Sustainability of Health Systems: Is Pay for Performance the Answer? Review of OECD experience

1. Sustainability of Health Systems:Is Pay for Performance the Answer?Review of OECD experience May 11th, 2011; Clermont Ferrand Y-Ling Chi OECD Michael Borowitz OECD Raphaelle Bisiaux OECD Cheryl Cashin , University of California, Berkeley/OECD/Results for Development Richard Scheffler, University of California, Berkeley Collaboration with World Bank

2. In the aftermath of the crisis, some countries face the difficult task of choosing where to cut public spending: • need to ensure that health spending achieves the best possible value for money • room for improvement = better coordination of care, the use of evidence-based medicine and assessment of new technologies, and paying providers according to the quality of service Budget constrained environment: Where do cuts in spending take place?

3. Wide Range of Tools to control health spending Pay for performance Source: Borowitz and Bisiaux, 2011 (to bepublished)

4. Recent developments in payment models aim to achieving value for money in OECD countries • Rising burden of chronic diseases with ageing population pose a considerable threat to health budgets (in both low-middle and high income countries) • Traditional payment models can be inefficient • Many OECD countries are experimenting with new methods of paying health care providers to improve the quality of health care and coverage of priority services (Pay-for-Performance or “P4P”) • P4P often used to incentivize preventative activities for chronic disease and care coordination

5. Definitions of Pay for Performance

6. A standardized framework was used to describe and assess the schemes Basis for Reward Reward Measures • Performance domains • Indicators • Bonus payment • Publicize measures and ranking • Absolute level of measure: target or continuum • Change in measure • Relative ranking • Information systems Data Reporting and Verification Source: Adopted from Scheffler RM: Is There a Doctor in the House? Market Signals and Tomorrow’s Supply of Doctors, Stanford University Press, 2008.

7. A diversity of schemes across OECD countries Summary of OECD experience of pay for performance • This table illustrates the diversity of pay for performance schemes on the supply side in all areas of care, based on a survey carried out in 2008/2009. • The US, the UK and Australia in the late 1990s and early 2000s have broken new grounds for other OECD countries

8. P4P mechanisms aim at addressing these problems and create behavorial change through six factors (1) • 1.Health-increasing substitution (+) • Incentives’ goal is for new mix of services and inputs to increase health • 2.Health-decreasing • substitution (-) • Incentives can be perverse, where providers substitute away from unrewarded, yet important, dimensions because they are unobserved or unmeasurable • 3. Increased provider effort (+) • Provide incentives to increase workers’ effort, where increased effort could be for output (LICs) or quality (HICs) • Example (item 3): • Before P4P: a physician earns $100,000 salary with effort e1 • After P4P: $90,000 salary plus bonus $0 to $20,000, with expected value of $10,000 with effort e2, where e2 > e1 • Impacts Some workers will quit and the remaining workers willing to expand effort e2

9. P4P address these problems and create behavorial change through six factors (2) • 4. Risk premium costs (-) • Need to compensate provider for taking on risk, i.e., for being rewarded for factors beyond its control • Risk premium costs decrease health, because less budget available for health care services • 5. Monitoring costs (-) • Monitoring costs decrease health, because less budget available for health care services • 6. Net externalities (+ or -) • Positive or negative effects on health, beyond the explicit P4P measures • Positive – better governance and information systems • Negative – workers become less team-oriented

10. Optimal P4P scheme balances 6 factors Illustration of the effect of provider P4P on health care through six factors

11. This study reviews P4P experience from an implementation perspective The objectives are to: • Better understand the elements of the design and implementation of P4P schemes • Assess to what extent the schemes meet their objectives • Identify factors that contribute to or limit success • Generate lessons for low- and middle-income countries

12. The schemes have a wide range of objectives

13. Incentive structures reflect priorities Distribution of points in U.K. QOF Distribution of payments in Australia PIP

15. Overall Conclusions on Pay for Performance • Can be very costly (PIP in Australia: $3 million spent on the scheme within 10 years) • P4P : really a solution in budget-constrained environment? Concerns on cost-effectiveness compared to other potential measures. • Different context between low-middle-high income countries • Low income countries incentivize productivity (e.g. P4P success in Rwanda) • High income countries “too much activity” ? Focuses on cost control • Could be difficult to implement given the political economy and culture of care // seems more successful when phased-in. • Evaluation is seldom conducted rigorously and do not provide countries with tangible evidence on effectiveness. • have only modest impacts on quality and outcomes, even when looking at the measured indicators (cf. table)

16. Incentives for health promotion: limited evidence

17. What are the potential pitfalls of P4P? • Incentives might not work to motivate better performance for complex tasks. • Incentives more effective at increasing “output,” e.g. screening • Substitution—providers may shift toward activities with incentives and away from others that have more benefit for health • Reduced intrinsic motivation— shift away from the “heart” in medicine • “Cream-skimming”--incentive to avoid difficult patients • May miss the real barriers to improvement--not always related to incentives • Provider incentives ignore the role of patients 17

18. Overall Conclusions on Pay for Performance However, • Fully assess the impact of introduction of schemes is difficult • For Germany, evidence shows that P4P may be useful for management of chronic diseases especially incentivizing preventative interventions as well as following evidence-based clinical guidelines • Better monitoring, tracking and evaluation of health provider is positive in itself. • P4P schemes can have positive effects on equity, but this typically requires explicit measures Improved use of data/IT is critical – Solow Paradox Sometimes the spillover effect of better data, use of information, and feedback loop to providers can bring more important result in the long term. Also, should think about countries embarking in a long journey towards developing new payment models, combining monitoring and evaluation methods