Performance-Based Health Care Provider Payments- Health Cost Containment

Updated April 2017

Cost Containment header

NCSL Issue brief

Performance-Based Health Care Provider Payments- PDF File

Colorado Supplement: Performance-Based Health Care Provider PaymentsPDF File
To read portable document format (.pdf) files, use  Adobe Acrobat Reader.

Cost Containment Strategy and Logic

Pay-for-performance is a system of payment that rewards health care plans and providers for achieving or exceeding preestablished benchmarks for quality of care, health results and/or efficiency. Pay-for-performance is most often used to encourage providers to follow recommended guidelines or meet treatment goals for high-cost conditions (e.g., heart disease) or preventive care (e.g., immunizations). A physician might, for example, receive a year-end $25 bonus for every 2-year-old on the physician’s panel if at least 80 percent have received recommended immunizations. A hospital may receive a performance payment for reducing the rate of avoidable hospital readmissions or ensuring that patients receive appropriate discharge medications. Performance awards can take many forms, including bonuses, enhanced fee schedules and more enrollees directed to high-performing providers and health plans.

Summary of Health Cost Containment and Efficiency Strategies - Brief #6- Performance-Based Health Care Provider Payments

State/Private Sector Examples  Strategy Description Target of Cost Containment Evidence of Effect on Costs
Maryland, Minnesota, Medicaid programs, Bridges to Excellence Payments to providers for
meeting preestablished health
status, efficiency and/or quality
benchmarks for a group of patients.
Providers not financially rewarded for providing efficient, effective preventive and chronic care.
Unnecessary care.
Research is limited and indicates some
improvements in quality of care but little effect on costs.

Additional Resources
  Pay for Performance logo
  • Pay for Performance Extends to Health Care in New York State Experiment.  In a state-federal partnership, 25 groups are part of a trial that would eventually reward health care providers if the conditions of their Medicaid patients improve. Medicaid officials hope to inspire these providers to work together and take a more active role in looking after their patients’ health, rather than simply waiting for them to show up when ill. The hope is that if they can do a better job of getting patients to, for example, quit smoking or manage their diabetes, doctors could reduce costly visits to hospitals and their emergency rooms. New York Times, 3/31/2015

  • State Pay for Performance in Medicaid PROGRAM SUMMARIES - The Commonwealth Fund, 82 pp.

Archive Material, 2011-2014


About this project

NCSL’s Health Cost Containment and Efficiency Series will describe two dozen alternative policy approaches, with an emphasis on documented and fiscally calculated results. The project is housed at the NCSL Health Program in Denver, Colorado. It is led by Richard Cauchi (Program Director) and Martha King (Group Director) with Barbara Yondorf as lead researcher (2009-2012).  Additional research and editorial material by Ashley Noble (Policy Speciaist, 2015-present) 

NCSL gratefully acknowledges the financial support for this publication series, 2010-2012, from The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado.