There’s been a great deal of discussion about health care payment reform. Prominent in this discussion is “Pay for Performance” (P4P). The idea is simple — rather than pay providers based on volume of care (fee-for-service) or number of patients (capitation), tie their payment to a measure(s) of performance. There has been substantial concern about the quality of care delivered to patients, so pay for performance appears to make a lot of sense. Don’t we want to reward providers for good performance? Shouldn’t this encourage them to provide high quality care?
Unfortunately, this is not as straightforward as it might appear. While the idea of pay for performance is very appealing and intuitive, there are some major pitfalls in implementation.
A recent article in Time magazine by Steven Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” is a brilliantly written expose of the excesses and outrages of health care pricing. In reaction to the story, some have suggested the price controls are the appropriate (or the only) way to rectify the situation. A recent story in the Washington Post’s Wonkblog, “Steven Brill’s 26,000-word health-care story, in one sentence,” suggests that US health care costs and cost growth are so high because we do not use rate setting, i.e., price controls.
In fact, I think it’s not easy to establish whether that is indeed the case. We don’t get to use randomized controlled trials for health policies or systems, so it’s difficult to figure out how effective a policy like rate setting is. Let me start with some simple examinations of patterns in data to see if something jumps out that strongly supports (or contradicts) the assertion that price controls reduce health care costs.