funding pool for a pay-for-performance program is likely to have very real and contentious policy implications.

Models in the Private Sector

The pay-for-performance programs that have emerged in the private sector are frequently characterized as new-money models, whereby providers are paid a bonus on top of the regular fee schedule. However, some of these programs anticipate that the use of performance measures and the bonus structure will generate savings through improved efficiency, as well as long-term savings due to increased use of preventive services. For example, the Bridges to Excellence program invested money up front for bonuses using actuarial models (de Brantes et al., 2003). Box 3-1 describes how the Bridges to Excellence program predetermined an adequate reward pool encompassing both new initial funds and generated savings. The program expected to devote 50 percent of anticipated savings to the reward pool, with the other 50 percent being considered a return on investment to the purchasers.

Other private-sector models include the Integrated Healthcare Association program in California, which rewards physician groups on the basis of clinical performance, patient experience, and use of information technology. Anthem Blue Cross and Blue Shield of New Hampshire pays bonuses to physician groups based on their provision of preventive services, thus making this a prospective generated-savings model.

Some providers are skeptical of these strategies, asserting that the bonuses are financed by redirecting full payment updates rather than by providing new money (Bailit Health Purchasing LLC, 2002). Other bonus programs, including Blue Cross Blue Shield of Massachusetts and Harvard Pilgrim Health Care, generate revenues from a percentage of an annual withhold (Rosenthal et al., 2004). According to stakeholder testimony and a longitudinal study performed by ViPS and Med-Vantage from 2003 through 2005, provider groups favor strategies that generate new and increased income to providers, while purchasers favor budget-neutral approaches (ACHP, 2004, 2005; AAFP, 2005; ACOG, 2005; ACP, 2005; AMA, 2005; Baker and Carter, 2005).

Models in the Public Sector

As discussed in Chapter 2, the Centers for Medicare and Medicaid Services (CMS) has undertaken several pay-for-performance initiatives for multiple provider settings. Because the Office of Management and Budget, in general, insists that demonstrations be budget neutral overall, these initiatives are funded largely on the basis of anticipated savings attributable to

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