Physician Pay-for-Performance Programs Taking Hold

Career Resources articles posted on NEJM CareerCenter are produced by freelance health care writers as an advertising service of the publishing division of the Massachusetts Medical Society and should not be construed as coming from the New England Journal of Medicine, nor do they represent the views of the New England Journal of Medicine or the Massachusetts Medical Society.

December 2007

Career Resources Editor’s Note: Performance measurement for physicians has broadened in scope. No longer limited to quality improvement initiatives and the credentialing-privileging process, it is now becoming inextricably linked to financial reimbursement. Pay-for-performance (P4P) incentives have the potential to improve the quality of care for our patients, but could also be exploited to simply control cost and improve the bottom line. Meaningful, standardized, evidence-based measures that do not penalize physicians for treating patients with significant co-morbidity and take into account variations in practice settings will have to be developed if P4P is to be fully integrated into medical practice.
— John A. Fromson, M.D.

By Bonnie Darves, a Seattle-based freelance health care writer. 

Despite the myriad philosophical concerns and practical considerations, the movement to connect physician performance to pay structures is moving forward.

It’s with candor and a light overlay of humor that Dennis S. O’Leary, MD, recalls the medical-practice environment he envisioned after he left Cornell University Medical College in the mid-1960s and started his fellowship at Strong Memorial Hospital in Rochester, N.Y. “When I came out of school I thought that someone would be measuring my performance, and that I would be paid accordingly. That seemed logical to me,” said Dr. O’Leary, the longtime president of the Joint Commission, the country’s leading health care-accreditation entity, and onetime dean for clinical affairs at George Washington University Medical Center in Washington, D.C. “But it turned out that I could do as well or as poorly as I wanted and get paid anyway.”

That’s no longer the case, of course. But even Dr. O’Leary, who has spent two decades in the notoriously complex business of health care performance measurement, allows that the nascent attempts to gauge individual physician performance are both long overdue and here to stay.

“I can assure the graduate of today that his or her performance will be measured — in a pay-for-performance context, a licensure context, and certainly in a quality improvement and educational context,” he said. “The take-away message for the young physician is, welcome to the world of people measuring how you are doing.”

Joseph Cofer, MD, director of the general surgery residency program at the University of Tennessee in Chattanooga and an active participant in several national quality improvement initiatives, concurs with Dr. O’Leary. “My advice to residents is to roll with it and don’t fight it,” he said. “Our world has changed, and young physicians should know that when they get to their hospitals or their practices, they’ll be inundated with P4P and quality reporting — so it’s in their interest to learn about those issues.”

Pay-for-performance, or P4P as it’s often called, has gotten off to a rocky start, largely for political reasons. The movement toward measuring physicians’ performance on process measures, such as timeliness of dictation, use of unapproved abbreviations, and care-outcomes measures (medication error rates of hospital-acquired infections), and linking payment to their performance, emerged about three years ago. The commercial-payer and employer sectors, working primarily through insurers and health plans, were the first to introduce physician P4P programs. Those entities, collectively, maintain that creating financial incentives to improve performance will in turn improve care quality and lower costs, which has already occurred to some extent in the hospital setting.

P4P Sparks Concerns about Measures, Economic Ramifications

Generally speaking, physician organizations have not taken issue with the concept of measuring performance. Most industry observers, including physicians, agree that the status quo of the relative lack of clinical accountability or oversight is not only outmoded, but also antithetical to quality improvement. There is also general consensus that performance measurement and P4P methodologies have the potential to promote collaboration and team-based care, while pushing medicine toward greater use of information technology.

However, organized medicine — particularly the American Medical Association (AMA) and specialty societies — vocally opposed many early P4P programs, contending that some P4P measures were untested, clinically irrelevant, or were chosen not because of their potential to improve quality, but rather solely to control costs. Further, P4P opponents argued that doctors who treat indigent populations and large numbers of patients with significant medical co-morbidity could be inherently penalized, and that without an electronic infrastructure, the requisite data gathering is difficult.

Many physician professional organizations also cite the problematic nature of making comparisons between P4P measures and extending payments based on those results, given the wide range of practice settings and conditions under which doctors deliver care. Concerns have also been raised about the program’s inability to properly risk-stratify patients or account for treatment non-compliance. The AMA has also pointed to the possibility that, in a public-reporting environment, physicians who don’t care for sufficient numbers of patients to qualify as “high performers” might be unfairly cast in a negative light. In particular, some health plan physician–network structures are designed so that physicians are deemed either “preferred” or “non-preferred” based on their participation and the “numbers” they generate in performance-measurement programs.

“It’s important for physicians just starting to practice to know that many of the P4P measurement systems require that physicians have a certain number of patients (i.e., 100 patients with diabetes) that they are caring for,” explained AMA Board of Trustees member James Rohack, MD, a Temple, Texas, cardiologist. So unless you’re entering a mature practice — or if you’re starting out by yourself — it may be challenging to get those measures to a level that’s meaningful.” Indirectly, that inability to participate or meet performance measures could mean the physician ends up on the “non-preferred” list, Dr. Rohack added, which could translate into higher co-payments for patients.

Another key concern cited by the AMA and other physician organizations is that some of the process measures P4P programs incorporate are not necessarily focused on improving care quality, but rather on increasing efficiency, decreasing services utilization, and boosting profit margins through lower costs. For example, some programs include target measures for inpatient stays or advanced-imaging studies ordered, or for the use of generic drugs.

Finally, early and subsequent adopters of P4P have developed their own structures and methodologies, which is creating a confusing, potentially dizzying array of programs. Dealing with that program variation and the individual reporting requirements is proving burdensome to many practices, especially in primary care. “That is a primary concern, especially for solo and small practices that don’t have electronic medical records or the information technology [capacity] to compile the data efficiently,” said Michael Barr, MD, MBA, vice president of practice advocacy and improvement for the American College of Physicians (ACP).

This has prompted the AMA to push for P4P measure standardization, through its AMA-convened Physician Consortium for Performance Improvement (PCPI). The PCPI has developed a robust set of quality measures — 184 have been approved as of June 2007 — and has urged P4P program sponsors to adopt those measures and the care-quality measurement consensus standards set by the National Quality Forum.

“It’s an attempt to try to get rid of the cacophony of measures that were being developed — so that Blue Cross Blue Shield of Massachusetts, Blue Cross Blue Shield of Illinois, and Medicare wouldn’t all have different measures, and physicians wouldn’t be scratching their heads and saying, ‘Who do I listen to?’ ” Dr. Rohack said.

Despite the opposition, P4P programs in such clinical areas as diabetes and cardiac care, childhood immunization, breast and cervical cancer screening, and non-clinical realms such as patient satisfaction and information technology adoption have proliferated. The largest P4P initiative to date — sponsored by California-based Integrated Healthcare Association, which comprises health plans, physician groups and hospital systems, among other members — paid out $55 million to physician groups in 2006. Scores of other program sponsors have begun making bonus payments to groups or individual physicians in the last two years, according to data compiled in 2006 by the Leapfrog Group, an employer consortium that identified more than 100 individual P4P programs.

On the macro-economic level, both P4P supporters and naysayers have conceded that the complex reimbursement environment in which U.S. physicians operate deters consistency and quality improvement. For example, payment systems rarely account for care-delivery nuances and don’t compensate adequately for important activities such as patient education and care-continuity efforts. As such, current payment systems constitute an inappropriate platform, at best, for performance measurement, according to many health-policy researchers.

Finally, P4P program participation could entail substantial front-end costs for physician practices that participate, possibly outweighing any financial gain from bonus payments. All of these concerns have prompted medical professional organizations and other entities to call for use of appropriate evidence-based measures and to propose guidelines for a sound program structure. (See sidebar.)

Medicare Is Latest Entrant in Physician P4P

In 2007, the Centers for Medicare and Medicaid Services (CMS) joined in the P4P fray with its Medicare Physician Quality Reporting Initiative (PQRI). Under PQRI, physicians who report quality data on certain specialty-specific performance measures — proposed by the specialties themselves, working with the AMA and the Ambulatory Care Quality Alliance (AQA) — are eligible to receive an incentive bonus of 1.5 percent of total allowable CMS fee schedule charges, if they report the requisite claims data on 80 percent of patients.

The initial PQRI reporting period started July 1 and ends Dec. 31, 2007. The program is voluntary at present, and physicians may choose to report on one or all measures related to their specialty; primary care physicians, for example, have 73 measures and dermatologists have only three. Reporting is accomplished through claims filing, and each measure is specially coded. Buffalo, N.Y., internist Nancy Nielsen, MD, the AMA’s president-elect, said that the AMA is working to ease the practical burden of PQRI involvement. “The AMA is developing coding worksheets to help physicians who choose to participate in Medicare’s new quality reporting program,” Dr. Nielsen said. The documents will be available on the CMS and AMA websites by year-end 2007.

Whether PQRI — and the growing number of commercial P4P initiatives being rolled out — will stand the test of time has been actively debated in health care circles in recent months. In Medicare’s case, no new funds have been allocated for PQRI, and commercial programs remain largely untested — especially with regard to doctors’ willingness to make practice investments in the hope of receiving a bonus several months or a year down the line. In the meantime, and as the P4P marketplace evolves, physicians are well advised to look at performance measurement in the broader context of patient, consumer and payer expectations, suggests noted health care researcher Robert Berenson, MD, a fellow at the Urban Institute in Washington, D.C.

“I don’t think that pay-for-performance is going to be sweeping through the health care system anytime soon, but physicians need to be exposed to the concepts because there will be expectations for performance and accountability. The issue is that payers and consumers are looking for greater transparency and accountability from health professionals, and P4P is just one manifestation of that,” Dr. Berenson said.

Dr. O’Leary thinks that young physicians should attain a basic understanding of the performance-measurement arena — including the context in which the P4P movement is emerging. But ultimately physicians’ focus should be on practicing good evidence-based medicine, he advised. “Measurement is at best an inexact science, and there are a lot of measures in use today that do not withstand scientific or statistical scrutiny,” he said. “So for the moment I would tell physicians the same thing we tell hospitals: Don’t worry about being measured — just take good care of patients.”

Performance Measurement May Affect Practice Choice

The changing environment to which Drs. O’Leary and Berenson allude, however, does — and ultimately should — have implications for the practice environment that physicians choose, all sources interviewed for this article agreed. Participating in performance-measurement and quality-improvement programs, regardless of who sponsors them or how they’re structured, entails having the requisite data-collection capabilities.

“The key for the physician going into practice is: How can I deliver care in the best way possible, recognizing that I will be measured in some way?” Dr. Barr said. “So when physicians are looking for a practice to join, they should ask how that practice addresses quality and what systems are in place to ensure that the practice environment will enable the physician to achieve the quality outcomes.” Ideally, the health-information technology (HIT) infrastructure should not only support data collection and documentation, but also population-management and point-of-care clinical decision support, Dr. Barr explained.

The same thinking about systems and infrastructure should apply when hospital-based physicians are seeking practice opportunities, Dr. O’Leary maintains. That is because physicians’ performance — and ability to achieve P4P targets — is dependent to a considerable extent on how their organization functions. “If you’re a young surgeon working in a hospital that has a so-so cardiac mortality rate, don’t be so sure that you personally can change that rate,” Dr. O’Leary said. “There are a lot of factors involved — from the way the hospital does things, to the nursing staff, anesthesiologists, and the pump team. Patient care is a team sport.”

Dr. Rohack further advises job-seeking physicians to obtain details about insurer contracts the medical group has in place, as well as associated P4P programs. Specifically, interviewees should ask how the practice fares in performance-based contracts, and how the practice’s IT systems support performance reporting and the new board-certification competency requirements, he explained.

Lastly, physicians should also understand how insurer and health plan contracts are related to earnings. “It’s important to see and understand how salary or bonus structures are created, and how P4P programs might affect the physician’s compensation,” Dr. Rohack said. “For example, if the base salary is 80 percent and the remaining 20 percent is at risk for patient satisfaction, P4P, and productivity, the physician needs to understand how all of that works.”

Leading National Organizations Weigh in on P4P

Several leading physician organizations, including the American Medical Association (AMA) and the American College of Physicians (ACP), as well as accrediting bodies such as the Joint Commission, have responded to the pay-for-performance movement by developing position papers and associated guidance on P4P measures. Following is a brief summary of some of the key issues addressed in the organizations’ recommendations.

American College of Physicians. The ACP’s recent “Linking Physician Payments to Quality Care” position paper, accessible at, calls for:

  • Ensuring that financial incentives are broad enough to encourage quality improvement efforts, and that those incentives reward both high performers and those who achieve substantial improvements over time.
  • Ensuring that rewards reflect physicians’ quality improvement efforts, which will inevitably differ among physicians across and within medical specialties.
  • Basing P4P systems on valid, reliable clinical measures, data collection and analysis, and reporting mechanisms, and using the least burdensome and disruptive measurement and data-collection methods.

American Medical Association. The AMA, at, has issued extensive recommendations on P4P program principles and structures, including the following:

  • Programs should ensure quality of care, and foster the patient-physician relationship. Variations in individual patient care regimens should be permitted based on a physician’s sound clinical judgment and should not adversely affect P4P rewards.
  • Programs should offer voluntary physician participation, and support participation by physicians in all practice settings by minimizing potential financial and technological barriers, including start-up costs.
  • P4P structures should use accurate data and fair reporting, and provide fair and equitable program incentives. In particular, the AMA recommends that physicians be allowed to review, comment, and appeal results prior to the use or disclosure of the results. The AMA also calls for use of new funds (not budget-neutral financing) for incentive payments to physicians.

The Joint Commission. The commission’s guidance on the construct of P4P programs makes the following recommendations, among others:

  • That a P4P program’s primary goal be to align reimbursement with high-quality, safe health care, and that programs include a mix of financial and non-financial incentives.
  • In areas of clinical focus, programs should strongly consider consistency with national and regional efforts, to leverage change and reduce conflicting or competing measurements. That the metrics upon which incentive payments are based be credible, valid, and reliable.
  • That the measurement and reward framework be strategically designed to facilitate broad-scale behavior change and achievement of performance goals within targeted time periods — and that providers receive timely feedback and rewards. 

                                                                                                               Key Players in P4P

Following is a listing of the key organizations either sponsoring or working in the physician pay-for-performance arena:

Ambulatory Care Quality Alliance (AQA): This coalition of health plans, physicians, business and government, which meets several times annually, is working to obtain consensus on how best to measure physician performance, and how to efficiently collect and aggregate data.

Centers for Medicare and Medicaid Services (CMS): CMS launched its Physician Quality Reporting Initiative in 2007; for details, go to

AMA Physician Consortium for Quality Improvement: This membership entity is advocating for use of evidence-based clinical performance measures and approving identified measures, with the intent of urging P4P programs to adopt the measures.

Bridges to Excellence: This not-for-profit organization of large employers is developing programs to recognize and reward providers who meet certain standards of care.


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