Emerging Issues of Pay-for-Performance in Health Care

In the 1990s, managed care with capi­ tation was regarded as the policy tool of choice that would control rising health care costs. An explicit emphasis on health care quality was largely absent, as adminis­ trative focus was on the cost per member/ per month and provider organizations (POs) that fought to capture market share. In the new century, capitation has to some degree receded as the payment tool of preference as new thinking has spread through the health care marketplace. Health care is seen as entering an age in which both quality and efficiency are paramount in the purchase and delivery of health care. Taken together, the dual goals of quality and efficiency lead to a key concept: pay-for-performance (P4P). This concept is also referred to as value-based purchasing (VBP). P4P can be broadly defined “...to include any type of performance-based provider payment arrangements including those that target performance on cost measures” (Dudley and Rosenthal, 2006). Various pri­ vate sector programs have been imple­ mented to reward providers for delivering high quality efficient care. However, these programs have been fairly limited in scope and scale. Opportunity abounds for dem­ onstrating how P4P can be implemented to provide the right incentives to create qual­ ity, efficiency, and value in the delivery of health care. Defining quality can be challenging. In cost effectiveness studies economists have