and coordinated system of care that emphasizes improving outcomes through efficient use of resources.

The introduction of payment incentives designed to reward care that is of high clinical quality, patient-centered, and efficient poses daunting challenges. As noted, promising strategies aimed at achieving objectives in one domain may produce adverse or unintended consequences in other domains. Moreover, key components, relationships, and systemwide reforms necessary to achieve the desired goals may be difficult to implement within the vast and diverse array of private and public provider settings that constitute the nation’s health care system.


Despite the challenges, many payers, medical groups, and purchasers are currently experimenting with new payment approaches designed to reward higher levels of performance and obtain greater value from health care investments. In the past few years, more than 100 pay-for-performance and incentive programs have been launched in the private sector that offer financial rewards for higher levels of provider performance according to specified measures (Med-Vantage Inc., 2006). Medicare, the nation’s largest single payer for health care services, is also experimenting with pay-for-performance strategies through a series of demonstration programs (see Chapter 2) (CMS, 2005b). While many have invested in the promise of pay for performance, however, results are yet to be identified. The impact of these efforts and their effects on provider behavior and patient health may not be realized for many years.

The recent experimentation with pay for performance on the part of private health plans offers an intriguing and attractive potential source of guidance for alternative payment arrangements for traditional Medicare. Experiments such as those implemented within Anthem Blue Cross and Blue Shield and Hawaii’s Blue Cross and Blue Shield plan have been operating since 1999. The Integrated Healthcare Association’s program covers 8 million enrollees (Epstein et al., 2004). (These and other recent pay-for-performance programs are discussed in Chapter 2.) As pioneering efforts, these programs can offer important models and lessons to inform future health care purchasing or investment strategies in the public sector. (See Chapter 2 for a discussion of early experiences with pay for performance and Appendix B for a summary of the literature on such programs.) To date, however, the results of these early efforts have not been systematically examined, nor have specific factors in success that could help guide the development of pay-for-performance programs been identified. In addition, the evidence base to support pay for performance is still emerging. Fewer than 20 empirical studies have assessed the use of payment incentives to

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