The Pay for Performance Model of Healthcare Reimbursement

On the Road to Fully Risk-Based Contracting

In a pay for performance model, or P4P model, healthcare providers such as physicians and hospitals are compensated for services based on how well they meet predefined quality, outcome, and/or efficiency metrics. By linking quality of care directly to physician performance, providers are incentivized to both lower costs and improve the efficiency of care delivery.

It can be helpful to think of P4P as a point along the spectrum of value-based reimbursement. For a healthcare organization, the move to a pay for performance model could be a first step toward taking on progressively more aggressive risk-based contracts. Early success with P4P can pave the way for shared savings or capitated agreements.

A visualization of the pay for performance model
As an organization moves along the value-based reimbursement continuum, it takes on more risk.

One highly attractive feature of the pay for performance model is that it isn't necessarily an all-in approach. A healthcare organization may start with 1–2% of their reimbursement tied to performance, and then gradually increase to 10% and beyond.

It's important to note that "pay for performance" has a very specific definition in the state of California. In 2001, the Integrated Healthcare Association (IHA) established a P4P program in the state that includes roughly 10 million Californians. According to the IHA, this program is the longest running plan that includes common quality measures and standardized performance results. While other pay for performance models may be similar, their specifics and metrics can vary greatly.

The Pay for Performance Model Isn't One Size Fits All

P4P programs can include a wide range of metrics with varying complexity. For example, reimbursement can be determined by:

Process Metrics
Are patients undergoing appropriate tests, such as hemoglobin A1c or mammograms, as defined by evidence-based best practices for treatment and preventative care?
Outcome Metrics
What percentage of test results are within the target range? Is this percentage improving over time?
Cost or Utilization Metrics
Are resources being used appropriately? Specific measures may include cost or utilization proxies such as readmission rates, days per thousand, generic prescribing rates, and formulary compliance.
Patient Satisfaction Metrics
Were patients satisfied with their overall experience, including access to their physician, personalization of their care plan, and availability of ancillary and continuing care services?

Benefits of a Pay for Performance Model

Financial Savings
Providers receive monetary rewards for reducing cost and improving outcomes, which can be reflected in lower premiums for patients.
Increased Physician Engagement
When compensation is tied to performance and/or outcomes, physicians are increasingly motivated to comply with evidence-based practices. In turn, there is an opportunity to reduce variations in care among these highly engaged providers, who begin to build competencies that are needed for more advanced risk models.
Better Patient Care
Depending on the nature of the performance metrics and reimbursement structure, clinical outcomes or quality guidelines may be valued over more traditional revenue drivers such as patient volume or expensive procedures. This approach naturally supports a more holistic view of patient care, since providers are incentivized to focus on prevention and improvement of care coordination. In addition, some P4P programs may take patient experience and satisfaction surveys into account when calculating reimbursement.

McKesson Population Health Management Solutions Are Designed to Support Many P4P Metrics

McKesson Population Manager™ was built from the ground up to help providers and healthcare networks make sure patients are following guidelines for preventative care and treatment of chronic conditions. Built-in clinical workflows ensure that tests are ordered at the right time and required follow-ups occur. By facilitating an increased quality of care across the continuum, McKesson Population Manager helps improve metrics tied to P4P dollars, as well as other programs such as PQRS and the CMS Five-Star Quality Rating System.

In addition, for P4P programs that rely on cost or utilization metrics, McKesson Risk Manager™ can help healthcare organizations track key performance metrics such as formulary compliance and generic substitution rates.

Learn more about how McKesson Risk Manager can support the pay for performance model by tracking clinical measures and calculating physician pay-for-performance incentives.

Next: Population health management blog