Pay for performance: at last or alas?

hat a lovely phrase … pay-for-performance. For those who toil harder, work smarter, go the extra mile, satisfy customers, follow the rules, comply with regulations—the surest incentive of all—more money on payday. The underlying principle of pay-for-performance compensation, now the rage in health care, is the creation of financial incentives that reward quality-improving, cost-saving, and more efficient behavior by medical professionals. For many in health care, the question is not why now, but rather what took so long with this pay-for-performance? Isn't it about time that someone recognized the quality work of physicians and hospitals? After all, for years everyone has known that a fee schedule that rewards volume will result in … more volume. Therefore, isn't it a no-brainer that a payment mechanism that compensates clinical excellence will lead to better quality? What's not to like? Barely five years old, a myriad of different pay-for-performance strategies have already spread from New England to California, and the notion has been embraced by hospitals, physicians, health plans, and employers, particularly large corporations. Medical journals, management literature, the lay press, government leaders, and CEOs all tout the concept as a solution to the ills of health care. But does pay for performance, long the mantra of corporate America, offer a realistic means for improving quality and efficiency in health care? Or is this another ill-conceived strategy that falls flat on the way from bench to bedside? Will pay for performance be the answer to national concerns regarding rising health care costs and uneven quality in medi-cine? Or will this payment mechanism founder in a sea of complexity, imperfect data and provider pessimism? Pay-for-performance made it to Main Street commerce in the 1990s when it emerged as the model for executive compensation, especially in publicly traded, for-profit companies. The idea was logical enough: senior management would have their pay (in the form of salary, equities, or bonuses) tied to quantitative outcomes such as earnings or stock price—presumably a win-win strategy for shareholders and company officials. Though mentioned in health care management circles as early as 1985, the pay-for-performance movement did not really get going until the creation of the Leapfrog Group in 2000. Prompted by the 1999 Institute of Medicine report 1 about the parlous state of quality in American medicine, companies such as General Electric, IBM, General Motors, and Boeing launched Leapfrog with an original mission of disseminating information about quality and …