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Systematic Review

Relationship of pay-for-performance and provider pay

Shurson, Lauren DNP, FNP-BC (Clinical Assistant Professor)1; Gregg, S. Renee DNP, FNP-C (Clinical Assistant Professor)1

Author Information
Journal of the American Association of Nurse Practitioners: January 2021 - Volume 33 - Issue 1 - p 11-19
doi: 10.1097/JXX.0000000000000343



Policymakers, health care leaders, and consumers have searched for decades to create balance between HCPs, patients, and payer interests (Emanuel, 2014). Today's trends support pay-for-performance (P4P), value-based incentive payment model, rather than fee-for-service (FFS), and reward HCPs for quality of care and patient outcomes. Optimism this model will achieve the triple aim: high quality, reduced costs, and improved patient experience has led US payers, public and private, to implement P4P (Chung, Paushter, & Katzman, 2017; Institute for Healthcare Improvement (IHI), 2019). Yet, a divergent pattern has emerged. Although health care organizations are receiving P4P compensation, most HCP compensation remains based on productivity (Emanuel, 2014; Hawkins, 2018; Merritt Hawkins, 2016; Papanicolas, Woskie, & Jha, 2018). The purpose of this review is to explore the background and literature surrounding health care provider (HCP) compensation and HCPs' understanding and response to current compensation structures.


Policymakers, health care leaders, and the public are concerned with incentive-based P4P models in the health care system (Institute of Medicine (IOM), 2006). The United States far exceeds other industrialized nations in health care spending, and health outcomes are worse (Papanicolas et al., 2018). In 2018, the United States spent 17.8% of gross domestic product on health care (about double the average), yet life expectancy was lowest, and infant mortality, a key indicator of population health, was the highest of first-world nations (Papanicolas et al., 2018).

Although HCPs are concerned about poor outcomes, there is resistance about moving toward the P4P payment structure as patient outcomes do not rely solely on HCP skills. Outcomes are influenced by patient decision-making, social determinants of health, and organizational structure. Health care providers are rewarded or punished for factors outside of their control. For example, P4P may increase compensation for an HgbA1c <7 regardless of multiple extrinsic factors impacting outcomes (i.e., diet and exercise).


The history of provider compensation is complex and indicative of the struggle of balancing ideological desires (i.e., providing highest quality of care to every person regardless of socioeconomic status) and fiscal responsibility and reality (i.e., limited resources to provide care). Figure 1 depicts a chronological review of policy changes.

Figure 1
Figure 1:
History of payment reform.

Starting in the 1980s, policymakers attempted to veer away from FFS. First, Medicare reimbursement became prospective rather than retrospective. This meant standard amounts were paid in advance of delivered care. Congress then passed the Omnibus Budget Reconciliation Act of 1985, which created the Physician Payment Review Commission (Chee, Ryan, Wasfy, & Borden, 2016; Ginsburg, 2012). Transformation continued under the Medicare Part B Physician Payment Reform of 1992. Payment was no longer solely determined by HCPs' billing, but included the newly developed Resource-Based Relative Value Scale (RBRVS) (Centers for Medicare and Medicaid Services (CMS), 2015; Mason, Gardner, Hopkins-Outlaw, & O'Grady, 2016). The RBRVS standardized payments and assigned relative value units (RVUs) on clinician work, practice expenses, and cost of liability insurance (Junig, 2006). Health economists were surprised when private payers quickly adopted this and negotiated payment rates for in-network care (Ginsburg, 2012).

Managed care (MC) was introduced to reduce repeated and unnecessary medical care (CMS, 2015; Mason, Gardner, Hopkins, & O'Grady, 2016). Managed care made health care delivery and payment more prescriptive and attempted to control not only spending but also quality and accessibility (Emanuel, 2014). Managed care placed HCPs as “gatekeepers” to health care and standardized reimbursement rates. Health care providers assumed some financial responsibility for care provided (Emanuel, 2014; Mason et al., 2016). Unfortunately, MC did not provide the desired outcome, and the public became increasingly discontent with limited access and decreased quality of care. Consumers and HCPs alike demanded increased control (Emanuel, 2014). Negative media attention concerning MC fueled a political backlash and prompted policymakers to search for a solution (Emanuel, 2014; Mason et al., 2016). Pay-for-performance emerged in an effort to improve quality and reduce overuse of care. Unlike traditional FFS payment models that solely rewarded the volume, P4P encourages providers to invest in patients' health outcomes (CMS, 2015; Ginsburg, 2012; IHI, 2019; Institute of Medicine, 2012; Lubarsky, French, Gitlow, Rosen, & Ullmann, 2019).

Payment models

Accounting for an estimated 85–95% of payments, FFS uses line-item billing, a separate fee per service with payment occurring retrospectively regardless of outcomes (Chee et al., 2016; IOM, 2006; Zuvekas & Cohen, 2016).). Many criticize FFS for increasing costs by rewarding HCPs for quantity and complexity, rather than quality and efficiency (Emanuel, 2014; IOM, 2006). Fee-for-service may create a financial conflict of interest and encourage overtesting and higher-cost treatments without yielding higher-quality care because payment occurs regardless of quality (Emanuel, 2014).

By contrast, P4P is based on economic assumptions that a specific outcome is reproducible through rewards (Lubarsky et al., 2019). The standard P4P health care program compensates providers that meet and exceed predefined performance measures (IOM, 2006).

Proponents of P4P contend this approach encourages HCPs to provide patients with better care and reduce the overutilization that resulted from FFS. However, evidence regarding the efficacy of P4P is inconclusive because of an insufficient amount of published studies. Some report if there is improvement after P4P adoption, it is only a modest improvement (Chee et al., 2016; Sherry, 2016). Despite limited evidence, support for P4P is increasing (IOM, 2006). The Affordable Care Act attempted to use public programs to launch P4P and retire FFS models (Burrill & Kane, 2017). In 2015, the Medicare Access and CHIP Reauthorization Act allowed Medicare to revise provider reimbursement and place more weight on performance-based metrics and implemented the Quality Payment Program with the explicit goal of rewarding “clinicians for value over volume” (CMS 2015; Centers for Medicare and Medicaid Services, 2018; Mason et al., 2016).

A divergent pattern

As payment models changed, a parallel story developed: Hospital groups were purchasing most independent HCPs and creating large conglomerates (Singleton & Miller, 2016). Employment, rather than independent practice, has become the dominant practice type. Independent practice decreased 17.6% from 2012 to 2018 (Merritt Hawkins, 2016). Despite widespread support among policymakers and consumers for prioritizing quality of care, health care organizations continue to compensate employees primarily for quantity (Lubarsky et al., 2019; Singleton & Miller, 2016; Zuvekas & Cohen, 2016).

Despite the literature recommending P4P models, a recent and large survey reported <50% of physicians' contracts included performance measures, and only 8–30% reported a performance-based bonus (Hawkins, 2018). Conversely, volume-based FFS models were reported in 58% of agreements and remain the standard bonus structure (Merritt Hawkins, 2016). Fee-for-service–based physician contracts typically use resource-based RVUs, net collection, or patient volumes as the mechanism to determine how much HCPs are paid (Singleton & Miller, 2016).

There is clear delineation between HCPs' current compensation structure and payer recommendations. This may be, in part, because ideological hope is abundant, but reliable and complete evidence is lacking (Burrill & Kane, 2017; Papanicolas et al., 2018). The uncertain path forward limits reform attempts, and a better understanding of P4P and provider compensation is needed. This review explores P4P and FFS effects on provider compensation, including quality, productivity, and efficiency.


The research team performed an EBSCO search, and the following databases were selected: Academic Search Alumni Edition, Academic Search Ultimate, Business Source Alumni Edition, Business Source Ultimate, Chicano Database, CINAHL Plus with Full Text, EconLit, E-Journals, MEDLINE, OmniFile, PsycARTICLES, and PsycINFO. Search criteria included search dates from 1990 to 2019; AND health was included to eliminate articles from unrelated industries. Some higher-yield searches in EBSCO, even with the addition of AND health, produced irrelevant articles (e.g., mines, farming, etc) and created a falsely high result. A revised search in EBSCO using provider AND payment AND health yielded 988 articles. The research team then completed a search of the CINAHL and Cochrane databases. The following terms were used: production pay, provider payment, RVU and salary, RVU and compensation, provider salary, nurse practitioner salary, physician salary, and provider productivity. This produced 670 articles. If the terms provided a lack of relevant studies, the team expanded dates to increase capture.

This article is exploratory, and search criteria were intentionally broad to be as comprehensive as possible. Similarly, commentaries and theoretical articles were not excluded. Thirty articles were included from the literature review (Supplemental Digital Content 1, Using a PRISMA flow diagram to report the information, Table 1 provides details regarding database search results; all duplicated studies were included to ensure recreatable results. All 52 articles are included in the synthesis. The literature searches resulted in 30 articles, and after reviewing the references of those articles, the team included 22 additional relevant articles and books.

Table 1
Table 1:
Literature search results


The number of initial articles reviewed appears large. However, very few articles pertained to the objectives. If there was even limited applicability, the article was included in the synthesis. As there was no consistent form (randomized control trial vs. qualitative design) or narrative, the team was unable to synthesize quantitative data. Rather, summaries and key points were explored, and the team performed a thematic analysis. The review revealed the following four main topics: health care as an economic anomaly, motivation and the ability to incentivize value, ethics, and provider–employer–payer alignment.

Health care as an economic anomaly

Health care represents an anomaly for economic models, and the uniqueness of transactions makes it difficult to compare with non–health care industries (Bichesc, Bradley, Smith, & Wei, 2018; Newhouse & Sinaiko, 2007). Indeed, health care distorts basic economic policies because of multiple payment layers. The presence of health insurance is a fundamental idiosyncracy of health care. First, insurance causes a separation of payers and consumers and then a multiplicity and complexity of principal-agent relationships (Bichesc et al., 2018). Second, HCPs act as agents for patients, employers, and insurance companies (Conrad, 2015; Newhouse & Sinaiko, 2007). This means HCPs are no longer independent in practice, and services are no longer private transactions between individuals (Lantos, 2003). Third, patients, as consumers, are shielded from the full monetary consequence of their choices. Patient's provider-selection does not solely rely on price, but, rather, on amenities (Bichesc et al., 2018).

The theory of productivity measurement and incentivization assumes competitive pricing. This assumption is strong given the aforementioned factors; payers have used numerous methodologies to curb the rising cost of health care, and, in turn, hospitals cut expenses to maintain profits (Bichesc et al., 2018; Lantos, 2003). Indeed, health care organizations must decide between resources being devoted to increasing quality of care or to production levels (Avery & Schultz, 2007). Organizations assume costs will rise along with increased quality, and they assume increased productivity increases revenue (Avery & Schultz, 2007; Godager & Wiesen, 2013).

As stated above, HCPs add another element of variability to health care economics. The altruistic-clinician supposition, the belief HCPs' concern for patient welfare is integral for decision-making, has been widely adopted in health economics literature (Arrow, 1963). This has impacted payment design and created the assumption that patient's health outcomes are in opposition to the HCPs financial self-interest (Berenson & Rice, 2015). By contrast, Godager and Wiesen (2013) found that, although many HCPs have high patient regard, 55% of participants reported equal or greater value to personal profit than patient benefit. In reality, literature supporting the altruistic assumption is lacking (Avery & Schultz, 2007).

Payment structure is another variability determined by and influencing practice type. Fee-for-service is more likely to succeed for small, independent HCPs because P4P plans include penalties for not meeting performance measures (Conrad, 2015; Murray, 2013). Conversely, larger hospital organizations are less affected by those penalties (Conrad, 2015). This fact alone decreases the HCPs ability to maintain a private practice. In addition, HCPs are now under further scrutiny with the electronic health record (EHR) requirement. Employers now live-track HCP time and productivity measures and use EHR monitoring as a way to drive efficiency (Bendix, 2014).

Motivation and the ability to incentivize value

The literature uncovered challenges in creating a performance-based value metric. It is dependent on a discrete transaction, a clear understanding of the product, and what outcomes correspond to a particular individual. In health care, none of these are finite (Newhouse & Sinaiko, 2007; Healthcare Financial Management Association, 2008). It is difficult to distinguish between individual HCP behavior, the length of time for a final health outcome, and outside influences (e.g., multiple providers, patient response, and comorbidities; Conrad, 2015). Furthermore, if the P4P model is incorrectly implemented, it can lead to poor outcome measures.

Pay-for-performance has shown lackluster performance in changing outcomes. One theory is the measurement and distribution of P4P payment is at the organization's discretion. Also, for the few HCP contracts that include quality incentives, those incentives may be too small to incentivize change in HCP behavior (Singleton & Miller, 2016) Although many theories discuss why current incentive models are not working, there is a lack of information detailing what might be effective (Lee, Bothe, & Steele, 2012; Ryan, Shortell, Ramsay, & Casalino, 2015). Given the complexity of P4P and the central need for payment reform, solutions focusing on logical and effective measures are imperative. Furthermore, in light of the HCP employment trend, the discussion needs to move away from the focus on payer-to-organization payment and toward discussions regarding how organizations incentivize HCPs through performance measures.

On a more singular level, an individual's motivation is key in any organization. This is perhaps even more important in health care, where individual tasks are typically complex and intellectually challenging (Berenson & Rice, 2015; Chung et al., 2017; Hennig-Schmidt & Wiesen, 2014). Understanding how and why HCPs respond to incentives is vital to health economics research. Although P4P models work well for simple, repetitive tasks, Chung et al. (2017), Green (2014), and Pink (2009) found that because performance is based more on intrinsic motivators, like meaning and autonomy, than on extrinsic motivators such as financial incentives, the P4P model of motivation do not work well for complex tasks. Therefore, it may be more important to incentivize the simple behaviors known lead to good outcomes rather than trying to incentivize the final outcome.

Although Hawkins (2018) reported HCP behavior is impacted by a financial incentive, this is not the only motivating factor. Intrinsic and extrinsic (financial) motivators are not additive as much as competitive (Green, 2014). Health care providers' intrinsic motivators are capable of improving service quality, but only if financial incentives do overpower them (Green, 2014). Financial incentives can “crowd out” intrinsic motivations that would have naturally inspired HCPs to increase performance (Berenson & Rice, 2015; Herzberg, Mausner, Snyderman, & Dabscheck, 1994; Itri, Bruno, Lalwani, Munden, & Tappouni, 2019). Financial incentives may even cause HCPs to confuse “quality care” for “reward” and introduce manipulation or gaming, into the system (Gravelle & Ma, 2019; Herzberg et al., 1994; Itri et al., 2019). By contrast, Herzberg et al. (1994) found intrinsic motivation is fostered through systematic feedback and collaborative quality improvement (QI) opportunities.

In summary, P4P models influence behavior, but not necessarily outcomes. This means behaviors such as increasing volume can be incentivized (i.e., FFS), but more complex, synthesized outcomes, such as quality, are more difficult to achieve and not affected by extrinsic factors (Chung et al., 2017; Scoggins, Crockett, Wafford, Cannon, & McMasters, 2013). In fact, several studies were able to show an increase of HCP productivity with increased productivity pay (Lochner, Trowbridge, Kamnetz, & Pandhi, 2016; Marcus, Zenty, & Adelman, 2009; Scoggins et al., 2013). Yet, FFS can lead to overservice and decreased overall service quality, and the status quo of an unsatisfactory health care system is maintained (Green, 2014; Hennig-Schmidt & Wiesen, 2014).

How behavior is influenced is of major consequence, and organizations are key players in the facilitation of QI initiatives (Berenson & Rice, 2015). Current market pressures pushed organizations to highlight revenue-producing services and limit services with lower reimbursement or higher risk (Cunningham, Bazzoli, & Katz, 2008). Despite policymakers focusing on health care overuse reduction, health care organizations use a tactic commonly emphasized in business: increased productivity (Lewandowski et al., 2006). There is concern payment modalities linking provider reimbursements to patient outcomes threaten to weaken health care organizations' tolerance for overly complex or nonadherent patients, which may create another barrier to care (Cunningham et al., 2008; Mantel, 2018; Ryan et al., 2015).


The Boston Globe and the Seattle Times have both explored the ethical concerns of a high-volume health care practice. Both reported consistent themes: Clinicians are incentivized to pursue a high-volume tactic; institutions capitalize on risky, highly paid procedures; and administrators dismiss staff concerns and sometimes retaliate against whistleblowers (Abelson, Saltzman, Kowalczyk, & Allen, 2015; Baker & Mayo, 2017). The articles question where hospitals should draw the line between revenue and quality care (Abelson et al., 2015; Baker & Mayo, 2017).

Van Slyck (1999) questioned the obligation HCPs have to understand health care reform, payment systems, and organizational designs which rely on productivity and cost containment. Productivity compensation encourages HCPs to see more patients and bill higher evaluation codes (Ryan et al., 2015). Doing well in terms of productivity is not always the equivalent of performing well (Lantos, 2003; Van Slyck, 1999). Health care providers try to stabilize fiscal actualities and ethical objectives and, yet, have limited power to enable organizational change (Lantos, 2003). As many organizations decline to track or report this information, it is difficult to determine how often financial considerations affect ethical decision-making (Abelson et al., 2015). Van Slyck (1999) proposes the most common ethical failing of HCPs and administrators is passive compliance, only looking backward, to an unethical arrangement.

Provider–employer–payer alignment

Before the MC era, insurers used the same FFS basis to pay medical groups and independent practice HCPs. Medical groups paid HCPs on a compatible productivity-based salary schedule (Conrad, 2015). This compensation type aligned individual HCP incentives with medical groups (Conrad, 2015). Under MC, payers reimbursed medical groups and HCPs on a prospective basis, creating a misalignment between HCP and employer (Conrad, 2015). In turn, that misalignment caused tension between payers, hospital groups, and HCPs (Conrad, 2015; Van Slyck, 1999). Hawkins (2018) found that, in the same timeframe that the employment practice structure has increased, 38% of physicians experienced decreased professional satisfaction, and 46.4% felt relations between HCPs and hospitals are somewhat or mostly adversarial (Hawkins, 2018). Some attributed this dissatisfaction to loss of autonomy (Merritt Hawkins, 2016).

The literature offered insight regarding the HCP–health care organization relationship. Medical groups view HCPs with distrust and fear of “free-riding” (Van Slyck, 1999). By contrast, HCPs need to understand improved RVU per full-time employee provides the volume the employer needs to achieve financial viability to moderate health care costs and increase capacity (Lee et al., 2012; Lewandowski et al., 2006). Hospital group and payer relations are also tense. Hospital groups confronting reduced payments for service, they seek incentives for clinical volume as a mechanism to achieve financial viability (Lee, et al., 2012; Marcus et al., 2009). All the while, HCPs are undermounting pressures to decrease expenses, although most cost issues are not within their control (Van Slyck, 1999).

The literature review offered suggestions to align hospital groups, payers, and HCPs. Hospital groups should contract HCPs based on fairness, not abundance (Floyd, 2014; Nugent, 2009). Hospital groups must acknowledge their motives are mixed: productivity is about cost containment, and quality is not the prevailing concern (Avery & Schultz, 2007; Van Slyck, 1999). For example, Glenngard (2013) found productivity and patient satisfaction were inversely related. If an employment contract has compensation tied to both quality measures and productivity, this can cause a no-win situation for HCPs. In addition, for payment transformation to be successful, payers must recognize individual HCPs are disinclined to assume all risk of providing care. Health care providers may not tolerate high-risk, noncomplaint patients that decrease HCP reimbursement; this may create another barrier to care for high-risk patients (Mantel, 2018; Zuvekas & Cohen, 2016).

Many question whether a payment model exists that will bring together these three groups (Floyd, 2014; Nugent, 2009; Van Slyck, 1999). As the health care system moves toward P4P models, each party is facing mounting pressure to balance financial and quality goals (Bichesc et al., 2018). Quality improvement and process excellence, or an institution's ability to provide effective and efficient treatment, are key; these can lead to the alignment of both quality and operational improvements (Bichesc et al., 2018; Floyd, 2014; Lochner et al., 2016). Success occurs when payer, hospital group, and HCPs effectively collaborate to meet benchmarks and model cost-reduction initiatives to achieve sustainable and predictable cost increases (Nugent, 2009; Zuvekas & Cohen, 2016). These groups need to address the ideologies of simplicity, fairness, transparency, and appropriate pay when creating compensation systems. Without a collaboration to align price and value, payment systems will increasingly produce suspicion and cause high levels of both cost shifting and administrative costs (Herzberg et al., 1994; Murray, 2013; Nugent, 2009; Scoggins et al., 2013; Zuvekas & Cohen, 2016).


There is a missing link with the P4P model in reimbursement. Hospital groups are receiving P4P payments from payers, and payers expect this to “trickle-down” to the HCP level. The literature reveals this is not happening. In addition, despite being a major player in the HCP workforce, NPs and Physician Assistants (PAs) are not included in the literature. This is significant because NPs alone provide 1.06 billion visits annually (American Association of Nurse Practitioners, 2019). There is also limited information available regarding individual HCP compensation. Despite a large number of sources discussing the systematic ideology of FFS and transition to P4P, little quantitative, empirical research is available. To improve health care outcomes and the workplace environment of HCPs, studies focused on HCP motivation, health care organization practices, and payers' awareness awareness of HCP employment trends are vital.


Although health care represents an anomaly within traditional economic models, those idiosyncrasies are accentuated by the lack of general understanding regarding HCP behavior and motivation. One of the most striking findings of this review was the lack of knowledge and current research on several key areas. Those include 1) HCP behavioral research, 2) how the employment trend may be influencing any existing HCP attitudes and actions, 3) how NPs and PAs are similar and dissimilar to physician colleagues, and 4) P4P outcome data. To improve health care outcomes, a deeper understanding of all of these areas is vital.

Available literature is narrowly focused on P4P effects on hospital groups. Few articles recognize that the majority of HCP salaries remain FFS-based. That finding highlights the fact that little is known regarding the best way to incentivize individual HCP behavior (financial or otherwise). There is evidence HCPs respond positively to the extrinsic force of incentives for activities such as productivity. However, complex tasks, such as increased quality, must come from an intrinsic force. Payment reform must recognize that HCPs are at least somewhat driven by a nonaltruistic motive of individual financial gain. That motivation could impact the effectiveness of P4P models, and health care payment designs should take that into consideration.

The HCP research deficiency is notable for the absence of discussion regarding NPs and PAs. Almost all of the articles reviewed are limited to physicians. In a survey completed by the American Association of Nurse Practitioners (2017), nearly one third (31.8%) of NPs receive incentive or productivity bonuses; of those, 46.2% were dependent on patient volume, and 37.1% were based on practice revenue. It is important that research concerning HCP behavior includes NPs and PAs.

There is an absence of outcomes data available concerning the effect of P4P. Those data are key to answering many questions regarding the P4P payment system: How can we effectively measure quality and use that to compensate HCPs when patients receive care from multiple HCPs and there are a myriad of outside forces affecting outcomes (e.g., patient choice and social determinants of health)? The fear of these inadequacies of P4P has had a paralyzing effect. Although most do not like the inadequacies of the FFS system, many hold the uncertainties of P4P as even less desirable. That view, in turn, has incapacitated payment reform. Stakeholders are right in recognizing the many obstacles facing value-based payment reform. To overcome those hurdles, policymakers need to acknowledge that health care is influenced by many industries (e.g., business, economics, law), and experts from all of those fields should be consulted.

Regardless of the above research deficiencies, NPs need to question the consequence of agreeing to production-based contracts. The relationship between quality and productivity is oppositional; this is especially true if efficiency is not considered. Efficiency maintains quality, while productivity solely focuses on speed (Paddock et al., 2019). There is an underlying assumption that the health care system is inefficient. This is driving the demand for greater value. To create value, valid efficiency measures, not productivity or quality measures, must first be developed (Paddock et al., 2019). Learning from criticisms of RVUs, those efficiency measures cannot be a one-size fits-all and must be tailored to different specialties and services (Sherry, 2016). Until efficiency measures are well-developed, all providers need to focus on the establishment of safe boundaries on productivity. The question to be asked is how much is reasonable for HCPs to handle in terms of daily patient volume, to balance financial viability and safe patient care?


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Compensation; fee for service; pay for performance; performance pay; provider compensation; production pay; relative value units; salary

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