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Health Plan Pay-for-Performance Strategies

Goal is to Reduce Costs and Improve Quality and Provider Efficiency

Media Advisory
Sept. 13, 2006

Alwyn Cassil (202) 264-3484 or

WASHINGTON, DC—In a quest to reduce costs, improve quality and increase hospital and physician efficiency, most health plans in 12 communities across the country are adopting pay-for-performance (P4P) programs that tie financial incentives to improved provider performance, according to a study by Center for Studying Health System Change (HSC) researchers in the September edition of The American Journal of Managed Care.

While growing numbers of health plans are developing and implementing pay-for-performance programs for physicians and hospitals, there is substantial design variation in P4P programs within and across the markets, according to the study by HSC consulting researchers Sally Trude, Ph.D.; Melanie Au, M.P.P., of Mathematica Policy Research; and Jon B. Christianson, Ph.D., of the University of Minnesota. HSC is a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

The American Journal of Managed Care article, titled "Health Plan Pay-for Performance Strategies," is based on HSC’s 2005 site visits to 12 nationally representative communities—Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets for the past 10 years. The article is available here.

HSC Researchers interviewed executives at 35 health plans in the 12 communities about pay-for-performance programs, along with representatives of employers, large medical groups and hospital systems. The design variation in P4P programs reflects local conditions that include information technology capabilities, data availability, relative leverage of health plans and providers, willingness of providers to participate, and employer influence, according to the study. The concerns of providers include the administrative burden of health plans’ customized programs and the potential for conflicting financial incentives, the study found.

"The approaches for rewarding providers roughly fell into the following 3 categories: comparing performance with that of their peers, reaching absolute targets of performance, and demonstrating improvement over previous scores. A few health plans used a combination of approaches, with the first part of the incentive tied to performance relative to that of peers and the second part tied to improvement over previous scores," the article states.

Although providers would prefer health plans to use a single standardized set of measures and methods, this is unlikely given local market environments, the article concludes. A national effort directed at standardization might significantly reduce the extent of customization but also may limit the opportunities for local collaboration with providers.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.



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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.