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Reimbursement and Pay-for-Performance

Reimbursement and Pay-for-Performance

Sample Answer 

Reimbursement and Pay-for-Performance

Hospitals across the country are facing significant reimbursement changes as a result of healthcare reform, which will impact their day-to-day operations. Pay-for-performance (P4P) systems have been introduced to compensate physicians, hospitals, and other healthcare providers for meeting certain quality and efficiency standards. Pay-for-performance has many aspects. These aspects include the effects of reimbursement through this approach, the impact of cost reductions on the quality and efficiency of health care, the effects on providers and patients, and the impact on the future of health care. To better understand how pay-for-performance collaborates with payment models for health care delivery, I will go over the following topics: the meaning of pay-for-performance, the effects of pay-for-performance on the patient and the health care provider, the effects of pay-for-performance on the future of health care, the effects of reimbursement, and how system cost reductions affect the quality and efficiency of health care.

Pay-for-performance and reimbursement

Pay-for-Performance is a Value-Based Purchasing program that rewards hospitals, physicians, and other healthcare providers for demonstrating excellence and improving patient safety and effectiveness. Traditionally, health policy has been focused on the often conflicting goals of increasing access, containing costs, and improving quality. P4P has gained prominence primarily as a means of improving care quality and occasionally for increasing efficiency or lowering costs. At the same time, P4P has its roots in healthcare policies and problems that arose as a result of previous efforts to expand access and contain costs (Cromwell et al., 2011).

Pay-for-performance is becoming increasingly important in the Medicare program. Pay-for-performance is a payment method used in health care that is based on clinical data and is motivated by a desire to focus more on quality of care rather than quantity of care (Tanenbaum, 2009). Pay-for-performance gives Medicare policymakers the opportunity to improve patient care. The Medicare primary physician group was the federal government’s first pay-for-performance model. Pay-for-performance is an important tool for promoting healthcare delivery reform. The federal government implemented volume performance standards, which provided a means for healthcare providers to monitor the growth, performance, and quality of healthcare. Patients receiving hospital care, physician care, and clinical services account for more than half of all healthcare costs in the United States. Policymakers can address the issue of health care costs through the Affordable Health Care Act by removing payment or reimbursement methods based on inadequate health care delivery.

Pay-for-performance was introduced to boost financial, clinical, and patient satisfaction. These could be accomplished by

Incentives for good performance in quality, safety, patient satisfaction, and efficiency

Allowing for more efficient healthcare administration

Increasing the transparency of provider payments

Redistributing reimbursement over time to pay for outcomes first, and

Encourage quality in all aspects of the healthcare delivery chain (Harris, 2009).

When standards are not met, penalties or disincentives are imposed. For example, hospitals will face penalties under the Affordable Care Act for excessive readmissions for heart attack, heart failure, and pneumonia. Pay-for-performance affects reimbursement in linear ways by linking work quality and performance to compensation systems with measurable goals. This could lead to higher administrative costs and nonpayment by insurance companies and providers.

Medicare reimbursement for physicians will be directly related to how well they meet treatment benchmarks, how much it costs them to do so, and how patients perceive the care they receive (again, through post-treatment satisfaction surveys). The list of benchmarks is extensive, and it includes everything from how frequently you prescribe steroids for chronic lung disease (when appropriate), to how frequently you obtain blood samples from diabetics and how many times your patients visit the emergency room. CMS will send each physician a report that breaks down their performance and highlights where they stand in comparison to their peers. Those who provide the least expensive care while meeting the highest pre-set standards will be compensated the most (Santo, 2013).

The effect of system cost reduction on healthcare quality and efficiency Because of healthcare systems, such as pay-for-performance, system cost reductions will have an impact on the quality and efficiency of healthcare. Access to health care and the cost of care are the two main elements that healthcare delivery models are designed to monitor. So many Americans are accruing healthcare costs as a result of physicians who are not providing quality patient care.

Pay-for-performance has an impact on both healthcare providers and their customers.

Many healthcare providers and organizations have not fully supported the pay-for-performance movement, which can have a negative impact on care efficiency. Pay-for-performance models seek to increase efficiency in physicians’ instructions to patients by clearly communicating how the patient’s care will be adequately delivered. The pay-for-performance amounts for incentives, as with many Medicare patients, will limit the increase in malpractice issues as well. MedEncentive, a system for monitoring efficiency and cost reduction, was recently designed to track quality healthcare outcomes. Physicians will be able to monitor reward incentives that indicate inefficiencies, ineffectiveness in chronic disease prevention, and individual clinical judgment using this program. The pay-for-performance model, on the other hand, encourages payment for performance as a cost-cutting incentive that has been coordinated to focus more on improving quality and efficiency. Pay-for-performance has an impact on financial operations because of the emphasis on healthcare expenditures, which has a significant impact on patient’s ability to obtain cost-effective healthcare.

Pay-for-performance and the Future of Health Care

Policies and procedures are an ever-changing constant in health care, and the effects of a pay-for-performance model will be visible. One significant impact that pay-for-performance will have on the future of healthcare is that if pay-for-performance programs do not offer providers who are willing to embrace the true value and quality of patient care, the healthcare industry will be at a slight disadvantage. Quality outcomes will shift healthcare systems away from encounter-based incentives and toward incentives based on service values (Ariely et al., 2012). Pay-for-performance has been a prominent topic of discussion since 2000, where pay-for-performance will broaden the healthcare initiative, not only for current healthcare practices but also for the future of healthcare (Tanenbaum, 2009). Pay-for-performance models include stakeholders such as the JCAHO (Joint Commission on Accreditation, Health Care, and Certification) and the AHA (American Hospital Association) to encourage hospitals and standalone physician practices to actively participate in reporting quality of care using information technology tools. Because patient monitoring systems are now electronic medical records and disease registration lists, the physician will be able to stay focused on understanding how pay-for-performance plans will consistently reduce the cost of hospital stays and fees for services. Many healthcare providers are currently using pay-for-performance models that do not provide incentives based on healthcare quality because healthcare officials are focusing directly on the issue where quality has become more important than rewarding physicians who perform their jobs appropriately. Several other healthcare industry models follow different guidelines, whereas previously, the emphasis was on quantity. This new guideline will only benefit the healthcare provider’s effectiveness.


With the healthcare industry steadily expanding, pay-for-performance will eventually make more healthcare resources available to patients. Collaboration between health management organizations, pharmaceutical companies, and physician groups is also part of this pay-for-performance system (Ariely et al., 2012). To summarize, pay-for-performance will work and has the potential to fully mature and be implemented over the next five to ten years. As the federal government and private health insurance companies continue to establish programs to reduce healthcare costs nationwide, reimbursements will be linked to quality and efficiency.

Intensive technology-driven standardization of care systems will improve healthcare outcomes and access while driving down costs and improving healthcare efficacies.


Santo (2013). How will pay for performance ultimately impact the quality of care? Retrieved from quality-care.html

Tanenbaum (2009). Pay-for-Performance in Medicare: Evidentiary Irony and Politics of Value. Retrieved from: Journal of Health Politics, Policy, and Law, 3 (5), 717-746. Doi: 10.1215/03616878-2009-023

Harris (2009). Pay-for-Performance and Incentive Programs. Retrieved from

Ariely, Dan & Woolhandler, Steffie (2012). Will Pay-for-Performance Backfire? Insights from Behavioral Economics. Retrieved from:

Cromwell et al. (2011). Pay for Performance in Health Care: Methods and Approaches. Retrieved from


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How does a shift in payor mix affect financial reimbursement for a healthcare entity?

Reimbursement and Pay-for-Performance

Reimbursement and Pay-for-Performance

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