Pay-for-Performance and Long-Term Care

Major shifts in the demographic profile of countries around the world have led to increasing strain on healthcare resources. Pay-for-performance programs have been a key intervention to drive greater efficiency in healthcare resource use through quality improvement and cost reduction. At its core, pay-for-performance programs provide financial incentives to healthcare providers to improve quality and spending outcomes. As a pioneer of pay-for-performance programs, the United States adopted various forms of pay-for-performance programs since 2000. In recent years, public and private insurers have rapidly expanded the scope of pay-for-performance beyond hospitals, physicians, and nursing homes to cover a range of healthcare sectors including clinics, home health care, and hospice. Because long-term care entails a range of services to frail individuals, both in institutions and at home, pay-for-performance in long-term care offer a unique set of opportunities and challenges.

Pay-for-performance programs often target long-term care providers directly. These programs measure quality and spending in nursing homes or home health care providers, and financially reward those that do well on certain measures. A variety of these types of programs have been implemented around the world. Pay-for-performance programs that indirectly affect long-term care providers are common, and create different challenges. These indirect incentives encourage long-term care providers to collaborate with hospitals and other providers to improve quality and spending throughout the care episode.

Creating meaningful measures in pay-for-performance programs is challenging, and especially difficult in long-term care settings. Conceptually, there are several factors that must be in place for pay-for-performance programs to achieve its aims. When directly targeting long-term care, incentives in pay-for-performance programs should focus on performance measures that are measurable with low noise-to-signal ratios and are meaningful to supply and demand. Further, there must be meaningful variation in performance among long-term care providers related to differential investment in improvement. As performance improves over time, pay-for-performance programs may need to retire or update measures. Additionally, incentives within the programs must be commensurate with the intended response, such that demand find it worthwhile to use the performance information and the supply worthwhile to invest in improvement. Finally, it is important from a welfare perspective for pay-for-performance programs to minimize unintended consequences, such as patient selection or teaching-to-the test.

To date, the empirical evidence on the effectiveness of pay-for-performance programs in long-term care has found mixed results. A common concern of nursing home pay-for-performance has been that incentives have been too small to elicit responses. Across dimensions of quality, meaningful long-term care health outcomes may be particularly difficult to identify. Because long-term care recipients are likely to increase in numbers in the foreseeable future and because of the rapid expansion of pay-for-performance across nations around the world, it is important to continuously revisit how pay-for-performance affects long-term care.