2, 2006, issue of The New England Journal of Medicine.

Rosenthal, Dr. Arnold Epstein, chair, Department of Health Policy and Management and the study's senior author, and colleagues surveyed health plans, including doctors and hospitals, offering commercial HMO products, between July 2005 and January 2006. The 242 plans responding to the survey represented 81.3% of people enrolled in HMOs. The respondents provided information about the characteristics of their health plans, including whether primary-care physicians (PCPs) were required for enrollees, how they were paid by plans for primary care, and the use of bonuses or penalties related to performance. For example, health plans were asked whether physicians were paid bonuses based on their provision of recommended preventive treatments or their performance on patient surveys and similarly whether hospitals were paid in part based on meeting standards for patient safety, such as having a computerized medication system in the hospital.

Respondents also provided information on the types of performance indicators they used, such as clinical quality, use of information technology and patient satisfaction.

Some of the highlights of the survey:

  • More than half the HMOs used pay-for-performance in their provider contracts
  • Physician pay-for-performance programs were more common than hospital pay-for-performance programs
  • Among physician pay-for-performance programs, almost all included measures of clinical care quality; the most common clinical care indicators included asthma medication, diabetes care and mammography. These types of indicators reflect the appropriate provision of "evidence-based medicine," or care that has been shown to be effective for preventing illness or maintaining health.
  • About one third of physician-oriented incentive programs rewarded only the top-rated physicians or groups and not those who improved the most
  • Health plans in the South were less likely to use pay-for-performance plans

The authors believe the findings can serve as a useful resource for CMS as it goes about designing pay-for-performance programs for Medicare. For example, currently Medicare doesn't require recipients to choose a primary-care physician. The survey showed that HMOs that similarly don't require many of their members to select a PCP were less likely to use pay-for-performance. That finding may reflect that, when there are many doctors involved with a patient's care, it may be difficult to attribute performance to a single doctor or group. CMS may need to consider the challenges of implementing pay-for-performance in the absence of a PCP requirement.

Another study finding was that HMOs tend to pay medical groups for performance rather than individual doctors. Medicare, for the most part, does not contract with groups; it may need to do so to take full advantage of pay-for-performance.

The authors note some limitations of the study, including that the findings are applicable only to HMOs, not to preferred-provider organizations, in which pay-for-performance is less prevalent.

"Our data show that pay-for-performance has become a widespread phenomenon in the HMO sector. As the design of Medicare pay-for-performance moves forward, this national snapshot of commercial payers' programs provides both a template and context for Medicare's own efforts," said Rosenthal.

Dr. Epstein added, "It is clear from our study that we are now rapidly gaining experience with pay-for-performance in the commercial HMO sector. Nevertheless, instituting pay-for performance will be a challenge for Medicare as the most commonly used commercial models will require substantial modification to fit the Medicare environment."

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The study was supported by a grant from the Agency for Healthcare Research and Quality.

Harvard School of Public Health is dedicated to advancing the public's health through learning, discovery, and communication. More than 300 faculty members are engaged in teaching and training the 900-plus student body in a broad spectrum of disciplines crucial to the health and well being of individuals and populations around the world. Programs and projects range from the molecular biology of AIDS vaccines to the epidemiology of cancer; from risk analysis to violence prevention; from maternal and children's health to quality of care measurement; from health care management to international


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