Pay for Performance (P4P) has been an active topic within the health policy community for more than a decade and continues to move, quietly but inexorably, from background to forefront.
Despite, or perhaps because of, the swirl of macro-level concerns and headwinds brought on by recession-driven budget deficits and the Accountable Care Act, interest among major payers in the utility of financial incentives to align quality and value in health care purchasing refuses to recede. Sooner or later, nursing home providers will encounter this phenomenon from one or all payers.
The evidence to date suggests that under both current and future health financing, performance-based incentives will be featured among all types of purchasing and payment strategies. Thus, it is plainly important that providers actively participate in this issue.

P4P In The Cards

Even if they plausibly conclude that P4P incentives may not represent either great peril or great promise for them in purely economic terms, providers will likely agree that the use of payment practices to support updated concepts of quality and performance is a worthwhile goal.

The same can be said for the proposition that payers would buy in (literally) to an agenda that acknowledges their responsibility to ensure that payment practices not only provide adequate rates but motivate and support outcomes that meet or exceed minimum standards.

Traditionally, public policies have relied chiefly on regulatory systems to promote quality or, more precisely, to deter poor quality in long term care.

Most observers now agree that regulatory prescription and enforcement, while necessary as a safety net enabling public health agencies to discourage or respond to the most egregious examples of non-performance, are not well suited to the broader task of supporting high performance and continuous

Hence, there is a growing interest in leveraging the potential of positive incentives, along with transparent public reporting, to motivate and reward better results, viewed from both a quality and value perspective.

Emerging State Medicaid Practices

My InnerView has monitored P4P developments, specifically in connection with skilled nursing facility payment policy across state Medicaid programs for several years.

It also has published a series of annual papers tracing those developments while probing important issues related to the design of such programs, how performance is defined and measured, and how financial rewards are structured.

The most recent analysis is featured in the white paper, “Value Based Purchasing in Skilled Nursing: Current Trends and Initiatives,” published in November 2011.

The findings that follow are among those addressed in more detail in that paper, which is available from My InnerView.

How Common Is Nursing Facility P4P Among State Medicaid Programs?

Ten state Medicaid programs have implemented some form of P4P component in connection with their purchase of nursing facility services—Colorado, Georgia, Indiana, Iowa, Kansas, Maryland, Minnesota, Ohio, Oklahoma, and Utah. In this group of programs, several have been temporarily interrupted either to enable design changes or due to budgetary exigencies, but all remain active or set to resume.

Six additional states have received legislative authorization or have undertaken early-stage developments pointing to adoption of P4P features in the foreseeable future—California, Massachusetts, New York, Texas, Virginia, and Washington.

If implemented in all 16 states, these programs would impact approximately half of all nursing facilities in the nation, and some 40 percent of nursing home residents.

What Are States Measuring As Performance?

State Medicaid P4P schemes include dozens of different metrics organized to include outcomes, structures, and processes. Experimentation and evolution remain the norm. More importantly, there has been coalescence around core performance metrics across these state programs, indicating a response to stakeholder consensus on what matters most as indicators or drivers of quality.

The five most frequently used measures, though differently defined from state to state, are:

1. Staff stability;
2. Customer satisfaction;
3. Regulatory compliance (in terms of prerequisites to participation);
4. Employee satisfaction; and
5. Culture change/person-centered care practices.

Only five of the 10 active state programs include clinical outcome measures, though most all of them originally did so.

More recent state P4P designs have included specific support for adoption of nursing home culture change programs, along with frontline staff training and development, including distance learning and peer mentoring programs for certified nurse assistants. These emerging emphases reflect a growing understanding that organizational culture and frontline staff engagement and competencies are key accompaniments of virtually all important outcomes.

What Are Key Considerations For An Effective Program?

The body of experience at the state level yields a number of salient conclusions. In general, P4P is likely to be most effective when linked to measures of performance that are multidimensional; seen as important by payers, providers, and consumers alike; and mutually reinforcing. These attributes can be attained with a fairly economical selection of measures—likely 10 or fewer.

Whatever the number, each must be succinctly defined, broadly applicable to the universe of facilities covered by the program, and reasonably within their span of control.

Additionally, performance measurement requires efficient and timely data exchange structures that not only yield information for determining payment awards on a frequent basis (for example, quarterly), but also provide continuous feedback to facilities to inform improvement efforts.

Where the same or some portion of the performance data are used for public reporting to consumers, a robust information system will enable that important application as well.

What Is the Best Approach To Developing An Effective P4P Program?

There is clear evidence for the wisdom of pre-planning and testing assumptions about how to best align financial incentives with desired outcomes.

First, deciding what to define as significant performance is a proper function of broad stakeholder engagement from the outset.

Secondly, data resources must be identified and a system of collection, reporting, and analysis created. Current public-domain data are generally insufficient and must be accreted or replaced with new information. This is not difficult or particularly costly, but it is necessary.

Thirdly, a period of data collection and evaluation should be undertaken prior to linking provider payments to their performance on the selected metrics. If needed, metrics can be altered or targets reset before proceeding.

Providers and their payers can learn much from what states are doing in the Medicaid realm, lessons that will likely prove valuable in a rapidly changing environment where performance and competitive advantage will be at a premium.

To receive a free copy of the white paper, “Value Based Purchasing in Skilled Nursing: Current Trends and Initiatives,” which provides more in-depth detail on the topic of pay-for-performance in nursing homes, please visit
Bruce Thevenot is the founder and principal of Thevenot/ARC Consulting based in Austin, Texas. The firm advises private and public clients on health policy and program issues. He formerly served as Senior Vice President, Strategic Relationships, for My InnerView and continues to serve as a Senior Consultant for the My InnerView and OCS products of National Research Corporation. He can be reached at
This article was written by My InnerView (, a product of National Research Corporation. My InnerView promotes evidence-based management practices in U.S. senior care organizations.