Decades ago, policy makers looked at the healthcare system and found what they believed was a big problem: the fee-for-service system invited more healthcare, but not necessarily better healthcare.

That system, which is the primary method of paying physicians who deal with Medicaid or Medicare patients, essentially awards healthcare providers for the volume of work they do. But it does not provide an incentive to achieve positive health outcomes for patients.

This is why – especially in the first decade of the 21st century – healthcare systems began putting physician incentive plans to work, trying to encourage physicians to meet agreed-upon performance measures.

There are a lot of different approaches to the plan.

How PIP Works

Physician incentive plans can work in many different ways. However, doctors or practices are typically awarded financial bonuses in four areas:

Processes. Certain activities generally result in good health outcomes for patients, including counseling them against smoking or giving them information on battling high blood pressure.

Outcomes. This area involves how specific healthcare can affect patients. This can be one of the more tricky areas in physician incentive plans. For example, are doctors completely responsible for the level of hemoglobin A1c in diabetic patients? Can doctors be held responsible if they counsel a patient in all manner of good habits, but then the patient goes out and engages in risky health behavior?

Patient experience. If this is included in a PIP plan, it involves asking patients about their satisfaction with their treatment and perception of how well their car