Getting Real Performance Out of Pay‐for‐Performance

Abstract

This article concludes that in three general situations, P4P will have a different impact on quality and costs and so should be structured differently. When information about patients' health and the health production function is incomplete, as is currently the case, P4P payments should be kept small, should be based on outcomes rather than processes, and should target physicians' practices and health systems. As information improves, P4P incentive payments could be increased, and P4P may become more powerful. Ironically, once information becomes complete, P4P can be replaced entirely by "optimal fee-for-service."