Payment mechanisms determine how healthcare providers are compensated for delivering services. The method of payment creates powerful incentives that shape provider behavior — influencing what services are offered, how many are provided, and at what level of quality. Payment design is one of the most direct levers policymakers have to align provider behavior with health system goals.
Eliminating marginal reimbursement (the core PPS incentive) was associated with a 25% decline in mortality, suggesting that discouraging unnecessary procedures improved outcomes. However, a one standard deviation decrease in average payment led to a 0.5% increase in mortality, indicating financial pressure could harm Quality.
Strong correlation between within-state fertility declines and within-state increases in cesarean utilization. Since average physician fees for C-sections were roughly one-third higher than vaginal deliveries, the pattern indicated physician-induced demand — providers facing income pressure shifted toward more remunerative procedures.
Hospitals responded primarily through 'upcoding' — reclassifying patients to diagnosis codes associated with the largest reimbursement increases — garnering an estimated $330–$425 million in extra annual reimbursement. Response was strongest among for-profit hospitals. Little evidence of changes in admissions volume or clinical intensity.
Copayment reductions of $5–$17 per prescription increased medication adherence by 2–4 percentage points, with the largest gains for statins and diabetes medications. The adherence improvement was sustained over the two-year study period.
Quality improvement accelerated for incentivized conditions (asthma, diabetes) in the first two years post-implementation. By 2007, the rate of improvement had plateaued for all three conditions studied. Quality of care for aspects not linked to incentives declined for patients with asthma and heart disease.
After six years, 30-day mortality was virtually identical between Premier P4P and non-P4P hospitals (11.82% vs. 11.74%). No evidence that the program reduced mortality for AMI, heart failure, pneumonia, or CABG surgery.
The share of CalPERS patients choosing high-price hospitals fell from 48% to 28%. Average hospital prices for these procedures declined by $1,741 (5.6%) as hospitals lowered prices to stay below the reference threshold. Total savings exceeded $2.8 million in the first year with no measurable reduction in quality.
Participating hospitals reduced average episode payments by $1,166 (3.7%) relative to controls, primarily through reduced post-acute care spending (shorter skilled nursing facility stays, more home health). No significant change in complication rates, emergency department visits, or readmissions.
Under global budgets, Maryland hospitals reduced potentially avoidable utilization — readmissions fell, emergency department visits declined, and per-capita hospital expenditure growth was constrained below national trends. Hospitals shifted focus toward population health and care coordination to manage within fixed budgets.