Physician pay-for-performance programs may produce little gain in quality

October 11, 2005

Paying clinicians to reach a common, fixed performance target may produce little gain in overall quality, and may largely reward those with higher performance at baseline, according to a study in the October 12 issue of JAMA.

The number of health plans and purchasers in the United States that have adopted pay-for-performance mechanisms for quality improvement is growing rapidly, according to background information in the article. However, most of these programs are in the early stages of trial, evaluation, and adjustment. Although there is intense interest in and optimism about pay-for-performance programs among many policy makers and payers, there is little published research on pay-for-performance in health care. There have been a few studies demonstrating that pay-for-performance leads to improved quality of care.

Meredith B. Rosenthal, Ph.D., of the Harvard School of Public Health, Boston, and colleagues conducted a study on the impact of a prototypical physician pay-for-performance on quality of care within one of the nation's largest health plans, PacifiCare Health Systems. In 2003, PacifiCare began paying its California medical groups bonuses according to meeting or exceeding 10 clinical and service quality targets. The researchers examined the performance of California medical groups that were subject to pay-for-performance, and a comparison group in the Pacific Northwest (Oregon and Washington). Quality improvement reports were included from October 2001 through April 2004 issued to approximately 300 large physician organizations. There were three process measures of clinical quality: cervical cancer screening, mammography, and hemoglobin A1c testing.

The researchers found that clinical quality scores improved as follows: for cervical cancer screening, 5.3 percent for California vs. 1.7 percent for Pacific Northwest; for mammography, 1.9 percent vs. 0.2 percent; and for hemoglobin A1c testing, 2.1 percent vs. 2.1 percent. Compared with physician groups in the Pacific Northwest, the California network demonstrated greater quality improvement after the pay-for-performance intervention only in cervical cancer screening (a 3.6 percent difference in improvement). For all 3 measures, physician groups with baseline performance at or above the performance threshold for receipt of a bonus improved the least but garnered the largest share of the bonus payments.

"In the first year of its quality incentive program (QIP), the plan paid $3.4 million of a potential bonus pool of $12.9 million. Three quarters of the 172 physician groups eligible at some point during the year for the program received some funds from the bonus pool. We also observed that few groups reached a majority of targets, consistent with the low correlation in performance across clinical areas that has been observed in other studies. Physician groups whose performance was initially lowest improved the most, whereas physician groups that had previously achieved the targeted level of performance improved the least. Unlike quality improvement, which followed an inverse relationship to baseline performance, bonus dollars were garnered in direct proportion to baseline performance. Physician groups whose performance was above the bonus threshold at baseline captured 75 percent of bonus payments on average across the 3 quality domains we examined, despite their limited improvement," the authors write.

"Our findings give rise to a number of speculations about the effects of pay-for-performance. First, groups with baseline performance already above the targeted threshold appeared to understand that they needed only to maintain the status quo to receive the bonus payments. More surprising, perhaps, is that low-performing groups improved as much as they did, given that their short-run chances of receiving a bonus were likely to be low. One possibility is that the groups viewed the QIP as a larger signal of a changing environment in which they would face increasing pressure to improve their care systems and decided to begin moving in that direction. Paying explicitly for quality improvement might alter the incentives for high-performing and low-performing groups, distribute bonus dollars more toward the latter group, and possibly increase the overall impact of pay-for-performance."

The authors add that one possible reason that the QIP failed to yield a greater response is that the financial rewards for quality were too low to motivate substantial departures from the underlying trend in quality improvement. Per enrollee, the maximum annual bonus was a relatively modest $27, or about 5 percent of the professional capitation amount. Moreover, PacifiCare accounts for only about 15 percent of the average group's revenue.

"PacifiCare's QIP, like most current pay-for-performance programs, should be viewed as a first step in the direction of aligning payment incentives with health system quality goals. Realization of the full potential of pay-for-performance to reduce the persistent gap between evidence-based and actual practice will require that payers adapt their incentive strategies as evidence to support best practices accumulates. The principal lesson we derive from this experience is that incentive design matters. The accumulating evidence from the continuing experimentation with pay-for-performance in the market will highlight these initial findings and other potential design lessons," the researchers conclude.

(JAMA.2005; 294:1655-1663. Available pre-embargo to the media at

Editor's Note: Financial support for this research was provided by The Commonwealth Fund.

Editorial: Pay-for-Performance Research

In an accompanying editorial, R. Adams Dudley, M.D., M.B.A., of the University of California, San Francisco, comments on the study on pay-for-performance and discusses implications for future research in this area.

"While the study by Rosenthal et al is well designed, much more is needed. Pay-for-performance involves a common problem in health services research: despite little evidence, clinicians and policy makers are responding to a major policy trend, while researchers determine how to inform those decision makers. In this context, investigators and research funders need to develop strategies that address 4 fundamental aspects of research: study design, selecting theory-driven hypotheses, reporting research findings in a complete and informative manner, and setting research priorities. Until these issues are clearly addressed, clinicians should be skeptical of any research that purports to describe the impact of pay-for-performance," Dr. Dudley writes.
(JAMA.2005; 294:1821-1823. Available pre-embargo to the media at

Editor's Note: This work was funded by the Agency for Healthcare Research and Quality and the Robert Wood Johnson Foundation.

The JAMA Network Journals

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