Merit pay VAM (value-added modeling)

The Failure of Pay-for-Performance Plans in Hospitals

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Harvard Magazine published a noteworthy article about the failure of pay-for-performance plans in hospitals, written by Marina N. Bolotnikova. It is worth your time to read. It is devastating.

The logic of pay-for-performance systems is simple enough: pay doctors and hospitals based on how well their patients are doing, rather than on the number of medical services they provide. The payment structure was designed to fix a central problem in American healthcare. The United States spends far more per person on healthcare than any other country, yet has the poorest health outcomes in the advanced world. Pay-for-performance, also known as value-based purchasing, was meant to encourage doctors to optimize the welfare of patients while discouraging spending on unnecessary care.

There was never any evidence that pay-for-performance works, said Li professor of international health Ashish Jha, who investigates the effectiveness of economic incentives in the healthcare market. A recent paper published this April in the BMJ by Jha finds that the federal pay-for-performance program under Medicare, the Hospital Value-Based Purchasing (HVBP) program, hasn’t had any impact on mortality rates. Nor do HVBP-participating programs show any statistically significant advances over the small number of hospitals that don’t participate in the program. No hospitals, not even those with the worst mortality rates before the program was implemented, showed an improvement that could be attributed to pay-for-performance. “We looked across all different conditions and couldn’t find a single one where it seemed to have a meaningful effect,” Jha explained.

In the early 2000s, the Bush administration ran a pilot version of pay-for-performance at about 200 hospitals that agreed to tie their payments to certain quality measures. Even then, Jha said, “the broad consensus in the community was that it didn’t really work.” Despite this, the system was implemented on a national scale by the Affordable Care Act (ACA), which created the HVBP program at more than 90 percent of U.S. hospitals. “There was a sense that we needed to begin somewhere,” he explained, “and that this program would be good to test out nationally.”

Medicine and education could learn from one another. Why has there been so little attention to the persistent failure of pay-for-performance plans in education? States and districts and the federal government pour hundreds of millions, billions, into developing incentives, despite the fact that the National Academy of Sciences studied the issue in education and said that such plans don’t work, especially when the bonuses are tied to test scores.

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