Academic Articles Physician Compensation

Commentary on P4P

I recently read a Health Affairs article analyzing a pay-for-performance (P4P) demonstration. The Local Initiative Rewarding Results (LIRR) demonstration in California involved seven Medicaid-focused health plans in California between 2003 and 2005. Here are some of my most recent thoughts on P4P:

  • The article seemed to show that P4P worked best when there was much consensus over how doctors should treat patients. The irony of P4P is the following: P4P programs with high levels of physician consensus work, but if everyone physician is already acting appropriately P4P does not make a major change in behavior; larger behavioral changes can occur when physicians are greatly deviating from the optimal practice, but in this case it is very difficult to implement P4P.
  • P4P plans are often implemented so those that do well gain income and those that preform poorly maintain their status quo income. When no one loses any money, P4P is supposed to gain more acceptance among physicians. In equilibrium, however, an economist would predict that those with low P4P scores will receive lower wages in the future (or wage increases below inflation) due to P4P.
  • Unsurprisingly, the authors of the Health Affairs paper found that meager financial incentives do not significantly change physician behavior, while larger financial incentives have a greater impact. Also, good communication with physicians helps to increase physician compliance with P4P mandates.
  • If P4P evaluates doctors on care levels which depend on patient compliance, health plans can help physicians to increase the quality of care. For instance in the above study, “many providers used the plan lists of members turning fifteen months old as the basis for outreach…”
  • When P4P financial incentives vary across plans, it is difficult for physicians to focus on specific quality indicators due to complex reimbursement schemes in each plan.
  • When HEDIS scores improve, some of this improvement is due to better quality while much of it may be attributed to better documentation in a patient’s medical records.

Suzanne Felt-Lisk, Gilbert Gimm and Stephanie Peterson (2007) “Making Pay-For-Performance Work In MedicaidHealth Affairs, v26(4) pp. w516-w527.