Pay-for-Preformance

Question 1

Six Institute of Medicine Quality Aims

Answer 1

Care that is

1. Effective: (based on evidence) - archives a good outcome
2. Safe: decided of harm
3. Timely: when patients need it
4. Efficient: without waste for the delivery system or patient
5. Patient-centered: respecting the preferences, culture, and circumstances of the patient and family
6. Equitable: no inequity, difference or disparities in health outcomes that are systematic, avoidable or unjust

*Quality is not the best metric when evaluating a health system because it needs to be broken down

Question 2

Case Payment Incentives

Answer 2

Positive Incentives: efficiency, gathering data, standardising care

• Incentivises increased activity overall
• Removes economic incentive to over-provide services for a single patient
• Easy to operate

Negative Incentives:

• Possible DRG-creep
• Cost shifting
• Cream skimping
• Increases unnecessary admissions (increases costs) and readmissions (decreases quality)
• Quality skimping
• Data fraud
• Low payment may lead to slow adoption of useful technology

Question 3

4 Models of Public Service Delivery

Answer 3

Trust:
- The government sets the budget. Front-line professionals (physicians, managers, teachers…, etc.) decide how it is spent.
- Professionals allocate resources and submit bills to third-party payers (government, insurance companies)

Mistrust:
- We do not trust the provider to deliver appropriate care, so we have to incorporate some form of incentive or sanction and monitor their performance.
- It is based on performance measurements and some form of incentive or sanction or based on a high degree of control

Types
1. Managed care (US): insurers are exercising control over the provider’s sector by only contracting with certain of them or integrating directly with providers
2. Targets (UK): since already an integrated system in terms of the majority of hospital provision
3. P4P
4. Command and Control: Managerial Hierarchy

Mistrust will only work if:
- Government has the ‘right’ aims (and can pick the ‘right’ targets)
- The government knows the provider’s motivation, can monitor provider activities accurately and can devise an appropriate incentive structure
- Few opportunities for gaming
- Incentive structure does not drive out intrinsic (knightly) motivation
- Reporting requirements are manageable

Voice: giving patients a voice on how clinical care is provided to them, incorporating patients’ viewpoints in decision-making
Mechanisms:
- Informal face-to-face talks
- Board membership
- Consultative fora
- Complaints procedures
- Petitions
- Elected representatives

Choice of provider: at the heart of market reforms, giving patients a choice between providers such that they can vote with their feet in terms of who’s providing quality or care
- Providers are independent. Non-profit or for-profit. Keep any surplus they make on their budget
- Users choose provider. Money follows the choice. So hospitals etc get more resources through the number of users (patients) they attract.

Question 4

Why include P4P

Answer 4

Current healthcare payment methods don’t incentivise quality care.

• Traditional methods focus on quantity: Payment methods like salary, fee-for-service, and capitation reward doctors for the number of patients they see, not necessarily the quality of care provided.
• Fee-for-service: Doctors get paid per service, regardless of its effectiveness in improving the patient’s health.
• Capitation: Doctors receive a set fee per patient enrolled, but patients are left to judge quality, which might not be reliable.
• Hospital payments (DRGs): While they consider the complexity of a patient’s case, they don’t directly measure the quality of care delivered.

In essence, the current system doesn’t financially reward doctors for improving patient health outcomes.

Question 5

What is P4P

Answer 5

Performance-related pay means that payment is directly linked to the performance of providers.

Main idea: Linking payment to performance measures
Foundations: Existing payment mechanisms do not reward providers for higher-quality
Rooted in mistrust model
Theoretical basis: agency theory, microeconomic theory, and cognitive psychology

P4P refers to financial incentives for healthcare providers (supply-side).
Incentives are based on quality of care, not just delivering more services.

Question 6

Arguments for P4P

Answer 6

• Can reward good effort and capability
• Forces payers to evaluate their payees
• Motivates people to perform better

Question 7

Agency Theory

Answer 7

Principal (payer) —- Agent (doctor) —-Principal (Patient)

            effort unobserved          quality unobserved

• The problem with the principal-agent relationship in healthcare, is that firstly the payer cannot directly observe the effort of the doctor
• Patients cannot observe the quality of the care given by the doctor because of information asymmetry

Question 8

Cognitive Psychology

Answer 8

Intrinsic motivationrefers to behaviour that is driven by internal rewards. In other words, themotivationto engage in a behaviour arises from within the individual because it is naturally satisfying to you.

Extrinsic motivationrefers to behaviour that is driven byexternalrewards such as money, fame, grades, and praise.

Question 9

P4P Challenges

Answer 9

• Information asymmetry: Patients lack medical expertise to judge doctors’ recommendations.
• Medical uncertainty: Even doctors can’t predict the best course of treatment for every patient.
• Principal-agent problem: Patients (principals) rely on doctors (agents) to act in their best interest, but misaligned incentives can occur.
• Multiple agent problem: Adding a third-party payer (insurance company/government) creates conflicting goals between all parties.

Question 10

P4P vs FFS and third-party payer

Answer 10

Traditional fee-for-service model incentives over treatment:
- Doctors are paid per service, leading to unnecessary procedures.
- Patients often lack the knowledge or power to question these practices.
- This model can lead to cost explosions, as seen in China.

Third-party payers face rising costs due to misaligned incentives:
- Patients with minimal cost burdens tend to overuse services when doctors recommend them.
- Payers need to control costs but lack control over utilisation.

P4P aims to address these issues by:
- Measuring quality of care to reduce information asymmetry.
- Aligning incentives by rewarding doctors for delivering high-quality care, not just quantity.