Over the past decade, the medical profession has seen an influx of support for pay-for-performance programs over the current fee-for-service setup that pays for quantity of procedures rather than quality in our nation’s hospitals.
A recently published article in the New England Journal of Medicine studied the results of one such program implemented in 252 hospitals over several years and, additionally, compared those to 3,363 non-participating hospitals. Analysis following the article’s release indicates that the $60,000,000 in incentive payments have produced modest (at best) improvements in hospital processes and have had no effect on the outcomes of those processes.
The program, operating under a contract from the Centers for Medicare & Medicaid Services, focused on 33 process measures in patients treated for congestive heart failure, heart attacks, pneumonia, coronary-artery bypass, and knee/hip replacement. The processes included ranged from whether patients received certain treatment within a time period after intake to whether heart failure patients were given detailed instructions at discharge.
After evaluating the quality and improvement of these processes, performance bonuses were handed out to hospitals with the commonly used “20/60/20” approach. Under this method, 20% of a population is identified with “strong performance,” 60% with “average performance,” and the final 20% as “weak performers.” Hospitals in the top 20% received a 1-2% incentive payment on top of their usual Medicare reimbursement rate, while those in the bottom 20% were subject to a 1-2% penalty.
While the article states that there have been general improvements in the processes, the evidence showing little improvement, if any, in tangible outcomes means that perhaps the system is not focusing its attention in the right area. This does not mean a pay-for-performance model is incorrect for hospitals, but it suggests improvements that can make the model more workable.
- Focus on outcomes – Basing performance solely on improvements in process efficiency ignores the outcomes, which are important in any organization. Mortality rate, which has not been improved during the pay-for-performance period, is one such measure. Outcome goals are important to any organization implementing pay-for-performance. For instance, it may be important to your organization that sales calls be made, and it may even be important that an employee make “x” sales calls per day. The reward, however, should be tied to the amount of sales made at the end of the period. Without an outcome, the processes lose some meaning. Measuring medical outcomes can be much more difficult than establishing a sales goal, but promoting consideration of outcomes can enhance any discussion on how pay-for-performance can work in an organization.
- Make the incentive attractive – Motivation to be a top performer is a goal of any pay-for-performance plan. When an organization dangles a carrot in front of its employees, the reward must be appetizing enough to make them reach out. Adding a 1% bonus to an employee’s base pay for being a top performer would amount to only a plastic bag of baby carrot bites ― 5% or greater looks more like carrot cake.
- Plan fully – Before acting on any compensation plan, it is important to consider all factors and potential ramifications. Rolling out an incomplete plan can lead to ineffective results and a lack of faith among managers and employees. Identifying the processes through which improvement can be achieved is a good first step, but it would be best to tie those processes to meaningful, measurable outcomes before going public with the plan.
– Alexander Shogan, Senior Research Associate
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