An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Development of the Value-Based Purchasing Plan


In response to the DRA mandate, CMS created an internal hospital VBP workgroup with responsibility for developing the VBP plan. To inform the development of the plan, the Assistant Secretary for Planning and Evaluation (ASPE), in collaboration with CMS, contracted with the RAND Corporation in July 2006 to conduct a literature review to synthesize the empirical evidence that exists on P4P in the hospital setting and an environmental scan of the existing P4P landscape. 

To take advantage of the experimentation going on nationally with respect to P4P program design and implementation, RAND held discussions with P4P program sponsors, hospitals, hospital associations, data support vendors, and organizations experienced with small and rural hospitals to capture the array of experiences connected with the design and implementation of P4P and P4R programs. The discussions were necessary because this type of descriptive information and this level of detail about program design are not typically contained in peer-reviewed journal articles that summarize the results of P4P interventions. Additionally, many of the demonstration experiments are still in their infancy, and little has been formally documented about the related experiences.

RAND was tasked to: 

  • Identify and describe the concept of inpatient and outpatient hospital P4P 
  • Review the existing literature on inpatient and outpatient hospital P4P (theoretical and applied)
  • Review existing inpatient and outpatient hospital P4P programs, examining their design features and evaluating the lessons being learned
  • Summarize and synthesize the findings from the environmental scan, which would then be used to inform the discussions and design considerations of the CMS VBP workgroup tasked with developing the VBP plan for Congress.

Table 1 highlights core design issues that were examined as part of the environmental scan. Appendix A contains a complete listing of the design issues that were explored.

Issue Type:
Table 1: Design Issues Explored with Program Sponsors and Hospitals
Overview The goals of existing P4P programs and demonstrations in the hospital setting
Whether and how hospitals were included in the design and implementation of P4P and P4R programs
The mechanisms used to monitor for unintended consequences, such as inappropriate clinical care or gaming of data to secure bonus dollars
Lessons learned by organizations with P4P and P4R programs in practice or Table 1: Design Issues Explored with Program Sponsors and Hospitalsparticipating in demonstrations
Measures The measures of performance (clinical effectiveness, efficiency, patient experience, care coordination/transitions, etc.) that are currently being used for both inpatient and outpatient hospital care in practice and in demonstrations 
The measures selection criteria being used by P4P and P4R programs
Methodological issues around P4P, including the level of aggregation of measures (i.e., composite scoring, weighting); the establishment of benchmarks, thresholds, and targets; risk adjustment; and opportunities for gaming
Data The data collection, data management, reporting infrastructure, and data outreach required to implement existing P4P programs
Methods being used to validate data for use in P4P programs
Payment Mechanism The types of incentives, financial or non-financial, that currently exist or are under consideration, and what has been learned from various incentive structure designs
Examining the basis for payment, such as paying on meeting a threshold, improvement, and/or high achievement
The levels (fixed dollar, percentage of payments) and types (negative versus positive) of financial incentives being used
Public Reporting How information from public reporting systems is being used, and the impact of this information
Strategies for simplifying public reports to facilitate use and understanding 
Outpatient Whether outpatient hospital services should be incorporated into VBP in the future
Extent to which current P4P programs include measures of hospital outpatient services

This chapter builds the foundation for subsequent chapters of this report by defining P4P and its dimensions and by providing the policy context underlying the rationale for P4P as a system reform strategy. 

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