An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Payment Structure


  • Payout Method. The sponsors with whom we spoke tended to use one of two performance-based rewards. About half (10/22) pay a lump-sum bonus, usually annually. The other half (9/22) pay the reward on a continuous basis (e.g., an ongoing “bump up” to per diem or DRG payments) and use past performance to determine the future year’s payment increase. The payment method selected was usually determined by operational ease of implementation for the sponsor. A key consideration was budget planning related to how the payment was structured. For some, continuous, smaller payments spread out during the year were easier to plan for financially, rather than a one-time, larger bonus. For others, the situation was the reverse.
  • Reward Determination. Most sponsors determined rewards based on improvements over time/meeting quality improvement targets (12/22) or relative performance (e.g., percentile ranking) (10/22). To a lesser extent, some used absolute thresholds (7/22), such as national percentile rankings from the prior year. Many of the sponsors to whom we spoke (8/22) used multiple forms of reward determinations in a single program. For example, for a given measure or set of measures, there might be a minimum threshold that a hospital must meet to even be considered for a reward. Then, for the hospital to receive the reward, it might have to demonstrate some pre-determined level of improvement. Some sponsors grouped hospitals by type when determining the reward in order to ensure “apples to apples” comparisons; for example, sponsors might compare and determine rewards for CAHs separately from other types of hospitals. Regardless of the way in which sponsors determined the reward, however, the majority measured performance using all-payer data but based the reward amount on the their own service volume in the particular plan products included in the P4P program (e.g., HMO, PPO, “all commercial”). 
  • Weighting. Most of the sponsors we spoke to (15/22) use differential weighting of their P4P metrics to determine a hospital’s performance score. Typically they use a differential point system grouped by domain. For example, a reward program may be based on 100 total points with 40 allocated to clinical measures, 30 to quality improvement activities, 20 to patient experience, and ten to structural measures. Given that many sponsors negotiate P4P with hospitals one by one, weighting is often tailored to individual hospitals as contracts come up for renewal.
  • Reward Funding Source(s). Sponsors are funding their reward payments primarily through reallocation of existing resources (13/22). A few (7/22) are using premium increases and negotiated increases in hospital contracts as a way to fund the P4P program. Several program sponsors noted that compared to individual physicians, hospitals have greater bargaining strength, which makes it difficult for sponsors to take money off the table. Withholds were used only by five of the programs, largely because sponsors wanted to set a collaborative tone rather than a “take away” tone. Only two sponsors (2/22) mentioned savings from cost reductions as a funding mechanism; the others expressed uncertainty about where or even whether there would be cost savings from performance improvements to fund the program. One sponsor used “tiers” of participation, with higher levels requiring more measures but offering a larger “upside” in terms of the incentive payment.
  • Other/Non-Financial Incentives. In addition to financial rewards, many sponsors include other, non-financial incentives as part of their incentive programs. Public reporting is a key non-financial motivator used (12/22), with results frequently posted on publicly available websites. Some sponsors (11/22) also use peer comparisons to motivate hospitals. Such comparisons tend to be included in reports shared with all hospitals participating in a given program. To set a collaborative, rather than punitive, tone, most sponsors present hospitals with blinded comparisons to peers; however, a few stated that they present unblinded data. Some sponsors also present performance scores grouped by hospital type (e.g., rural, academic medical center) and/or hospital size in an effort to make comparisons across similar types of institutions. Only a few sponsors use public recognition (5/22) (e.g., naming high performers on a public website) or tiering (2/22) (e.g., charging higher co-payments to consumers who go to lower-performing hospitals). 

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