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At the end of the chapter, the reader will be able to:

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  1. Define pay for performance.

  2. Describe the rationale for pay for performance in pharmacy.

  3. Describe how pay-for-performance programs for pharmacies may be designed.

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The use of financial incentives to boost the quality of care is often implemented as pay for performance (P4P).1 In a P4P system, providers are rewarded financially for achieving high levels of quality or for significantly improving quality of care. To date, hundreds of P4P programs have been implemented within the U.S. health care system with hospitals and physicians being the primary targets of these incentive programs. However, nursing homes and home health providers have also seen rapid growth in P4P and a small number of programs for pharmacies have also been implemented.

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A 2005 survey of health maintenance organizations (HMOs) found that over half of the HMOs used P4P incentives in their provider contracts.2 Of those that used P4P, 90% had programs for physicians and 38% included hospitals. In some states, the majority of physicians may be enrolled in a P4P system. For example, Blue Cross Blue Shield of Hawaii has operated a Physician Quality and Service Recognition program since 1998. This program, run through the Hawaii Medical Service Association's preferred provider organization (PPO) network, grew from 50.4% physician participation in 1998 to 77.7% in 2003. A 6-year review of the impact of the financial incentive component of the program indicated that patients who visited one of the participating physicians were more likely to receive recommended care.3

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Another early adopter of P4P is the Integrated Healthcare Association (IHA) in California. The IHA P4P program began in 2003 and now includes eight health plans and over 35,000 physicians in California. The program was associated with significant improvements in quality during the first 2 years of the financial incentives.4 A recent evaluation of the P4P program shows that the program continues to drive improvements in clinical quality although significant geographic variation still exists.5 In 2007, IHA paid out over $65 million in P4P incentives to physician groups although this amounted to less than 2% of physician compensation. The IHA estimates that at least 5%, and preferably 10%, of physician compensation should be based on performance in order to drive significant change in practice.

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Although P4P was initiated by employer coalitions and private insurance companies, the federal government has also begun to shift toward a value-based purchasing paradigm that includes P4P.6 The first step for the federal government is to require providers to report information on quality and efficiency of care (i.e., pay for reporting). For hospitals and physicians, this has meant an incentive payment of up to 2% of reimbursement. For home health providers, the failure to report on quality measures will result in a 2% reduction in payment.

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The Centers for Medicare and Medicaid Services (CMS) has initiated ...

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