Rewarding Results: Aligning Incentives with High-Quality Health Care

Field of Work: Using financial incentives to improve the quality of health care.

Problem Synopsis: According to a 1999 report from the Institute of Medicine, preventable medical errors resulted in the death of an estimated 44,000 to 98,000 hospital patients a year. Americans were getting poor quality care, the wrong care or care that could hurt them. The IOM report urged that the health care payment system be redesigned to reward providers for implementing improvements in their care processes.

Synopsis of the Work: Rewarding Results: Aligning Incentives with High-Quality Health Care (January 2002 to March 2009), funded by the Robert Wood Johnson Foundation and the California HealthCare Foundation, tested the use of financial incentives to improve the quality of health care. The program supported seven projects across the nation that implemented systems designed to measure the performance of health care providers and adjust their compensation based on performance scores—a strategy commonly termed pay for performance.

Key Results

  • The projects, their evaluations and related educational materials informed the health care sector about pay-for-performance designs and processes—those that were effective as well as those requiring refinement.

    • Together the seven demonstrations paid out tens of millions of dollars in provider incentives and instituted performance reports and other nonfinancial mechanisms to help physicians gauge and improve the quality of their care.

    Six of the seven projects continued after program funding ended.

Lessons Learned

  • According to the national program office, the key lessons learned:

    1. Financial incentives motivate change, but they need to be large enough to make a difference.
    2. Nonfinancial incentives, such as additional staffing, infrastructure and technology, also can make a difference.
    3. Engaging physicians is a critical activity.
    4. There is no clear picture yet of return on investment (ROI).
    5. Public reporting is a strong catalyst for providers to improve care.
    6. Providers need frequent, clear and actionable feedback on their performance.
    7. Providers need to be better educated about pay for performance.
    8. Data integrity is important.
    9. Experience with managed care appears to be a factor in the success of pay for performance.
    10. Pay for performance is not a magic bullet, but can be a useful tool.