Renee DiIulio
Renee DiIulio

Ivan Pavlov used food to condition his dogs. Today, many people try to influence behavior with money: a tip for the stylist, a bribe for the bouncer, a raise for an employee. Pay-for-performance reimbursement plans (also called P4P programs) offer incentives to physicians to practice evidence-based standards, linking reimbursement bonuses to performance on a variety of metrics. They have been initiated within the past decade primarily to improve clinical outcomes. Since their inception, additional motivation has been derived from a desire to reduce errors, clinical practice variations, and acute treatment episodes; publish quality and cost data; improve the efficiency of care delivery; implement new information technologies; and tie bonuses to improvements.1 The number of P4P plans has increased significantly over the past few years, and more providers are finding themselves learning about these plans from the inside. So, what’s to know?

1) How do P4P plans work?

P4P programs show a great deal of variation but are typically designed around three elements?quality, patient satisfaction, and clinical IT systems, says Geoffrey Baker, CEO of Med-Vantage Inc (San Francisco). Each element is assigned a predefined set of metrics on which the performance is measured. Typically, these metrics are based on well-accepted practice guidelines and evidence-based medicine. Scores are calculated and used to determine some level of reward. Most plan administrators feel the incentive should be something positive as opposed to a takeaway or withhold, according to Bruce Bagley, MD, medical director for quality improvement for the American Academy of Family Physicians (AAFP of Leawood, Kan).

2) How much incentive is given?

“There are many thoughts on the incentive needed. Most programs pay only a small portion of total reimbursement. Many say that five percent to 10 percent additional compensation is needed to get the attention of providers, but most are not paying at that level at this time,” says Tom Williams, executive director of the Integrated Healthcare Association (IHA of Walnut Creek, Calif).

PricewaterhouseCoopers research has found that it’s generally better to make the incentive payments directly to the physicians rather than to the group or the individual practice association (IPA) to intensify the meaningfulness of the reward.1 “Incentives are generally given as bonuses or paid at year’s end. Typically, the bonus or differential fee is paid on a conversion factor based on performance,” Baker says.

3) How do insurance companies pay for P4Ps?

Incentives are ultimately paid for by the people who pay for healthcare now?employers. “Many payors consider incentives to be a medical expense,” Williams explains.

The hope is that anticipated savings will pay for the programs. With improved performance on the part of healthcare providers, payors expect costs to decrease. “There may be care savings and generic brand savings. And there are scheduled fee increases, portions of which can be put into a savings pool,” Baker says. “A smaller portion do use withholds.”

4) Is P4P popular?

P4P is by no means the primary reimbursement method, but it is growing in popularity. A Med-Vantage study2 revealed that in 2003, there were 35 provider P4P programs in the United States. By November 2004, that number increased to 84 programs covering 39 million beneficiaries. In March 2004, there were 104. The company predicts that number will double again by 2006, with an estimated 160 programs. PricewaterhouseCoopers estimates that approximately one third of commercial plans now implement some P4P methods.1

Baker expects that P4P will begin to expand into other product lines. “P4Ps will extend beyond HMOs to include specialties, PPOs [preferred provider organizations], the self insured, and consumer-directed programs,” he says.

Of course, P4P could become even more popular if legislation is passed. In June, Senators Charles Grassley (R-Iowa) and Max Baucus (D-Mont) introduced the Medicare Value Purchasing (MVP) Act of 2005. This bill would require that Medicare implement a P4P program covering at least a portion of payments made.

5) Does P4P work?

With so many jumping on board, one would think that the evidence supporting these programs is foolproof. However, there has not been much data to determine if incentives do result in better patient outcomes or if they actually save money.

Most programs have been in effect less than 5 years, so there is no significant data, according to Baker. “Slightly more than one third [34%] have been in existence for more than five years. Two thirds [66%] of all P4P programs have been in existence for four years or less; of those, 42% have been in existence for two years or less.”2

These early efforts, though, have shown results in behavior change. “It’s too early to consider what effect P4P will have, but early efforts have not failed. The positive change in behavior is an early indication that it will work, but we have yet to see the effect on outcomes,” Bagley says.

6) How is the data tracked?

Outcomes will need to be studied over time, but performance data can be studied immediately. The basis of the programs?incentives based on performance?requires that performance be tracked. The method for doing so depends on the provider and the program, but frequently, it involves?if not requires?an IT component.

“Most information is currently gathered from administrative data?claims, pharmacy, referrals. Very little is taken from the doctor’s chart right now. It’s expensive and labor-intensive to review,” says Bagley, who suggests that the best way to incorporate the use of the chart is to do so moving forward. “Rather than looking at last year’s charts with a checklist, start looking at new charts and collect the data as you go. It will be more efficient, produce better definitions, and improve care at the point of delivery by providing guidelines.”

7) What is tracked?

“Right now, the medical community is deciding what to measure and how. The quality measures currently collected are limited, but we are in the nascent stages of developing these systems,” Baker says. As a result, the measures used to track performance vary.

“Probably the most popular sets come from the American Medical Association [AMA of Chicago] and the National Committee on Quality Assurance [NCQA of Washington]. Guidelines and measures suggested by AAFP, Centers for Medicaid and Medicare Services [CMS of Baltimore], and the National Quality Forum [NQF of Washington] also are frequently used,” says the IHA’s Williams.

Measures typically are based on significant evidence and could focus on general and preventive care, chronic care, hospital safety, generic brand use, and/or efficiency. Examples include delivery of beta blockers; child immunizations; and cancer screenings, such as mammography and cervical exams.

8) Is the performance data made public?

The information is used not only to determine incentives but also to educate the public about their options. The data is available already. “As a community, we are moving toward a more transparent system. As a larger portion of the cost burden is shifted to consumers, they are going to demand more information on pricing and service,” Baker says. He expects the information to be available in layman’s terms and multiple languages. It is possible that such a system could cause the lowest performers to lose business to competitors and ultimately be absorbed by providers offering better care.

9) How should healthcare providers prepare?

With the stakes high, healthcare providers can begin to prepare now. Clinical quality and tracking systems can be put in place or improved. Investments can be made in the necessary technology. Evidence-based medical practices can be implemented. The process can start simply with just one disease.

“You don’t have to participate, but you will potentially lose out on dollars,” Baker explains. “However, administrators must ask themselves if it is worth their time to prepare. They should consider the requirements of the program, the level of administration needed outside of workflow processes, the costs, and the sample size. If the resources required are high but patient volume is low, it might not be worth it to participate.”

10) What does it mean for medical-imaging providers?

Medical imagers will not be participating directly yet, but they will be impacted. Right now, there are few imaging performance measures; mammography screening might be the only one. However, quality measures are in development that emphasize the appropriateness of imaging for various specialties, such as orthopedics.

“There are concerns about cost and volume, so groups are figuring out how to image more appropriately. Radiologists see many inappropriate exams, but how much can they push back before losing business?” Baker asks. Guidelines will be designed to help reduce the number of inappropriate exams, thereby improving care, increasing efficiency, and reducing costs.

Baker adds, “P4P is not a panacea, but one piece of a multipronged strategy. Tying reimbursement into performance is a physician-centric model and, though limited, is moving in the right direction.”


  1. PricewaterhouseCoopers. Pay for performance’s small steps of progress. Available at: Accessed August 2, 2005.
  2. Baker G and Carter B. Provider pay-for-performance incentive programs: 2004 national study results. Available at: Accessed August 2, 2005.


Of the 104 P4P payors in the country, the following are some of the largest:

Renee DiIulio is a contributing writer for Medical Imaging.