International Journal of Healthcare Management

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Pay for performance in hospital management: A

case study

Mohammad Haji Aghajani, Saeed Manavi, Ali Maher, Sima Rafiei, Ali
Ayoubian, Ali Shahrami, Raziyeh Ronasiyan & Pooneh Maziar

To cite this article: Mohammad Haji Aghajani, Saeed Manavi, Ali Maher, Sima Rafiei, Ali
Ayoubian, Ali Shahrami, Raziyeh Ronasiyan & Pooneh Maziar (2019): Pay for performance in
hospital management: A case study, International Journal of Healthcare Management, DOI:
10.1080/20479700.2019.1664029

To link to this article: https://doi.org/10.1080/20479700.2019.1664029

Published online: 24 Sep 2019.

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INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT
https://doi.org/10.1080/20479700.2019.1664029

Pay for performance in hospital management: A case study

Mohammad Haji Aghajania, Saeed Manavib, Ali Maherc, Sima Rafieid, Ali Ayoubiane*, Ali Shahramif,
Raziyeh Ronasiyanb and Pooneh Maziarb
a
Department of Cardiology, Shahid Beheshti University of Medical Sciences, Tehran, Iran; bMinistry of Health and Medical Education, Tehran,
Iran; cDepartment of Health Policy, School of Management and Medical Education, Shahid Beheshti University of Medical Sciences, Tehran,
Iran; dSocial Determinants of Health Research Center, Qazvin University of Medical Sciences, Qazvin, Iran; eDepartment of Health Services
Management, College of Management and Social Science, North Tehran Branch, Islamic Azad University, Tehran, Iran; fDepartment of
Emergency Medicine, Shahid Beheshti University of Medical Sciences, Tehran, Iran

ABSTRACT ARTICLE HISTORY

Background: This study aims at exploring the aspects of this newly applied payment Received 13 April 2018
mechanism compared with the previous ones. Accepted 9 August 2019
Methods: A mixed qualitative and quantitative study, including a descriptive analysis of P4P
KEYWORDS
aspects compared with non-performance-based payment method and a quantitative Performance-based payment
comparative analysis of hospital departments’ revenue and employees’ payment, was method; Iran health system
conducted over a time period of 2013–2015. reform; health provider;
Results: The desire to provide high-quality services and association between staff healthcare institution;
reimbursement and some of the features, including performance, patient satisfaction, full- qualitative study
time participation at work, equity in income distribution among staff in different
occupational groups, were among the main characteristics of P4P. But in terms of non-
performance payment system, the quantitative analysis of data affirmed no significant
correlation between the quantity of provided services, staff salary and department’s revenue.
Conclusion: It is evident that pay for performance can persuade employees to improve the
quantity and quality of rendered services with much more emphasis on achieving the health
system goals and improving patient health outcomes.

Introduction
P4P has also been used in many developing
Performance measurement identifies the level of ser- countries to achieve planned targets regarding their
vice quality and distance from the desirable level health system reform. Several improvements in the
which requires the improvement to be resolved [1–3]. coverage and quality of healthcare services, account-
Considering the important role of performance ability enhancement of health providers and reduction
measurement especially in hospitals, a compensation of unnecessary health costs through increased
system, which links providers’ payment to their per- efficiency have been consequently reported [12–17].
formance and quality of provided healthcare services, According to a study conducted by Allen et al [18],
was introduced [4]. Thus, most of the health systems most of the incentives used in health systems are finan-
have started to connect providers’ compensation cial for improving health staff productivity and service
mechanism with attributes such as quality and per- quality. They mentioned performance-based payment
formance. In response to this global movement, Iran as an example of such financial motivators, which
Ministry of Health and Medical Education aims to pay service providers according to some of
(MOHME) established a measurement system for hos- their performance indices [18].
pital performance which was associated with a pay- Evidence obtained from the implementation of P4P
ment method in 1997. The system was supposed not in the primary care services delivered by UK health sys-
only to be efficient but also payable by patients reflect- tem affirmed considerable achievements in terms of
ing providers’ performance, quality, and safety of care quality, effectiveness, and efficiency [19]. Similarly,
provided to care recipients [5,6]. The proposed pay- Barreto et al. [20] confirmed that performance-based
ment model has been called ‘pay for performance’ payment improves health outcomes throughout the
and was implemented in public hospitals as a perform- world. For instance in Brazil, this program has been
ance measurement tool emphasizing on providers’ proved to be useful in improving the coverage and
responsiveness and productivity, quality improvement quality of healthcare services. Many other literatures
and patients’ satisfaction [7–11]. have also agreed with these findings and mentioned

CONTACT Sima Rafiei sima.rafi[email protected]

*Present address: National Center for Health Insurance Research, Iran Health Insurance Organization, Tehran, Iran
© 2019 Informa UK Limited, trading as Taylor & Francis Group
2 M. H. AGHAJANI ET AL.

the strength points of this payment method [20]. In a selected, and two focus group discussions were con-
report brief published by the Institute of Medicine, it ducted. To enrich the data collection process, those
was mentioned that a well-designed P4P can motivate involved in program implementation at university
providers and healthcare delivery systems to improve and hospital levels were also invited to participate as
their service quality in an efficient way with a maxi- an expert panelist. In order to design an initial draft
mum emphasis on promoting patient health outcomes. of P4P aspects, a literature review was done in a time
This implication was approved to come true in the period of 1997–2017. Then using the Delphi technique,
health systems where long-standing fee for service pay- the draft, which had been outlined through the litera-
ment method has brought about severe problems in ture and documents review, was circulated through
terms of improper health care quality [21]. In develop- email to the experts for their comments. The findings
ing countries, the use of P4P in their health systems has obtained from the first round were summarized; any
shown some advances in both quality and quantity of irrelevant materials were omitted and re-sent to experts
the provided services, which ultimately resulted in for achieving a closer consensus.
more efficiency, effectiveness, and personnel pro- In this study for quantitative comparative analysis
ductivity by promoting responsiveness among health- of data regarding some of the outcome measures
care providers [14,22,23]. before and after implementation of P4P, the findings
Despite the existing findings focusing on the posi- related to a public general hospital with 614 active
tive effects of P4P in worldwide health sectors, some beds, which has been one of the first piloted medical
of the literatures did not provide sufficient support centers for the program in Iran, are presented.
for the value of P4P in promoting some of the perform- These measures included bed occupancy rate, income
ance key dimensions [24–26]. In fact, P4P plans with for both physicians and non-physician staff and each
varied designs result in diverse effects in terms of health of the hospital department’s revenue. To analyze
care utilization, efficiency, and cost [27–29]. A study data in line with study objectives, descriptive and
conducted in Geisinger Health System revealed the analytical statistical methods were applied using
consequences of piloting P4P in hospital efficiency. SPSS version 20.
The obtained results affirmed an 18% decrease in hos-
pital admissions due to the program [30]. The same
Results
outcome variable showed a 6% decrease in another
study [31]. Thus, as P4P is not performed in a single, The results of the reviewing literature and relevant
unique way in all types of healthcare settings, it cannot documents revealed the main features of payment
be regarded as an absolute strategy to improve all kinds mechanisms both performance- and non-perform-
of performance indicators. Regarding the importance ance-based ones. The expert panels reviewed the fea-
of the issue and the necessity for studying different tures and finalized them, as shown in Table 1.
aspects of P4P compared to previous payment As the findings in Table 1 show, pay for perform-
methods, we conducted the current study in a national ance method persuades health staff to provide more
level to provide evidence-based findings related to P4P appropriate services in terms of both quantity and
payment and to explore the consequent effects of per- quality. Full-time presence at work, satisfaction of
formance-based payment agenda on some of the health care recipients, performance of working depart-
providers’ features. ment/unit, active role in reducing hospital deduc-
tions and revenue making for working department/
unit were among important outcomes mentioned
Materials and methods
for P4P by study experts. Regarding physicians, two
A mixed qualitative and quantitative study, including a factors including equity in payment to physicians
descriptive analysis of P4P aspects and a quantitative with different specialties and supporting those with
comparative analysis of data regarding hospital depart- low income were very highly promoted in P4P
ments’ revenue and employees’ payment, was con- mechanism.
ducted over a time period of 2013–2015. The In comparing the two payment mechanisms, study
required research data were obtained from the available participants declared that about 30% of services pro-
documents of MOHME and Tehran University of vided in hospital therapeutic wards were not accurately
Medical Sciences’ databases. For more detailed data recorded in non-performance-based payment system,
regarding hospital revenues and employees’ payments, which mainly caused significant deductions and conse-
hospital-based databases were used. To compare the quently decreased employees’ income. They added that
different aspects of performance-based mechanism one of the main emphases of P4P in public hospitals
with non-performance methods, a purposive sample was trying to accurately record all services provided
of 20 experts and policy makers at ministry of health to patients in order to reduce the amount of sector
level, who had enough knowledge about the program deductions with the purpose of receiving higher levels
and experience in the formulation of the plan were of payment.
 INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 3

Table 1. Comparison of performance and non-performance-based payment features.

Non-performance-based Performance-based
Factors payment payment
Non- Desire to provide high-quality healthcare services +/- +
physicians Differentiating type of services provided by health staff +/- ++
Association between staff reimbursement and their service contract ++ +/-
Association between staff reimbursement and their full-time + +++
participation at work
Association between staff reimbursement and quality of their working +/- ++
department/unit
Association between staff reimbursement and patient satisfaction +/- ++
Association between staff reimbursement and reduced deductions due +/- ++
to the accurate registry of rendered services
Association between staff reimbursement and department/unit’s +/- ++
income
Reasonable payments based on appropriate performance measures +/- +++
Personnel productivity +/- ++
Organizational efficiency +/- ++
Physicians Equity in payment to physicians with various specialties +/- +++
Equity in payment to physicians and nurses +/- ++
Association between physicians reimbursement and quality of provided +/- ++
healthcare services
Association between physicians reimbursement and patient satisfaction +/- ++
Association between physicians reimbursement and quality of +/- ++
educational services provided by them
Supporting physicians with low-income specialties +/- +++
Encouraging physicians to retain in public hospitals as full-time + ++
workforce
Note: -/+ No influence, +low impact, ++high impact, +++ very much effect.

Furthermore, experts believed that in non-per- Findings related to the time period before
formance-based payment method, the amount of implementation of P4P
employees’ payment was not linked with service
In a six-month time period, when non-performance-
quality or patient satisfaction. The opposite was con-
based payment was applied in hospitals, the results of
sidered in performance-based approach so that
comparing non-physicians’ payment and quantity of ser-
employees were encouraged to provide higher quality
vices provided by them in a department of nuclear medi-
services for earning more income. In the latter mech-
cine at the study hospital depicted that changes in the
anism, each hospital unit was annually assessed
amount of employees’ payment were not in line with
based on 30 indices focusing on quality, safety, and
the trends in the quantity of provided services (Table 2).
patient satisfaction. Results of such assessments
Furthermore, assessing the correlation between the
represent the performance score of each hospital
number of scans and the amount of employees’ pay-
ward, which ultimately affect income assigned to
ment using Pearson’s correlation coefficient revealed
relevant staff.
no significant statistical relationship (P > 0.05).
They also mentioned that in the non-performance-
In a similar time period, data regarding bed occu-
based payment method, no differentiated payment was
pancy rate were compared with the amount of payment
considered for different job categories in terms of job
given to hospital nursing staff. As Table 3 confirms,
difficulty and extended hours of work. Thus, in such
changes in the average salary of these personnel were
a system health workforce had less desire to work in
not in line with the trends in bed occupancy rate.
hospital wards requiring hard working and longer
The results of Pearson correlation test also rejected a
hours of service delivery. However, P4P has considered
these variations and used them as important criteria to
regulate employees’ payment. Table 2. Comparing quantity of provided services with non-
physicians’ payment and department’s revenue.
According to experts’ statement, after the
Amount of per-case
implementation of P4P, balance in employees’ pay- Number of and overtime Division’s income
ment working in different job categories was estab- Month scans payments ($) per month ($)
lished so that in addition to physicians, all nursing May 409 761.5208 14,642.694
June 216 632.995 8343.6188
staff, operating room and anesthesia technicians, July 160 755.728 7550.654
para-clinical staff, administrative, and supportive August 403 688.058 14,498.2112
September 346 658.822 13,553.934
workforce benefited from the program. But, by apply- October 312 789.674 12,494.0424
ing P4P, more balance has been achieved regarding Pearson correlation test
physicians’ income in different specialties. In fact, the Number of Non-physicians’ payment
new payment method minimizes the payment gap scans r = 0.057
P = 0.457
between various specialists.
4 M. H. AGHAJANI ET AL.

Table 3. Comparing bed occupancy rate with average salary of Table 5. Comparison of healthcare utilization, income, and
nursing staff. service quality before and after the implementation of P4P.
Bed occupancy rate Average salary of nursing Mean ± SD P-
Ward (%) staff ($) Indices Before After t value
General internal 62 2394.8024 Bed occupancy 0.67 ± 0.01 0.78 ± 0.01 1.7 0.01
General surgery 73 3273.6692 Nursing visits 78.2 ± 10.3 74.1 ± 6.8 −2.5 0.4
Infectious 61 1725.6874 Number of scans 266 ± 18.7 315 ± 13.2 2.7 0.00
Pediatric 57 2790.7264 Non-physicians’ income 265.7 ± 22.1 483.5 ± 32.3 0.23 0.01
CCU 83 2977.0876 Desire to provide high- 5.4 ± 1.1 7.8 ± 1.2 3.7 0.01
Pearson correlation test quality services
Bed occupancy Salary of nursing staff Desire to have full-time 5.9 ± 0.8 6.2 ± 0.78 6.5 0.00
rate r = 0.063 participation at work
P = 0.937 Desire to participate in 5.2 ± 0.02 5.9 ± 0.02 5.8 0.1
providing educational
services
Organizational efficiency 60.5 ± 6.8 68.4 ± 6.2 0.2 0.5
statistical relationship between these two variables (P >
0.05). decrease compared to the year before the implemen-
In the radiology department of the hospital, associ- tation of P4P program (P < 0.05). In fact, as findings
ation between the number of radiology clichés and the confirm, the amount of payment given to health work-
amount of non-physician staff payment was also ana- force based on P4P mechanism was substantially
lyzed. Data in Table 4 affirm that changes in the higher according to their level of performance. While
amount of employees’ payment were not in line with in the earlier payment mechanisms, the amount of
the trends in the number of radiology clichés. Similarly, employees’ payment was determined on the basis of
this trend was not in accordance with the changes in their service contract and did not change according
the department’s revenue. As can be seen in the table, to their level of performance.
a number of clichés in December decreased about
50% compared with November, while payment to
non-physicians experienced a 20% growth. The results Discussion
of Pearson’s correlation test revealed no significant
Considering the important role of performance
statistical correlation between mentioned variables.
measurement especially in hospitals, a compensation
system, which links providers’ payment to their per-
Comparing some of the main performance formance and quality of provided healthcare services,
key dimensions before and after the was introduced. The Iranian hospital performance
implementation of P4P measurement program (HPMP) is a prominent plan
which establishes this connection and tries to make a
Table 5 depicts the data related to the comparison of
linkage between hospital performance and its finan-
healthcare utilization, income, and service quality in
cing. Due to the incentive impact of the program, it
different hospital departments/units before and after
can be used as a governmental-regulatory tool for
the implementation of P4P.
requiring hospitals to improve their performance and
Comparison of the mean differences in the perform-
meet the highest possible quality [32]. In fact, consider-
ance indicators using the paired sample t-test revealed
ing quality as an important indicator in hospitals’ per-
a statistically significant increase for the indicators of
formance measurement program led to more
bed occupancy, organizational efficiency, number of
significant progress in persuading healthcare providers
scans, personnel income, and their desire to provide
to deliver high-quality care to patients [33]. A literature
high-quality services (P < 0.05). On the other hand,
study conducted by Sonsale [4] revealed a significant
the number of nursing visits showed a significant
increase in some of the indicators including hospital
admission rates and clinical care quality [4]. Some of
the studies also affirmed that using a bundled payment
Table 4. Comparing number of radiology clichés with average
salary of staff and ward revenue. method incorporating activity-based costing provides
Number of Average salary Ward revenue per some financial incentives which help providers
Month clichés of staff ($) month ($) improve their performance indicators [12].
September 1516 742.3136 2584.4744 The present study aimed to determine P4P points of
October 1210 793.1456 2298.6592
November 1560 413.4486 3174.273 emphasis in Iran health sector and explore its
December 894 431.8984 2147.0302 implementation effect on employees’ payment. As
January 688 526.4398 1939.7412
February 682 489.6652 2032.8952
our study participants declared, P4P acts as a financial
Pearson correlation test incentive which motivates health staff to provide more
Number of Salary of staff qualified services [34,35]. Evidence supports the idea
clichés r = 0.075 and affirms that P4P results in higher levels of health
P = 0.65
services quality through acting as a financial incentive
 INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 5

for healthcare providers [5,36–40]. Several studies agreed achievements in hospitals’ performance after
with the findings and found that patients in hospitals implementation of the program, but this achievement
with P4P system received better quality services than was much higher in general non-teaching hospitals
others [41,42]. Despite these positive effects, some of compared with teaching ones [32]. In a similar study
the literatures did not find any significant relationship conducted to evaluate the impact of Iranian P4P sys-
between P4P implementation and quality outcomes. To tem, findings affirmed that the hospital performance
justify the issue, they argued that in most of the health evaluation program and the scoring system led to sig-
systems, P4P programs were being implemented along nificant improvements in the quality measures of
with other quality improvement schemes which conse- emergency department, cleanliness and medical
quently made it difficult to display a direct relationship records [50]. In line with these findings, Adhikari
between P4P and outcome measures [43]. and Sapkota [51] affirmed that using some managerial
Our findings also emphasized that P4P facilitates techniques for making significant improvements in
more equity in determining the amount of payment quality measures has led to an increase in infection pre-
given to various health occupational groups through vention, bed occupancy rate, and inpatient days per
logical revenue sharing based on their performance. In technical staff [51]. Considering the hospitals, which
this payment system, some triggers have been defined use such methods, reveals the necessity to reinforce
to encourage employees in revenue-making for their the connection between performance and payment [3].
working department. The same program also exists in This study has a number of implications for policy
some other health sectors in which health workforce and practice in Iran and other developing countries
receive salary based on their department’s contribution which are seeking to implement P4P schemes in an
in revenue making of the whole medical center [44,45]. effective manner. The most important issue was the
In the United State of America, pay for performance association between high-performing hospitals and
method has been used in Medicare hospitals so that pro- the increased revenue which could act as an influential
vision of higher quality services by these medical centers method to change the behavior and managerial per-
led to higher performance measurement score and ulti- formance of hospital administrators, and consequently
mately higher revenues. Through the establishment of the way of action among staff. In fact, in this mechan-
such a payment model, competition among different ism, each hospital unit is annually assessed based on
hospitals will be increased to provide higher quality ser- performance indices focusing on the quality, safety
vices and deliver care to a larger number of patients [46]. and patient satisfaction which ultimately affect the
Increasing personnel productivity and organiz- income assigned to relevant staff. Furthermore, in
ational efficiency were among other important objec- P4P scheme, different amounts of payment are con-
tives of P4P which have been mentioned in our sidered for different job categories in terms of job
findings. In this respect, the literature has mentioned difficulty and extended hours of work. Thus, in such
that the key role of P4P is making health providers a system hard working and longer hours of service
more sensitive toward patients’ health needs, planning delivery are important criteria to regulate employees’
to provide health services in accordance with actual payment. Additionally, employees’ payment is directly
identified needs, thereby reducing unnecessary costs associated with some of the main qualitative perform-
which was imposed to the health system [47,48]. ance indicators which motivate staff to provide higher
Furthermore, in non-performance-based payment quality services for earning more income.
methods, an increase or decrease in the number of However, there is still a significant gap to fulfill per-
staff employed in a hospital ward had no effect on formance improvement in governmental hospitals by
the department’s revenue and employees’ payment. using P4P scheme. In particular, as performance
As a result, there was always a tendency towards measurement duty in Iranian hospitals is given to the
absorbing more staff which consequently led to signifi- Ministry of Health instead of an independent body, it
cant reduction in hospitals’ efficiency. While in the per- is likely to derive unrealistic results from these assess-
formance-based payment method, given that the ments due to the relationship between hospitals and
amount of employees’ payment is related to their con- their owners. Responsiveness in performing P4P
tribution in the revenue making of the department, requirements, focusing on the qualitative aspects of
there is a desire to maintain lesser number of employ- employees’ performance, and upgrading related stan-
ees to benefit from greater share of gained revenue. dards are key factors to promote performance
Most of the studies that reported positive effects of improvement in hospitals.
P4P have been conducted in the UK where incentive Actually, the cost-effectiveness of P4P mechanism
motivators of the payment system are substantially depends on the dimensions of performance which are
higher compared to other health systems. Furthermore, incorporated in the scheme. When the evaluation pro-
significant positive improvements were also observed cess is reliable and reveals the quality of healthcare ser-
in areas with poor performance [49]. In a study con- vices, the P4P method would be worthy. Thus, the
ducted in Iran, the results affirmed considerable Iranian P4P model should be revised to ensure the
6 M. H. AGHAJANI ET AL.

delivery of high-quality healthcare despite the existing [2] Chuang S, Howley PP. Strategies for integrating clini-
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