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Pay-for-performance (P4P) is a catchphrase that describes the creativities aimed at enhancing quality, effectiveness, and the overall health care value. P4P is a value-based buying stratagem with the creativity to connect compensation to value and efficacy as a motivation to advance health care and condense costs. P4P provides an operational framework that aligns the employees’ behavior with the company goals. P4P is for the idea that people should pay for quality and not quantity. Reimbursing doctors based on the amount of care they provide creates inducements for them to give more efficient care. A P4P successful compensation plan can be formulated using the following steps: understanding the company’s general business strategy, identification of the root causes of poor performance, identification of the primary strategic goals, integration of financial and strategic objectives, definition of employee goals, communication of the goals, and, finally, communication with employees in all performance aspects.

P4P has become popular among policy makers and private and public payers, including Medicare and Medicaid. The Affordable Care Act (ACA) develops the use of P4P tactics particularly in Medicare and inspires a research to ascertain the most efficient strategies and plans. The current paper seeks to explain how reimbursement is affected by the P4P approach, to assess the impact of system cost reductions on healthcare quality and efficiency, to discuss how P4P affects healthcare providers and their customers, and to evaluate the impact of P4P on the future of health care.

How Pay-For-Performance Approach Affects Reimbursement

Pay-for-performance reimbursement has become a dominant healthcare payment model fabricated on the conviction that reimbursement spurs intensely affect medical providers’ behavior (Dudley & Rosenthal, 2006). The quality of healthcare provisions is addressed by strategies such as the government regulation, continuous quality improvement, market competition, and payment incentives. With the introduction of P4P compensation policy, there has been a transformation of the way healthcare providers and insurers optimize the payment procedures to increase efficiency as well as quality assurance to improve value (Chung, Sensoy, Stern, Weisbach, & National Bureau of Economic Research, 2010). Reimbursement is impacted by the P4P tactic in the sense that the physician’s incentive is to advance quality care to receive more gratuities, hence, snowballing their income (Dudley & Rosenthal, 2006). P4P has also affected reimbursement in that more healthcare providers are becoming transparent. Transparent healthcare attracts more patients; hence, doctors and physicians get more revenues.

Considering the fee-for-service model, cost management, quality, and efficiency were not taken into account as compared to the P4P model, which fundamental goal is quality assurance and controlling costs (Frakt & Carroll, 2013). Pay-for-performance is measured against parameters such as utilization/cost management, clinical quality/effectiveness, patient satisfaction, and patient safety. Reimbursement is modernizing the provision of healthcare services, since providers will increase their earnings through improved quality of care instead of quantity of care in the fee-for-service model (Dudley & Rosenthal, 2006).

How System Cost Reductions Impact Healthcare Quality and Efficiency

Most psychoanalysts are worried about the fact that the Affordable Care Act (signed by president in March 2010) will shrink healthcare quality and efficiency, since there will be too many patients without enough quality providers. The Act enabled many young grown-ups to get health insurance coverage and made protective services inexpensive to most Americans (Frakt & Carroll, 2013). The Affordable Care Act has been slowing the growth of costs and has improved the quality of care thru pay-for-performance programs, fortified primary care management, and revolutionizing Medicare payment modifications. These provisions help reduce costs, thus, moving the health care system towards higher quality and more efficiency (Frakt & Carroll, 2013).

P4P leads to increased health care spending. For instance, in the United States, the health care expenditures were approximate $1.7 trillion in 2003 – more than twice that of 1990 and seven times of 1980's expenditure levels (Chung et al., 2010). The 2003 expenditure level represented 15.3% of the Gross Domestic Product (GDP). After the ACA had been signed in 2010, the health care costs in 2011 were $2.7 trillion, which accounted for 17.9% of the GDP (Chung et al., 2010). The 2016 GDP is expected to increase by 20%. This increase was as a result of the increased number of insurance holders prompted by the ACA. With the increased number of patients and uncontrolled healthcare costs, the quality and efficiency of services provided by healthcare will go down, as the providers will be rushing to attend to many clients (Chung et al., 2010).

How Pay-For-Performance Affects Healthcare Providers and Customers

Pay-for-performance programs positively affect both service suppliers and their customers. The service providers get increased revenues, as they are paid according to the quality of services they offer their customers (Dudley & Rosenthal, 2006). Employees' salaries and bonuses rise, and they even receive special perks for accomplishing performance objectives. The program also improves the skills of the providers, as they serve many customers. The provider also becomes more responsible for his or her actions and accountable because of the reward incentives. The providers endeavor to get higher rankings by working harder and shrewder; the customers will advise their friends the supplier with high ratings, hence, bringing in more income to that employee (Dudley & Rosenthal, 2006).

On the other hand, customers get to enjoy quality services offered to them regarding better personalized health services. Customers also enjoy faster services. Customers get readily available services from professionals at relatively low costs due to the ACA program. Hence, consumers tend to save up some money (Frakt & Carroll, 2013).

The Impact of Pay-For-Performance on the Future of Health Care

The existing P4P models distribute financial incentives in two principal directions: from the customer to the hospital and from the client to the physician (Frakt & Carroll, 2013). The early P4P model adopters have experienced full benefits in patient results and income. The future of health care rests on the P4P model, which presents a superior prospect to apply more versions of P4P models, as hospitals wish to partner with physicians (Dudley & Rosenthal, 2006). The current P4P model has resulted in the introduction of a new P4P model such as the Physician Performance Incentive (PPI) approach. This method provides financial motivations directly from the hospital to the doctor. This model would make use of a typical set of quality measures throughout the hospital to benchmark the doctor (Chung et al., 2010). The PPI model gives hospitals a distinctive feature of having the aptitude to recompense physicians for favorable results using evidence-based clinical pointers. On the other hand, PPI’s affiliating model, the incentive-based reimbursement model for healthcare results, must be revised for any legal concerns present during the implementation procedures (Chung et al., 2010).


P4P is a value-based buying stratagem with the creativity to connect compensation to value and efficacy as a motivation to advance healthcare and condense costs. P4P creativities classically provide hospitals or individual healthcare providers with an economic remuneration for meeting set quality goals or apprehending quality improvement. Reimbursement and P4P are shifting the healthcare delivery into a more cost efficient system that will meet consumer desires in a fair and productive way. P4P is a positive model for all stakeholders, as it delivers on the main objectives to increase quality while reducing costs. P4P is advocating for a new model in future known as the PPI model that would enable hospitals to reward physicians for positive outcomes. To keep up with quality efficiency, healthcare professionals have given competent authorization to motivation plans but stay concerned with the legitimacy of superiority pointers, patient-doctor independence and confidentiality, and augmented administrative encumbrances.

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