16 Pros and Cons of Pay for Performance Healthcare

Pay for performance healthcare is also referred to as value-based purchasing in the United States. This payment model provides a financial incentive to hospitals, medical groups, physicians, and other providers when they meet specific performance measures. Clinical outcomes, such as a longer survival rate, are challenging to measure because of the individualized nature of medicine.

That means this typically evaluates process efficiencies and quality by reviewing blood pressure numbers, patient counseling measures, and participation rates in particular wellness categories.

This system then penalizes providers when they pass along increased costs to patients, have medical errors, or produce poor outcomes. That’s the reason why providers and insurers use integrated delivery systems to share costs, as it aligns the incentives to create value-based care opportunities.

Several pros and cons of pay for performance healthcare are essential to review so that every person can understand what happens at their doctor’s office. It is the most effective way to advocate for oneself.

List of the Pros of Pay for Performance Healthcare

1. It takes the emphasis away from the volume of services provided.
Have you ever gone to the doctor and wondered why there was a variety of services provided to you during your appointment? The reason behind such behavior is due to the structure of volume service pricing. When medical providers have a financial incentive to provide as many services as possible, then it opens the door to patients paying for things that they don’t really need to maintain their health and wellness.

A pay for performance approach introduces a new policy emphasis. It focuses on the quality of the care a patient receives, an element that often goes missing when using base payment methodology.

2. It allows medical providers to focus on specific patient priorities.
Medical science must take an individualized approach to maximize its potential success. Even though an injury or illness presents with common symptoms, each person reacts differently to them. When doctors can focus on meeting the individual aspects of care that can lead to a positive outcome, then there are more financial incentives to build relationships with each person instead of focusing on specific products or services that are potentially chargeable.

A base payment model almost encourages that the aspects of care be compromised in favor of profitability. P4P eliminates that issue altogether.

3. It is complementary to public reporting of performance.
The pay for performance approach in modern healthcare imparts a higher level of transparency through the public reporting process. It is an approach that can hold providers accountable for the significant payments they receive for providing patient care. It allows consumers to make informed choices when they need to see a doctor for any reason, limiting the influence that insurance policies or community pressure can place on someone. It is a process that helps to support quality improvement efforts at the local level.

4. It doesn’t need to change the basic structures of base payments.
The pay for performance model can be complementary to the base payment methods that currently exist without changing its basic structure. This approach provides payers with the most practical way to improve value with doctors and clinics who seem unwilling or unable to accept new forms of compensation. Instead of overwhelming a patient with services as a way to provide bulk to the eventual invoice, there is a simple shift toward meeting specific value requirements so that payments can be issued appropriately.

5. It can be implemented with a varying degree of intensity.
When pay for performance receives implementation as an incremental payment method, then it can be used with varying degrees of intensity. This advantage makes it consistent within the context of application as the strength of each measure available for clinical conditions gets directly applied to the achievable outcome. Other relevant factors, including the cost of supplies and labor, can get built into this pricing structure so that there is no risk of losing money by providing care.

The only way medical providers are threatened with monetary loss is by their own decisions or actions that provide inadequate outcomes to their patients. If a doctor or clinic receives ratings that show they are the best at what they do, then people will make them a top priority when there is a need for care in their lives.

6. It creates momentum to create accurate measurements in multiple categories.
When medical providers make a commitment to pay for performance structures, then it creates the advantage of momentum within the healthcare industry. This process works to expand the key performance indicators and metrics that track what approaches provide the most success. By encouraging an increase in measurement accuracy, better patient outcomes become possible because the emphasis is on providing measurable results instead of a plethora of services all at once.

7. It can create a significant rank strategy with scalability.
Many of the pay for performance ideas involve ranking providers from the best to the worst in some way. One of the most popular ways to implement this healthcare idea is to concentrate all payment bonuses to top-performing hospitals, clinics, and physicians. That means a significant gradient would occur between the best performers and the worst, creating motivation for facilities to improve their performance.

List of the Cons of Pay for Performance Healthcare

1. It creates a higher level of administrative complexity.
Medical providers often try to avoid pay for performance healthcare because there are significant administrative responsibilities that come with this approach. Each patient must have tracking measures in place that show how their wellness improves over time. That means accountants and billing professionals must receive access to patient records so that every invoice is as accurate as possible. Instead of reviewing a list of services provided, each person must have enough medical knowledge to understand the health improvements that provide billable outcomes in the future.

Acquiring the data and verifying it for accuracy could triple the number of administrative duties necessary for compensation in the American healthcare system.

2. It could compromise a provider’s commitment to quality.
When professions require a significant level of cognitive skill and intrinsic motivation to create successful outcomes, associating financial incentives with better performance can be counterproductive. This disadvantage occurs because there can be compromises to a provider’s commitment to quality. The incentives offered under pay for performance structures may not impart enough of an influence to encourage the correct levels of patient care.

This payment approach would also emphasize the difference between patients who are fully committed to improving their wellness and those who are not. Medical providers would want to work with the people they know who are committed to positive health outcomes so that the most money possible can come in each month.

3. It has several gaps in care that have no known measurable solutions.
The pay for performance model provides several significant gaps in what aspects of care are measurable using today’s data resources. This disadvantage means that erroneous judgments about the overall quality and value offered by specific providers can be possible. Since there is no overall standard or set of best practices for clinics to follow globally, there is too much room for interpretation at the individual level.

Medical science even creates issues within this disadvantage. If someone decreases their blood pressure numbers by 10 points, then that might represent a significant risk reduction for heart disease development in some patients, but it could also indicate the development of anemia in another. There is no good way to interpret results when billing for these outcomes unless a manual review of every record takes place.

4. It provides a focus on clinical process measures.
Because the pay for performance healthcare model focuses on individual results, the amount of variation that occurs with successful patient outcomes creates a lot of confusion for the industry. That’s why the emphasis is on clinical process measures for the providers who choose to use this approach. Because research shows that process measures are not significantly related to positive healthcare outcomes, the current billing structures may be less accurate than the service-based structures that are so popular in the United States.

5. It relies on documentation for performance.
The healthcare industry struggles with the influence of falsified documentation at some level. Because the pay for performance model requires providers to show conclusively that results are occurring, there is an incentive to modify vital statistics in ways so that payments can be issued. Apparent improvements could be a reflection of more extensive documentation of what is happening or being accomplished with patients. That means an improvement in reporting procedures will often result in higher payments, even if there is nothing discernable occurring for the patient in question.

6. It does not take into account the challenges that may be present in some patient populations.
Attainment approaches in pay for performance mechanisms do not always compare performance figures accurately. This system may not be inherently fair to providers who have challenging patient populations because of case-mix differences and socioeconomic factors. Improvement approaches in these statistical areas can compromise the goal of providing consumers with data about accountability and choice, so it makes it easier for poor performers to receive rewards for their improvement when their initial outcomes were already poor at the beginning of the evaluation period.

7. It may cause professionals to alter their activities.
Clinicians could decide to respond to pay for performance initiatives by changing their professional activities. They would do so as a way to perform better on the key performance indicators that track public reporting programs and payment mechanisms. That means there could be an emphasis on not caring for high-acuity patients because there would be a higher likelihood of having a poor outcome occur, but it could also result in a desire to only work with high wealth patients.

People who have more resources available to them are more likely to create a desired health outcome compared to those who do not. This disadvantage would be similar to a doctor deciding not to accept new Medicare patients because he knows that private pay individuals will create more income.

8. It can be challenging to know any existing cause-and-effect relationships.
If a patient develops an infection during the hospital stay, was that health issue already present when they were admitted? It can be challenging to determine if someone has an existing health issue when there are other concerns being treated by a provider. Many illnesses create simultaneous unwanted side effects that can be difficult to track. Although pay for performance incentivizes the idea of avoiding recurring patient visits, the actual baseline for each service is unpredictable.

9. It may not offer any incentives to encourage improvement.
If compensation and bonus payments under pay for performance structures only go to the highest-performing facilities, then there isn’t much of an incentive for those at the bottom end of the scale to improve their processes. When monetary incentives only go to the very best and the number of rewards is limited, then there is no reason for the facilities to know they won’t get into that criteria to make any improvements at all.

That’s why some ideas encourage the introduction of penalties into the pay for performance system so that the worst performers must pay specific fees for their results. This approach might improve some care systems, but it would only work to the extent that the facility wouldn’t need to pay an additional amount afterward.


The current structure of the pay for performance idea continues to evolve without a consensus about how to design it. There are several different viewpoints to consider with this approach, including whether or not it is even a good idea to pursue. The potential for it to crowd out intrinsic motivation, even when using highly-targeted measures that reward individual clinicians, could create a new set of classism barriers for patients attempting to seek care.

The overall goal of healthcare is to help someone restore their health and wellness. Process measures are useful because they are actionable, but there isn’t an effective way to implement this system without an extensive, continuous review of each patient record. That’s why the current idea seems like one that isn’t feasible.

What is notable about the pros and cons of pay for performance healthcare is that artificial intelligence could solve many of the potential disadvantages. AI applications could analyze patient records individually, report positive changes, and inform users of what billable outcomes are possible. This approach could even create custom treatment plans to encourage better long-term results.

Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.