No. 31: Physician-level P4P DOA? Can Quality-based Payment Be Resuscitated?

November 2010


Pay-for-Performance (P4P) is an incentive mechanism that compensates physicians for achieving quality-of-care and productivity targets. P4P has been adopted in international settings, including in the US and the UK. Canada has begun to introduce P4P, most recently in BC, where the Ministry of Health is rolling out what it calls, “Patient-Focused Funding”, an initiative that includes aspects of both P4P and Activity-based Funding (ABF). Volumes have been written about the strengths and limitations of P4P around the world (See: “Pay-for-Performance Clearinghouse” found at  This month’s e-Rounds reviews one article that ponders some of the potential unintended consequences of this payment mechanism.

Methods and Limitations

This is a narrative on P4P, based on the authors’ analysis of some accumulated scientific evidence. Although peer-reviewed, it is not original research. Some observations are opinion-based, and may not represent all or most perspectives. Despite these potential shortcomings, the paper presents a thought-provoking commentary on potential threats to equity and access that may arise under P4P.


The seductiveness of P4P “stems both from its simplicity and from the market-based construct upon which it is based.” The authors argue that it “appeals to a basic, widely held principle in our society that one should be rewarded for doing better than others—this precept is operative everywhere from sports to Wall Street. Because healthcare traditionally has had fewer elements of this market paradigm than other segments of our society, and because healthcare has highly publicized issues of quality, accessibility, and cost, it is natural to propose that a little “market discipline” would move the healthcare system in the “right direction.” Proponents of P4P argue that “physicians who function at a higher level on the healthcare ‘quality gradient’ should be rewarded more. After all, higher-quality products—be they stereos, automobiles, detergents, or toothpaste—often warrant a higher price.” Why not, they ask, apply this quality gradient to health care? Certainly in BC, where P4P is being introduced, there is an openness on the part of the Ministry of Health to explore ways in which investor-owned private for-profit clinics could be integrated into Medicare’s otherwise largely non-profit delivery and financing systems. BC is the epicentre of debate on this issue in Canada, what with the current challenge of the constitutionality of BC’s Medicare Protection Act, in a Chaoulli-like legal battle between the government and proponents of for-profit delivery and private payment for care.

The authors make the case that market-based approaches may well play an important role in health care systems; they do not dismiss outright such approaches on ideological grounds. Rather, they make the case that P4P, as it is currently operationalized, “attempts to promote high-quality, efficient, patient-centered care by using performance measures that account for a trivial proportion of what’s important in the exchange between doctors and patients.” Studies to date suggest that P4P schemes are more likely to measure patient illness severity and/or complexity, rather than quality of physician care. Moreover, they rarely consider how prohibitive the costs may be, and the burden on patients to achieve the quality standard.

Proponents of P4P, and of other types of performance reforms, make the case that “the perfect is the enemy of the good, and we must start somewhere”. The authors counter that view by invoking behavioural economic theory which says that “limited information on value, even if accurate, may lead to worse decision-making, and harm to patients.” The clinical heterogeneity of patients makes healthcare more complex than the relative simplicity of factories. Patients are not the “widgets” described in classical economic texts, and the “inputs and outputs” typical of factories don’t apply to sick, unique individuals, each with dynamically changing and interacting diseases coupled with unique health beliefs and preferences, all of which interacts with the physician’s knowledge and skill. It is this complex interplay between physician and patient that yield the behaviours and outcomes that serve as the metrics for P4P schemes.

Consequently, before endorsing widespread adoption of P4P strategies, the authors argue that “several challenging questions must be asked and answered.” First, how well do the proposed quality measures assess clinically meaningful quality of care? Is it possible to determine from these measures whether physicians respond appropriately to complex clinical situations? To what degree do these measures give us information about the quality of care provided, as opposed to clinically appropriate deviations from ideal practice? The authors point out that “Such deviations in practice could be based on the specific clinical situation, patient social problems that place achieving the goal beyond the physician’s ability, or well-informed patient preferences that makes achieving the goal inappropriate.” Perhaps most important among these questions is whether profiling patients using inaccurate or low-importance information can produce unintended consequences that may actually lower overall quality of care.

Unintended consequences could take many forms, but the most relevant is whether individual physician profiles would foster an environment where physicians can most easily benefit from the financial incentives inherent in P4P by simply avoiding sick or non-compliant patients, or those whose disease is difficult to control. Evidence from the US suggests that even when modifying targets to adjust for clinical differences among patients, such as co-morbidity and disease severity, “severity adjustment systems” are still a work in progress, and “not sufficient to avoid punishing physicians who perform higher risk interventions.”

The resultant tendency to avoid sicker or less compliant patients is potentially even more problematic on the population level. We know that individuals who differ in socioeconomic class, ethnicity, or disease burden are not randomly distributed in communities. They are most likely to have heavier disease burdens and poorer outcomes, and to be treated by specific hospitals and physicians. What happens to physicians in a P4P scenario where some have a disproportionate number of high-risk patients, and where bonuses are paid to higher performers and, accordingly, less is paid to others? The authors argue that they can “dump” their patients, they can get paid less, or they can move.  Are governments who implement P4P creating a market that would further penalize those who care for the most vulnerable subset of our population, adding to the major difficulties that these communities already face in recruiting and retaining high-quality physicians?

If that is what is at risk, should we, therefore, abandon quality-based payment schemes? “Of course not,” argue the authors. Rather, we should avoid the “quick fix” and, instead, look to sectors of health care systems where success has been demonstrated. For example, the US Department of Veterans Affairs —the only single-payer health care system in the US —developed quality-based information to redirect and focus clinical and organizational efforts so as to improve patient care processes and outcomes. Recognizing that most quality problems are not deficiencies of individual providers, but rather deficiencies of whole systems, the VA has not “targeted” individual physicians, though it is under pressure to do just that despite evidence to the contrary. At the level of the individual provider, the variability in observed practice due to small patient panels with heterogeneous patient-level characteristics is usually sufficient to overwhelm the impact of the individual provider on measured process and outcomes. By contrast, when patient outcomes are measured within an institutional practice profile, measures are more stable. To support physicians, the VA also implemented a clinical information feedback and reminder system, and invested in a clinically detailed, multifaceted performance evaluation system, with accountability being placed on those managers who have the resources necessary for system change. In other words, the VA invested in a partnership between physicians, managers, and decision-makers.


A possible consequence of aggressive P4P schemes may be for physicians to minimize their mix of complex patients. Physicians who serve patients with medically and socially complex care needs are likely to score less well in P4P schemes, and to receive less payment than other physicians with less challenging patients. The complexities of clinical practice challenge the effective implementation of P4P, which may pose a threat to equitable and universal access to care. By heeding the global evidence on P4P, it may be possible to design a physician incentive scheme that considers the complexities inherent in providing care for the heterogeneous patient population that defines Canada. Whether P4P is dead on arrival lies not so much in the concept, but rather in its implementation.  As usual, the devil is in the details.

“Physician-level P4P—DOA? Can Quality-based Payment be Resuscitated?” Laurence F. McMahon, Jr, MD, MPH; Timothy P. Hofer, MD; Rodney A. Hayward, MD, American Journal of Managed Care, 13: 233-236, 2007.

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