By Jessica Cerretani

Pay-for-performance programs are increasingly common among commercial health maintenance organizations (HMOs), according to a study published in the November 2, 2006 issue of The New England Journal of Medicine. The study, believed to be the first national estimate of the prevalence of pay-for-performance plans, found that more than half of the HMOs surveyed used these programs in 2005.

As healthcare costs rise and patients become more financially responsible for their care, both public and private payers are demanding increased accountability from providers. As a result, Congress recently called on the Centers for Medicare and Medicaid Services (CMS) to implement a pay-for-performance system for hospitals. Interest in expanding pay-for-performance to individual physicians is also growing. Pay-for-performance programs are designed to financially reward providers based on factors such as quality of care and patient experience and satisfaction.

To determine the current national penetration of pay-for-performance, Harvard researchers surveyed 242 HMOs drawn from 41 metropolitan areas across the United States. They then asked the respondents details about the health plans, including whether primary-care physicians (PCPs) were required, how they were paid by plans, and how bonuses and penalties were used in relation to performance. The respondents also reported the types of indicators they used to measure performance. The researchers found that 52.1 percent of the HMOs (representing 83.1 percent of people enrolled) used pay-for-performance in their provider contracts. Of these plans, nearly all used pay-for-performance programs that included measures of the quality of care. Use of information technology and measures of patient satisfaction were also common elements of these programs.

These findings have particular relevance to proposed CMS pay-for-performance programs. First, HMOs whose patients did not need to select a PCP were less likely to use pay-for-performance. This may present challenges in implementing such a program in the Medicare system, which does not require PCP selection. Second, private-sector approaches to pay-for-performance are concentrated in medical groups, whereas Medicare does not recognize groups as contracting entities. Finally, the study suggests that many HMOs use performance rewards of greater than 5 percent of payments, a benchmark that financial constraints may prevent CMS from meeting. The authors of the study, which is accompanied by an editorial detailing potential risks of and recommendations for pay-for-performance, conclude that their results are important because, "as the CMS begins to design a pay-for-performance program for Medicare, information on commercial models may prove critical."

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Sources: Fisher ES. 2006. Paying for performance--risks and recommendations. The New England Journal of Medicine 355:1845-1847.

Rosenthal MB, Landon BE, Normand S-LT, et al. 2006. Pay for performance in commercial HMOs. The New England Journal of Medicine 355:1895-1902.

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