Financial incentives, healthcare providers and quality improvements

This report reviews the literature to determine how financial incentives affect the quality of care delivered by healthcare organisations and individuals. It was updated and republished in July 2009.

Background

Since 2004, the NHS has introduced the largest programme of pay for performance to date in terms of both its scale and scope, through payments to GPs based on their performance against the Quality and Outcomes Framework. According to the National Audit Office, this has involved the commitment of about £2.9billion over three years.  Given the increasing pressures on health expenditure it is inevitable that there will be further experiments to use financing mechanisms to control costs and improve value.Many are already underway, including Advancing Quality at NHS North West and the Commissioning for Quality Innovation (CQUIN) announced in the 2008 NHS Next Stage Review.   Similarly in other countries, notably the USA,  there has been a burgeoning of programmes designed to pay providers of health care based on their performance in terms of the quality of care.

Within healthcare there has been a longstanding interest in how the type and amount of payment to healthcare organisations and practitioners affects the type and amount of services received by consumers, ultimately, the cost to healthcare to individuals, employers, commissioners and governments.  Less attention has been given to the affect of financial incentives on the quality of care. 

This report

This report updates a 2007 review of international studies which examine the effect of financial incentives on the behaviour of healthcare organisations and individuals in relation to quality of care they delivery to consumers.  The authors use rigorous search strategies to highlight the key empirical studies which examine the links between financing incentives, health care provider and quality improvements.  Given the current financial and policy context, it is particularly timely.   

This report provides guidance to policy-makers in their efforts to improve quality of care through payment reforms.

• Current policy drivers in the UK tend toward rewarding providers for improvements in quality of meeting quality benchmarks, and yet the evidence on the quality improvement effects of such incentives is mixed. 
• There is very little research evidence available on the effects of direct payments to hospitals to improve quality.  The findings from the NHS North West Advancing Quality evaluation will add significantly to the evidence base and provide a vital UK-based study.  Studies should track costs as well as outcomes to significantly improve the evidence base.  
• The literature suggests that even under the best designed payment scheme, desired outcomes are not likely to be achieved through financial incentives alone.  As such, whilst the Commissioning for Quality Innovation (CQUIN) announced in 2008 is a significant initiative, it must be developed alongside the multiple approaches to improving quality announced in the NHS Next Stage Review. 
• There is no evidence that payment systems aimed at managing utilisation and costs, such as Payment by Results, have a negative effect on quality but nor is there evidence that they incentivise quality improvements. 

The richness of this report lies in the range and depth of the studies it analyses and the insights it provides for the design of future quality improvement efforts and payment arrangements.It raises a number of questions such as the size of the incentives and how this will impact in terms of overall income, how is the impact of the incentive mediated between the receiving the payments and making the treatment decision?

Who should read this report

This report is intended for healthcare decision makers, including policy makers and managers. They should use this independent source of evidence to inform decisions and take actions that will lead to better quality of patient care.

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