As healthcare costs for patients with non-communicable diseases such as diabetes have risen, governments and healthcare providers have sought creative measures to align financial incentives with better patient outcomes. One incentive payment system known as “pay-for-performance” (P4P), in which providers are beholden to metric-driven outcomes, represents a potential path forward for healthcare providers to improve healthcare processes, resulting in higher quality and better patient health outcomes. The evidence on the effectiveness of P4P programs, however, is mixed.

To address this uncertainty, a new study, published in The European Journal of Healthcare Economics, assesses the effectiveness, in monetary terms, of a P4P program for patients with diabetes at a hospital system in Taiwan. 

The study coauthors, including APARC’s Asia Health Policy Program Director and FSI Senior Fellow Karen Eggleston, employed new patient-level data on clinical indicators, utilization, and expenditures, combined with data from the national death registry, to better understand the costs and benefits of the P4P program. Their results show that Taiwan’s implementation of the P4P program for diabetic care yielded positive results in terms of net value, defined as the value of life years gained minus the cost of care.

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Assessing Net Value of Taiwan’s P4P

Taiwan’s Bureau of National Health Insurance (now National Health Insurance Administration) introduced P4P in 2001 and enhanced the program in 2006 with an incentive for pay-for-reporting of outcomes. Financial incentives were used to encourage continuity of care with metrics such as new patient enrollment, follow-up visits, and annual reports, each tied to a specific monetary value. The program’s features are common across P4P, so the study’s findings have implications in other settings that incorporate similar designs in their P4P programs.

The study compares two different groups of patients at a large regional hospital in Taiwan, one consisting of newly enrolled P4P patients and another using P4P patients who have been enrolled since the beginning of the program. The researchers leverage detailed clinical data not used in previous assessments of the P4P program to better identify both costs and longer-term clinical outcomes based on measured biomarkers and predicted mortality.

Using an economic cost-benefit analysis conducted from a budgetary perspective, the study is the first analysis of any P4P program that estimates changes in the quality-adjusted price index relative to usual care. The authors consider health benefits in terms of survival and predicted survival and convert them into monetary terms. This net value approach is especially useful for policymakers and healthcare administrators who implement value-based purchasing and monitor outcomes for any service delivery innovation over time.

The study finds that Taiwan’s P4P program provided a positive net value for payers and patients, ranging from $40,084 USD to $348,717 USD. These positive net value results are primarily derived from health outcomes as measured by lower mortality rates in the P4P versus non-P4P cohorts, across both newly enrolled and continuously enrolled groups of patients. According to the authors, “these encouraging findings of the positive value of quality improvement net of expenditures adds evidence to the literature that has found mixed results of P4P programs.” 

 This study develops a new model for assessing the net value of service delivery innovations like P4P programs that can be applied in other contexts globally, providing healthcare systems researchers with new tools to better understand an emergent option for incentivized care. With a more economically-translatable understanding of P4P programs, this research helps build the bridge between the oft-disparate worlds of healthcare and policy.

The Walter H. Shorenstein Asia-Pacific Research Center (APARC) is pleased to invite applications for a suite of fellowships in contemporary Asia studies to begin fall quarter 2023.

The Center offers postdoctoral fellowships that promote multidisciplinary research on contemporary Japan and contemporary Asia broadly defined, inaugural postdoctoral fellowships and visiting scholar positions as part of the newly launched Stanford Next Asia Policy Lab, and a fellowship for experts on Southeast Asia. Learn more about each opportunity and its eligibility and specific application requirements:

Postdoctoral Fellowship on Contemporary Japan

Hosted by the Japan Program at APARC, the fellowship supports research on contemporary Japan in a broad range of disciplines including political science, economics, sociology, law, policy studies, and international relations. Appointments are for one year beginning in fall quarter 2023. The application deadline is December 1, 2022.