by one payer leads providers (by force of market power) to demand higher rates of payment from another payer (Lee et al., 2003). For example, researchers examining data from the late 1980s through the early 1990s found that lower Medicare payments to hospitals were associated with statistically significant increases in payment rates to hospitals by private payers (Zwanziger et al., 2000). As a result, the burden of some costs may eventually shift directly to the consumer (Gabel et al., 2002; Lee and Tollen, 2002). For example, increased costs to private payers may lead to increased premiums and copays for the consumer, which in turn could contribute to other potential adverse consequences already described, such as decreased access. Thus decreased payments might save costs for Medicare, but lead to an undue burden for private payers and consumers. However, if the main private payers were to follow Medicare’s lead on pay for performance, the opportunity for such cost shifting would be reduced.


Quality improvement is a continuous and dynamic process; caution in the design of pay-for-performance programs is necessary to ensure that successful programs do not foster the development of a new status quo—one that is better, but incomplete. Overall, any pay-for-performance program must be designed as a learning system that will allow for modifications in response to feedback obtained, including unintended positive consequences. Additionally, the program must incorporate mechanisms designed to monitor for unintended negative consequences and allow for rapid correction to prevent any resulting harm. These issues are discussed in more detail in Chapter 6.


The many pay-for-performance programs now planned or in place have been supported with considerable resources and enthusiastic commitment over a remarkably short period of time. Many public policy makers share the enthusiasm of their colleagues in the private sector, and state and federal programs are poised to follow the lead of private insurers. Unfortunately, clear goals, the best intentions, and a substantial investment of human and financial capital do not guarantee success in the implementation of a pay-for-performance program.

The urgency of the quality problem in the environment of the current payment system demands that steps be taken now to align payment with the six quality aims of the Quality Chasm report (IOM, 2001) and improve health outcomes. The committee recognizes that no perfect payment strategy has yet been identified to advance these goals. However, the economic

The National Academies of Sciences, Engineering, and Medicine
500 Fifth St. N.W. | Washington, D.C. 20001

Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement