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Reimbursement and Pay-for-Performance Essay


As we come into the 21st Century, we find Healthcare is at a crisis level. Every agency is working on healthcare reform from policymakers to the public and private sector, as well as federally funded Medicare and Medicaid. The business of Medicine is greatly influenced by the government (federal, state and local levels) and private health sections that initiate policies. Pay for Performance is a reimbursement method where physicians and hospitals can receive a higher reimbursement for duplicate services based on the fact that they deliver better quality care with better results and outcomes. This payment reform offers initiates intended to improve efficiency, value, and quality of health care (Hood, 2007). If all doctors receive the same dollar amount as a doctor with poor outcomes, then the doctor with great outcomes should receive a little more and there will be patients that do not mind paying a higher deductible for better medical services (Mayes, 2006).

Definition for Pay for performance

Kimmel (2005), “Pay for performance is a payment approach used in healthcare that is based on clinical information-driven reform. The fundamental concept is to tie payment to how well providers adhere to practice standards. The practice standards are evidence-based and tied to clinical outcomes. The primary areas of focus are preventive care delivery and disease management for chronic illnesses”.

Effects on Reimbursement

Pay for performance (P4P) is literally a group of performance indicators that are coupled with an incentive. The performance indicators supports the performance aspect of P4P while the incentive indicator is the pay component. Measuring patient outcomes and understanding the variances that they have, has in part lead to the increasing rise in how pay for performance reimbursement is looked at. This style of reimbursement allows health plans and employers to pay increasing reimbursements to medical providers that have the better outcomes, give average outcome medical providers a chance to improve, and pay those medical providers with the lowest outcomes the least amount of money or not pay them at all (Cromwell, Trisolini, Pope, Mitchell, & Greenwald. 2011). In order to have a pay for performance system in place, you must decide what domains or areas you wish to track, measure, and reward.

Some areas in this domain are clinical process, quality and patient safety, access to and availability of care, cost efficiency or cost of care, cost-effectiveness, administrative efficiency and compliance, adoption of information technology, and reporting of performance indicators. These can be set up as a single performance tracker or a multi-domain performance tracker and the measure needed for improvement, importance, and cost. Performance indicators should be valid, reliable, and informative (Cromwell, Trisolini, Pope, Mitchell, & Greenwald. 2011). The Incentive Schemes reward the performance measures, and is another important part of a pay for performance system. Funding proves to be another important part of this type of a reimbursement system. Types of funding include redistributing existing payments where additional funds will not have to be made and the quality of service is already high; however, medical providers with a lower quality of service will receive lower reimbursements. Generated Savings and New Money are other sources of funding for performance measures. Generated savings claim that an increased quality of service will generate savings, although there are others who feel that new money should be used to fund the performance system. (Cromwell, Trisolini, Pope, Mitchell, & Greenwald. 2011).

Impact of System Cost Reductions on the Quality and Efficiency of Health Care The Medicare Physicians Group Practice (PGP) was the first physician pay for performance model used by the federal government. The PGP believes that higher quality and better cost efficiency could be achieved by managing and coordinating patient care and by engaging in wider choices of care management that are able to improve cost efficiency and quality of health care. Interventions include; chronic disease management, high risk and higher cost care management, transitional care management, end-of-life and palliative care programs. If there were a more successful payment and delivery method to increase the value of health care and improve quality of care, the cost would grow at a slower pace. The American people would be more likely to purchase health insurance coverage that is affordable and more valuable. (Kautter, Pope, & Trisolini, 2007).

More progress toward effective delivery and system reform is one of the key elements to achieving the goals to push expanded coverage. Information technology is one of these key elements and a major part of pay for performance system. Information systems uses electronic medical records and patient registries have been created to improve the efficiency and quality of health care delivery. These type of initiatives that are being tested to see if cost savings are generated by reducing avoidable hospital stays, cutting down on readmissions and emergency room visits, while simultaneously improving quality of care (Kautter, Pope, & Trisolini, 2007). Effect of Pay for performance on Health Care Providers and Their Customers Meredith B. Rosenthal states, “Pay for performance will not replace the existing payment structure in either system, but it does allow payors to take into account a set of quality indicators, in addition to volume of service (as fee-for-service does now) or the number of covered lives (in the case of capitation). In this view, pay for performance can be viewed as a mechanism to correct some of the distortionary incentives that already exist in the reimbursement system”.

Physicians in the United States are paid on a fee-for-service basis. This encourages high volumes of services, where there is no regard to the value of services in regards to a patient. When services are reimbursed more generously than others it allows the payment system to influence additional medical services with a heavy emphasis on procedure-based care. Since the physicians pay is not attached to medical services provided, there is really no direct incentive to provide any services (How Will Paying for Performance Affect Patient Care?. (2006, March). Virtual Mentor, 8(3), 162-165).

Effects of Pay for performance on the Future of Health Care

Goldberg lists three points regarding the most significant implications of the movement toward paying for quality outcomes. These are that the quality and value become real parts of contractual reimbursement, the differences based on quality outcomes will be more evident grouped with provider tiers, and quality metrics evolve to outcome-based and chronic disease management (Goldberg 2006). P4P is an incentive-based reimbursement system that rewards the best players. This pay for performance system is currently active in health systems, managed care settings, and private and group physician’s practices. P4P is likely to impact the entire health care environment and will provide yet another opportunity for pharmacy to become an active role player and leader with improving quality and efficient health care. The focus is not on value but on quality and cost. Pay for performance is not a new program, but in the age of informed choice, evidence based medicine, and patient safety, it can become the solution to our current health care dilemma (Pay for performance (P4P): Evaluating Current and Future Implications).


These pay for performance systems and programs will lead expansion across the United States health care industry in the near future. With the implementation of the Affordable Care Act, there has been a great amount of provision made to encourage continued improvement with quality of care. “Accountable Care Organizations (ACOs) are groups of providers that agree to coordinate care and to be held accountable for the quality and cost of the services they provide” (James, 2012). There needs to be a consensus as to how much of an incentive will have to be given in order to affect the needed change and how should these incentive’s be paid out monthly, quarterly, or yearly; and how can these improvements be sustained over time. Continued experimentation with the pay for performance model should begin to incorporate monitoring and evaluation in identifying design elements that will also affect outcomes in a positive way.

Variations in health care markets should be evaluated and include comparison groups to isolate pay for performance from other types of factors. Pay for performance has some great attributes to it and could definitely be the beginning to improvements in quality of service. If physicians are receiving patients and referrals based on their ability to provide quality of service with reduced readmissions and more satisfied consumers, then the care they take in providing services to patients from admission to discharge will create positive change.


Cromwell, J., Trisolini, M. G., Pope, G. C., Mitchell, J. B., and Greenwald, L. M., Eds. (2011). Pay for Performance in Health Care: Methods and Approaches. RTI Press publication No. BK-0002-1103. Research Triangle Park, NC: RTI Press. Retrieved June 15, 2014, from http://www.rti.org/rtipress

Goldberg, L. (2006). Paying for performance a call for quality health care. Deloitte Center for Health Solutions. Retrieved from http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_p4p_032806%281%29.pdf Hood, R. (2007). Pay-for-Performance-Financial Health Disparities and the Impact on Healthcare Disparities. Journal of the National Medical Association, 99, 1-6. James, J. (2012). Pay-for-Performance. New payment systems reward doctors and hospitals for improving the quality of care, but studies to date show mixed results.. Health Policy Brief, 1-6, Retrieved June 15, 2014, from http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=78. Kautter, J., Pope, G., & Trisolini, M. (2007, Fall). Medicare physician group practice demonstration design: quality and efficiency pay for performance. Health Care Financing Review, 29(1), 15-29. Retrieved June 15, 2014, from http://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/downloads/PGP_Demo_Design.pdf Kimmel, K. (2005). Pay for Performance: An Economic Imperative for Clinical Information Systems. Retrieved June 15, 2014, from http://www.himss.org/content/files/PayForPerformance.pdf Mayes, R. (2006). The Origins of and Economic Momentum Behind “Pay for Performance” Reimbursement. Health Law Review, 15, 17-22. Pay for performance (P4P): Evaluating Current and Future Implications. Retrieved June 15, 2014, from https://www.ashp.org/DocLibrary/Policy/QII/Pay for performance.aspx Rosenthal, M. (2006). How Will Paying for Performance Affect Patient Care?. Virtual Mentor, 8, 162-165.

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