Pay-for-performance Schemes That Use Patient and Provider Categories Would Reduce Payment Disparities

Published in: Health Affairs, v. 34, no. 1, Jan. 2015, p. 134-142

Posted on on January 09, 2015

by Cheryl L. Damberg, Marc N. Elliott, Brett Ewing

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Research Question

  1. How can a pay-for-performance approach provide incentives to improve care while also avoiding redistribution of incentive payments away from providers who have significant concentrations of patients with low socioeconomic status?

Providers that care for disproportionate numbers of disadvantaged patients tend to perform less well than other providers on quality measures commonly used in pay-for-performance programs. This can lead to the undesired effect of redistributing resources away from providers that most need them to improve care. We present a new pay-for-performance scheme that retains the motivational aspects of standard incentive designs while avoiding undesired effects. We tested an alternative incentive payment approach that started with a standard incentive payment allocation but then "post-adjusted" provider payments using predefined patient or provider characteristics. We evaluated whether such an approach would mitigate the negative effects of redistributions of payments across provider organizations in California with disparate patient populations. The post-adjustment approach nearly doubled payments to disadvantaged provider organizations and greatly reduced payment differentials across provider organizations according to patients' income, race/ethnicity, and region. The post-adjustment of payments could be a useful supplement to paying for improvement, aligning the goals of disparity reduction and quality improvement.

Key Findings

  • Broader use of case-mix-adjustment of provider performance scores could improve measurement but isn't sufficient to eliminate lower average payments for providers serving disadvantaged patients.
  • Pay-for-performance payments could be post-adjusted according to provider categories defined by characteristics of the patient population.
  • Post-adjustment retains incentives for higher performance for all providers, strengthens incentives among lower performers, and slightly weakens them among high performers.


  • Post-adjustment categories could be used to better align the goals of reducing health disparities and improving quality.

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