What are the two major categories of pay-for-performance models?

pros and cons of pay for performance

The healthcare law of Patient Protection and Affordable Care, as well as increased transparency and access to patient information on the quality of care providers, has transformed the whole system. Such a shift has paved the path for pay for performance programs. What is the incentive for enrolling in the programs, why should there be such a policy shift, and what is pay for performance healthcare pros and cons?

What is Pay for Performance?

Pay for performance in healthcare model is a system of financial reward for healthcare workers where their financial compensation depends, in whole or in part, on how their performance is evaluated in relation to the specified criteria. The performance-related compensation can be used in a business context to describe how an individual, a team, or the entire office works over a given period of time and that would determine their payments. Many functions like medical billing services, medical coding services, or physician credentialing services are often outsourced by the healthcare organizations on the basis of pay for performance in healthcare model. In such settings, healthcare professionals and organizations pay to the other company providing such services based on some set performance criteria.

In the healthcare industry, “Pay-for-performance” is a generic term for initiatives to improve and develop the quality, efficiency, and value of healthcare delivery. Pay for performance is also known as value-based acquiring. It provides financial incentives to hospitals, doctors, and other health care providers to make such improvements and achieve ideal patient outcomes, and achieve specific performance scores. Clinical outcomes are hard to measure in various ways over a period of time. The performance systems characteristically assess, process quality and efficiency, such as in clinical settings, assessing blood pressure, dropping blood pressure, or counseling patients to quit smoking. This model also punishes health care providers for poor results, medical miscalculations, or increased charges.

Everyone including healthcare systems is making a considerate move towards pay for performance healthcare model. Pay for performance in healthcare is a general comprehensive term that speaks of the initiatives taken to improve outcomes. It focuses on improving the efficiency, quality, and overall value of healthcare in exchange for the cost of that care. By ordering the program type, financial incentives can be paid out to the provider, which offers the consumer the best potential results and improvements.

Pay For Performance Measurement Scales

For a broad overview, pay for performance can be separated into four subcategories for measurement. Process measures, outcome measures, patient experience and structural measures. It evaluates the performance of activities that have been proven to contribute to positive health outcomes for patients.

  • Outcome measures analyses the measurable impact that care from a provider has on a consumer. An example of a result measurement could be found in the measurement of the condition of a patient, such as testing the blood levels or laboratory testing. By measuring the consumer’s experience, the perception of the servants can be assessed while at the same time providing a picture of the quality of care offered. It also includes indicators of consumer satisfaction. This measure could look as simple as the experience or opinion that the consumer makes about the provider, and how satisfactorily the whole care procedures were performed.
  • Patient experience measures, assess a patient’s perceptions of the quality of care and satisfaction with the nursing experience. In the inpatient setting, examples are given of how patients perceived the quality of communication with the physician and nurses, and it can be analyzing that their rooms were clean and quiet.
  • Finally, the measurements associated with the structure are mainly related to the devices. Structural measures refer to the facilities, and equipment used during the care delivery process. For example, many pay-for-performance programs provide incentives to providers if they use health information technologies.

The combination of these four measures is not only intended to improve quality of care outcomes but also to hold practitioners and administrators accountable for the quality of products sold to their consumers.

Pay for performance healthcare pros and cons

pay performance


As pay for performance healthcare model becomes more and more of a catchphrase among private and public sector clients as well as policymakers, it is also important to recognize that the law on patient protection and affordable healthcare has enabled the expansion of pay for performance.

Pros of Pay For Performance Program

  • Reporting on quality standards is increasing and getting more accepted by providers and is used more by payers.
  • For the first time, the public has access to high-quality information about the performance of providers. Some pay for performance programs keep their results confidential, but most accept that public reporting is the more effective.
  • Pay for performance programs for physicians can provide a direct link between quality and cost. For example, participating physicians receive 30% to 40% of their income from incentive payments.
  • The pay for performance program is working well for primary care services. when the clinical course of action is established and commonly accepted.
  • Pay for performance system has the potential to combine quality, cost, and access purposes in measures that cover structure, process, and outcomes.
  • The system incentivizes providers to avoid recurring visits to patients and emphasized more on quality of care.
  • Pay for performance also includes some ethical measures as well. For example, if there are infections during a hospital stay, it can be difficult to determine if patients had infections before arrival or developed them during the hospital stay.

Disadvantages of Pay For Performance

  • Although supposedly, pay for performance programs should improve the quality of care provided, there are anomalies that are highlighting some faults in the system.
  • Pay for performance plans can direct providers towards activities whereby they accept patients more easily in submission to the procedures.
  • Pay for performance systems ought to be designed in a way that guarantees that hospitals and physicians attend high numbers of patients with low incomes. So they can receive enough capital to compete with more affluent organizations for funding.
  • There is no universally accepted definition of good performance. Shareholders are not in agreement on how to pay for performance should be designed and controlled.
  • There is no clear agreement on how benefactors should be given feedback on their performance. When feedback is slow, the value of that feedback is reduced and taken less seriously.
  • The expansion of measures is not standardized which makes benchmarking and comparisons across organizations and pay for performance programs challenging.
  • Most hospital information systems are not designed to support the kind of reporting on measures that is required by pay for performance programs.
  • It is hard to establish the connection between quality and cost in hospitals. The reason is incentive payments do not reach the physicians whose behavior you are trying to modify. It has less impact than physician-level pay for performance programs.
  • Pay for performance systems rank providers according to performance which means that a huge number of providers will be categorized as ‘bad’. This does not support the overall goal of including investors in efforts to improve health care quality. High performers will be rewarded, but poor performers will have disadvantages so that, in the long term, they will have scarcer resources available to them to improve the quality of their services.
  • Healthcare providers may concentrate only on the areas addressed in the pay for performance program, overlooking issues of quality and cost that may be perilous to their organization’s overall success.

Now when you know pay for performance pros and cons, it’s important to realize how successfully these points can be integrated and avoided.

Success Factors For Pay For Performance Programs To Develop

  • Incentives need to be great and extensive if the model is to be made successful.
  • Incentives need to be distributed carefully in the clinical department for pay for performance to be effective.
  • The impact of suggested models should be demonstrated and carefully assessed both prior to and at regular intervals throughout implementation.
  • The impact analysis should contain consideration of the potential for regional inequalities, as there is some evidence that some payment for performance models have deprived countryside hospitals
  • Incentive structures need to emphasize prompting improvement across all hospitals rather than just rewarding hospitals/services that are already performing well.
  • Methodologies for risk adjustment need to be established and assimilated

What are the two major categories of pay-for-performance models?

The two major categories of pay-for-performance models are individual-based models and group-based models.

Individual-based models tie individual employee performance to their compensation. In this model, an employee’s pay is based on their individual performance, often measured through metrics like sales numbers or productivity. Individual-based pay-for-performance models are often used in industries like sales, where individual performance can be more easily quantified.

Group-based models tie compensation to the performance of a group or team. In this model, a group or team’s performance is measured based on metrics like overall sales or project completion, and the compensation of all members of the group is tied to that performance. Group-based pay-for-performance models are often used in industries like healthcare or education, where the success of the group is critical to achieving overall organizational goals.


It will take a combination and step-by-step program implementation to improve the quality of care and reduce the costs to be sustainable for high-quality health care providers. But the selection of these programs must be taken into account because misguided quality factors can affect the program. Systems considering pay for performance healthcare model should ask questions about adequacy, such as will the clinical measure defined in the measure actually leads to better patient outcomes? Are there measures for the desired behavior that is reliable, valid, and above all feasible? Do it adequately address the reasons why behavior does not conform to standards? Will it fix the money problem or there are other ways to change the behavior? Are there any unintentional negative drivers? Pay for performance is still a promising path in exploring the improvement of quality and cost, but so far implementation seems less convincing.