Where Does the Money Come From?

While research indicates that the monetary amount of the incentives should be meaningful to providers, the process of setting aside or finding a sustainable funding source to pay for a pay-for-performance system is crucial. Managed care companies are often able to pay for incentives from contractual set-asides, holding back payments or distributively sharing profits amongst providers. When the state is the payer, the process is often a little more complex.

Currently, several states are using grant funds or hold-backs to pay for incentives. States that use grant funding to initiate a pay-for-performance system will need to consider long term sustainability issues when taking this approach and funding ends. States with hold-back systems set aside a certain percentage of funds to pay for the incentives but may continue to struggle with long term sustainability.

Overlooking or not adequately addressing the question: “Where does the money come from to support our pay-for-performance system?” may lead to the failure of pay-for-performance systems within the state.