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Are Financial Incentives to Health Care Providers Effective? Evidence from the Field

Financial incentives have a powerful influence on the amount and type of health care provided to patients. Fee-for-service payments are associated with use of more (well-reimbursed) services; capitation payments are associated with fewer. Observations about the relationship between financing methods and use of services have influenced approaches to experiments with Accountable Care Organizations and other new models of care under the Affordable Care Act. Evidence regarding the impact of financial incentives on individual providers—as opposed to hospitals and delivery systems—is unclear.

Insights from the field of behavioral economics are beginning to inform approaches to a variety of human behavioral issues. For example, drivers don't necessarily respond to flashing signs and admonishments to slow down. The National Highway Traffic Safety Administration showed that drivers slowed dramatically when they were promised a $25 prize at the end of every week of safe driving, in combination with a penalty of six cents each time they went nine miles per hour above the speed limit. This surprisingly small penalty combined with the promise of a reward almost eliminated speeding. Audit and feedback comprised one interesting element of the intervention: every time drivers turned off the ignition, they were informed about the status of their incentive payment.

Several of us at the Houston HSR&D Center of Excellence are experimenting with applications of behavioral economics to primary care. VA has a robust quality measurement and monitoring program and a strong culture of reporting and accountability, including a physician bonus program. Bearing in mind behavioral economics lessons from other sectors such as traffic safety, are further improvements in performance possible?

With funding from VA HSR&D, we assessed the effectiveness of financial incentives to overcome clinical inertia and improve hypertension guideline adherence. We enrolled primary care physicians from 12 VA primary care clinics in 5 networks. We cluster-randomized physicians at the clinic level to one of four arms: incentives to individual physicians; incentives to health care teams or "groups"; incentives to both; or control (no incentives). Groups consisted of physicians and non-physician personnel (e.g. nurses, pharmacists, and clerks). Participants in all four arms received education and audit and feedback on their performance. Of course, there are legitimate concerns about unintended consequences of applying individual incentives to health care; following the speed limit is quite different from the practice of medicine. Therefore, our work incorporates a careful mixed methods assessment of unintended consequences.

We calculated the proportion of sampled patients meeting each of two measures: 1) receiving guideline-recommended antihypertensive medications; and 2) achieving the guideline-recommended blood pressure threshold OR receiving an appropriate response to uncontrolled blood pressure. These two measures were rewarded independently; the maximum incentive was paid for achieving both. To dampen incentives for adverse selection of patients with resistant hypertension, we rewarded appropriate actions in response to elevated blood pressure, regardless of whether the target blood pressure was achieved.1 The five participating VA Network partners provided the incentive payment pool. The maximum total individual performance reward was $3,640.

Participants could view their customized audit and feedback reports, including individual performance, earnings, and future performance goals, on a password-protected website. Intervention arm participants were more likely than controls to view their feedback (68 percent v. 25 percent, respectively, p=0.001) and viewed it 4.5 times more often (p=0.001). In a multivariate model accounting for ceiling effects, a study physician with a panel of 1,000 hypertensive patients would achieve the performance measure of controlled blood pressure or appropriate clinical response to uncontrolled blood pressure on 61 more patients after one year of exposure to the individual incentive compared to controls (p=0.003).2 We now are examining whether incentivizing hypertension care produced neglect of other aspects of health care (also referred to as the "spotlight effect").

Why might financial incentives work to improve guideline adherence? Financial incentives for individual effort and task performance might amplify the positive effects of educational interventions and goal-setting performance feedback reports. According to Bandura's self-efficacy theory, incentives work by piquing an individual's interest in a task, leading to greater effort at performing the task and ultimately to an increased sense of self-efficacy.3 This conceptual approach fits well with our design of rewards for following a guideline (a fairly discrete set of tasks), as opposed to complex problem solving (e.g. diagnosing the etiology of abdominal pain). The goal of the incentive, rather than to coerce, is to ignite motivation. Our qualitative and quantitative data suggest that the incentive increased participant interest in viewing their feedback and in improving their performance. Of course, there are myriad reasons, including professionalism and intrinsic motivation, for physicians to do a good job. But our findings suggest that even in a system such as VA—with its strong culture of measurement, reporting, and accountability— financial incentives that signal health care providers about the importance of a discrete task have the potential to improve performance.

  1. Petersen, L.A. et al. "Design, Rationale, and Baseline Characteristics of a Cluster Randomized Controlled Trial of Pay for Performance for Hypertension Treatment: Study Protocol," Implementation Science 2011; 6(1):114.
  2. Petersen, L.A. et al. "Do Financial Incentives for Guideline Adherence Improve Care of Hypertension in the VA Primary Care Setting? A Multi-Site Randomized Trial" Presented; HSR&D Annual Meeting, 2012.
  3. Bandura, A. Self-efficacy: the Exercise of Control; W.H. Freeman and Company: New York, NY, 1997.

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