Health insurers are turning to a new approach to get doctors and hospitals to do better

Oct 18 2005

With increasing quality problems in the U.S. health care systems, many health insurers are turning to a new approach to get doctors and hospitals to do better: pay-for-performance.

In this approach, insurers offer financial rewards for better or more efficient care and sometimes create penalties for poor performance. Even though it has become commonplace, there is little evidence about its impact on care, says R. Adams Dudley, MD, MBA, a professor in the UCSF Institute for Health Policy Studies and the Department of Medicine.

He addresses this issue in an editorial in the October 12 issue of the Journal of the American Medical Association, outlining a strategy for learning more about the effect of paying doctors and hospitals to improve performance. The editorial is titled "Pay-for-Performance Research: How to Learn What Clinicians and Policy Makers Need to Know,"

Dudley emphasizes that health plans have adopted pay-for-performance on the grounds that financial rewards work in other industries.

He notes that offering bonuses to car salespeople for selling a certain number of cars can drive up a car dealership's volume and improve profits, but health care is more complex. For example, the one goal of car dealers is to sell cars, he says, while doctors and hospitals have many--sometimes competing--priorities. A cardiologist may want to make sure that prescriptions are written accurately and that the care plan is clearly communicated back to the primary care doctor, while still having time to spend with his or her patient.

Furthermore, Dudley says, some doctors' offices or hospitals might be more ready to respond to a reward than others, perhaps because they have pre-printed instructions for the patients. While paying these organizations would reward quality, it's not clear that it would increase quality in the system overall, since payments based on performance would go to the organizations that were already doing well, not to those that needed to improve, he adds.

In this situation, Dudley argues that health insurers and the researchers who study them must be careful to consider all the factors that might lead an organization to succeed before deciding that pay-for-performance explains any improvements in care.

"It would be very easy to look at the winners under pay-for-performance and conclude that financial rewards improve care," he says. "However, it may be that they simply mark the successful organizations without driving change."

According to Dudley, another key issue is that, even if rewards work, insurers will have a hard time figuring out how much to pay, because few researchers have described the costs of improving quality. In one research study, a health plan was already paying doctors capitation (a fixed budget for each patient enrolled), and found that even rewards as large as $10,000 per office couldn't increase screening for early cancers, because the doctors would have to pay for all the additional cancer care out of the same fixed budget. By contrast, in another study, paying an extra 80 cents to capitated doctors to give more flu shots actually worked, perhaps because preventing the flu also saved money from the overall budget later.

"We live in a society in which many people believe economic incentives and market forces can fix most problems," Dudley says. "While there is clearly value to getting health insurers to focus on quality instead of just cost and it is possible for rewards and penalties to work, it seems unlikely that simple approaches will work out well. Any incentive program needs to reflect the underlying complexity of the system in which it is used, or it could have no impact at all, or even unintended negative consequences."

Dudley cites the early results from a pay-for-performance program in Great Britain, in which doctors were given rewards for getting patients an appointment within 48 hours. Because doctors were being rewarded on the 48-hour standard, however, they became unwilling to make appointments for people who could not come in quickly. If a patient called on Monday and wanted to make an appointment on Friday, the patient might be refused because the doctor didn't want this to count against his 48-hour on time performance.

"There is so much need to improve quality of care that it's hard to fault anyone for trying a new approach," Dudley says. "As health insurers increasingly use rewards or penalties, it will be important to constantly evaluate the actual results they get. The insurance companies, as well as doctors and hospitals, should share data about this trend.

"In addition, Congress should make sure that the organizations that fund research into the quality and safety of care, such as the federal Agency for Healthcare Research and Quality, receive the resources they need to make sure incentives are used in a positive way. Since almost every physician and hospital in the United States is now a potential participant in some form of pay-for-performance program, such research is essential," he adds.

Dudley's work was funded by the Robert Wood Johnson Foundation and the Agency for Healthcare Research and Quality.