The Early Experience of a Hospital-Based Pay-for-Performance Program

This study evaluated the effect of a health-plan-sponsored, hospital-based financial incentive program, focused on heart-failure quality indicators, to improve quality. We conducted separate, hour-long, semistructured group interviews with senior managers and cardiologists at ten hospitals involved in the Participating Hospital Agreement (PHA) program implemented by Blue Cross Blue Shield of Michigan (BCBSM). Under PHA, hospitals are eligible for an annual incentive payment of up to 4 percent of BCBSM's diagnosis-related-group-based inpatient claims, depending on their performance in patient safety, community outreach, and selected quality indicators. Interviews focused on knowledge, perceptions, and impact of pay-for-performance (P4P) strategies. We compared BCBSM-provided data on heart-failure quality indicators between 2002 and 2004 with our qualitative findings. Our analyses suggest that pursuit of incentive-based quality targets may be largely dependent on the context of a particular hospital. In settings where performance did not change, incentives did not appear to drive organizational or individual practice changes. Underperforming hospitals with some of the infrastructure necessary for quality improvement had the greatest success when presented with incentives. We concluded that one formula for a successful P4P program is to direct incentive payment to an organized entity capable of supporting process improvement by applying resources and organizational expertise. In this model, the incentive program supports the organization, and the organization in turn may apply resources to facilitate improvement in clinician performance. Consideration of the requirements of organizations to facilitate improvement in relation to existing quality improvement infrastructure may lead to the future success of hospital-based P4P programs.