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Original Research |

The Effect of Financial Incentives on Hospitals That Serve Poor Patients

Ashish K. Jha, MD, MPH; E. John Orav, PhD; and Arnold M. Epstein, MD, MA
[+] Article, Author, and Disclosure Information

From Harvard School of Public Health, Brigham and Women's Hospital, and U.S. Department of Veterans Affairs Boston Healthcare System, Boston, Massachusetts.

Acknowledgment: The authors thank Dr. John Ayanian for his thoughtful and helpful comments on an earlier version of the manuscript.

Grant Support: By the Changes in Health Care Financing and Organization Initiative of the Robert Wood Johnson Foundation (grant 63743).

Potential Conflicts of Interest: Disclosures can be viewed at www.acponline.org/authors/icmje/ConflictOfInterestForms.do?msNum=M10-0442.

Reproducible Research Statement:Study protocol and statistical code: Available from Dr. Jha (e-mail, ajha@hsph.harvard.edu). Data set: Potentially available, subject to approval by the institutional review board of Harvard School of Public Health.

Requests for Single Reprints: Ashish K. Jha, MD, MPH, Harvard School of Public Health, Department of Health Policy and Management, 677 Huntington Avenue, Boston, MA 02115; e-mail, ajha@hsph.harvard.edu.

Current Author Addresses: Drs. Jha and Epstein: Harvard School of Public Health, Department of Health Policy and Management, 677 Huntington Avenue, Boston, MA 02115.

Dr. Orav: Brigham and Women's Hospital, Division of General Internal Medicine, 1620 Tremont Street, 3rd Floor, Boston, MA 02120-1613.

Author Contributions: Conception and design: A.K. Jha, E.J. Orav, A.M. Epstein.

Analysis and interpretation of the data: A.K. Jha, E.J. Orav, A.M. Epstein.

Drafting of the article: A.K. Jha, E.J. Orav.

Critical revision of the article for important intellectual content: A.K. Jha, A.M. Epstein.

Final approval of the article: A.K. Jha, E.J. Orav, A.M. Epstein.

Statistical expertise: E.J. Orav.

Obtaining of funding: A.K. Jha, A.M. Epstein.

Administrative, technical, or logistic support: A.K. Jha.

Collection and assembly of data: A.K. Jha.

Ann Intern Med. 2010;153(5):299-306. doi:10.7326/0003-4819-153-5-201009070-00004
Text Size: A A A

Background: Providing financial incentives to hospitals to improve quality is increasingly common, yet its effect on hospitals that care for poor patients is largely unknown.

Objective: To determine how financial incentives for quality performance affect hospitals with more poor patients compared with those with fewer poor patients.

Design: Retrospective study.

Setting: U.S. hospitals.

Participants: 251 hospitals that participated in the Premier Hospital Quality Incentive Demonstration program and a national sample of 3017 hospitals.

Measurements: The association between the disproportionate-share index, a marker of caring for poor patients, and baseline quality performance, changes in performance, and terminal performance for acute myocardial infarction, congestive heart failure, and pneumonia for hospitals in the pay-for-performance program and those in the national sample (which did not receive financial incentives).

Results: Among both pay-for-performance hospitals and those in the national sample, hospitals with more poor patients had lower baseline performance than did those with fewer poor patients. A high disproportionate-share index was associated with greater improvements in performance for acute myocardial infarction and pneumonia but not for congestive heart failure, and the gains were greater among hospitals that received financial incentives than among the national sample. After 3 years, hospitals that had more poor patients and received financial incentives caught up for all 3 conditions, whereas those with more poor patients among the national sample continued to lag.

Limitation: Hospitals in the Premier Hospital Quality Incentive Demonstration may be atypical, and these results may not be generalizable to all hospitals.

Conclusion: No evidence indicated that financial incentives widened the gap in performance between hospitals that serve poor patients and other hospitals. Pay-for-performance programs may be a promising quality improvement strategy for hospitals that serve poor patients.

Primary Funding Source: Robert Wood Johnson Foundation.


Grahic Jump Location
Changes in performance in AMI, CHF, and pneumonia care for pay-for-performance hospitals and those in the national sample between 2003 and 2007.

Results are adjusted for hospital size, ownership, location (urban or rural), and region (4 census regions). AMI = acute myocardial infarction; CHF = congestive heart failure.

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Appendix Figure 1.
Changes in AMI performance between 2003 and 2007 for selected hospitals.

AMI = acute myocardial infarction. Left. Pay-for-performance hospitals. Right. Hospitals in the national sample.

Grahic Jump Location
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Appendix Figure 2.
Changes in CHF performance between 2003 and 2007 for selected hospitals.

CHF = congestive heart failure. Left. Pay-for-performance hospitals. Right. Hospitals in the national sample.

Grahic Jump Location
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Appendix Figure 3.
Changes in pneumonia performance between 2003 and 2007 for selected hospitals.

Left. Pay-for-performance hospitals. Right. Hospitals in the national sample.

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Appendix Figure 4.
Disproportionate-share index, by proportion of Medicaid patients and SSI.

SSI = Supplemental Security Income.

Grahic Jump Location




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Submit a Comment/Letter
Financial incentives, quality of care, and serving the poor
Posted on September 14, 2010
Ishak A. Mansi
Brooke Army Medical Center
Conflict of Interest: None Declared

Despite their excellent effort to find the effects of pay-for- performance (Premier Program) on hospitals that serve poor patients, Jha et al missed the whole essence of the question in their methodology, interpretation, conclusion and discussion.(1) The disproportionate-share index (DSI), used in their study to identify hospitals caring for poorer population, is used by the centers for Medicare & Medicaid services (CMS) to compensate hospitals for caring for poorer Medicare patients, and has never been validated as a marker for hospitals that care for "poor" patients in general. Hospitals that cared for poor patients have a significant proportion of uninsured patients, and their Medicare patients are the "wealthiest" ones. The relation between DSI and proportions of uninsured patients is at least unknown. Medicare patients constituted less than 30% in our series of heart failure patients admitted to an inner-city teaching hospitals that cared for indigent population.(2) Additionally, their measurement tool to assess the "effects" of the Premier Program was invalid. Higher percentage in conforming to quality care measures of the Premier program does not equate to higher healthcare quality, and should not be confused with actual improvement in healthcare quality and patient outcome;(3) the relation between the two entities is at least controversial.(3-4) Confusion between reporting "higher statistics", which would qualify hospitals for more payments, and actual improvement in healthcare and patients outcome is disseminated throughout the article. In my prior experience, conforming to heart failure quality measures of the Joint Commission in a hospital that cared for poor patients, and received bonus payments from the Premier program, was associated with worse clinical outcome as higher readmission rate for heart failure patients.(2) This patient population had almost 15% alcohol abuse, 15% substance abuse, and 22% non-compliance; none of which are expected to be helped by the current quality measures. Scarce resources in hospitals caring for poor patients are redirected away from patients care to administrative efforts to obtain "better statistics" that would qualify these hospitals for the extra few dearly needed dollars from the Premier program. Report cards in physician performance played a major role in successfully obtaining these statistics that please the wealthy payer. Many practicing physicians can identify with the recently published perspective on these statistics.(5) The correct conclusion for Jha's et al study is: hospitals that cared for poorer CMS patients were able to report higher conformation rates to Premier program. I do not believe that we have achieved much.

Disclaimer: The view(s) expressed herein are those of the author(s) and do not reflect the official policy or position of Brooke Army Medical Center, the U.S. Army Medical Department, the U.S. Army Office of the Surgeon General, the Department of the Army, Department of Defense or the U.S. Government.


1. Jha AK, Orav EJ, Epstein AM. The effect of financial incentives on hospitals that serve poor patients. Ann Intern Med. 2010;153:299-306.

2. Mansi I, Shi R, Khan M, Huang J, Carden D. Effect of Compliance with quality performance measures for heart failure on clinical outcomes in high-risk patients. J Nat Med Assoc. 2010 in press.

3. Mansi IA. Public reporting and pay for performance. N Engl J Med. 2007;356:1783; author reply 4.

4. Ko DT, Tu JV, Masoudi FA, et al. Quality of care and outcomes of older patients with heart failure hospitalized in the United States and Canada. Arch Intern Med. 2005;165:2486-92.

5. Ofri D. Quality measures and the individual physician. N Engl J Med. 2010;363:606-7.

Conflict of Interest:

None declared

Author's Response
Posted on October 25, 2010
Ashish K. Jha
Harvard School of Public Health, Veterans Health Administration
Conflict of Interest: None Declared

Mansi highlights two important issues which we agree warrant discussion. The first is the inadequacy of available data on the proportion of poor patients cared for in any specific hospital. We used the Disproportionate Share Hospital Index (DSH), which is a composite of the proportion of elderly Medicare patients who are poor (on Supplemental Security Income) and the proportion of non-elderly patients who have Medicaid insurance (1). Mansi is correct that this measure leaves out uninsured patients. Thus, if a hospital had a high proportion of uninsured patients but also had very few elderly poor and non-elderly Medicaid patients, they might be misclassified. However, we expect that this occurs infrequently, and DSH Index therefore serves as a reasonable proxy. Unfortunately, we are not aware of any metric which is available for a national sample of hospitals that takes a hospital's proportion of uninsured patients into account.

Mansi's second point on the inadequacies of the quality measures is also worth noting. The quality measures adopted by the Centers for Medicare and Medicaid Services capture only a small fraction of care provided to patients. However, most of the processes of care that comprise these measures are evidence-based (many based on multiple randomized controlled trials); further, prior studies have demonstrated that hospitals that perform better on these measures are likely to have better outcomes (2). Mansi raises the concern that improvements in performance on these measures may be due to better documentation or greater exclusion of marginal cases, rather than actual improvement in care. Others have worried that with greater attention to incentivized aspects of care, other non-incentivized components will suffer. While these concerns seem reasonable, we are unaware of any empirical data to suggest an important problem and a recent analysis by Werner and Bradlow (3) offers some reassurance: hospitals that improved their performance on these process measures had greater concomitant reductions in mortality than hospitals that did not improve.

While there is no single ideal measure of healthcare quality, greater adherence to evidence-based care in and of itself is surely worth applauding. The fact that hospitals with a high proportion of poor elderly and non-elderly patients were able to improve their provision of these evidence-based services under financial incentives has important implications for ongoing efforts to ensure that all Americans receive high quality care (4).


1. Centers of Medicare and Medicaid Services. Disproportionate Share Hospital (DSH). Available at: https://www.cms.gov/AcuteInpatientPPS/05_dsh.asp#TopOfPage. Accessed October 20, 2010.

2. Jha AK, Orav EJ, Li Z, Epstein AM. The inverse relationship between mortality rates and performance in the Hospital Quality Alliance measures. Health Aff (Millwood). Jul-Aug 2007;26(4):1104-1110.

3. Werner RM, Bradlow ET. Public reporting on hospital process improvements is linked to better patient outcomes. Health Aff (Millwood). Jul;29(7):1319-1324.

4. Jha AK, Orav EJ, Epstein AM. The effect of financial incentives on hospitals that serve poor patients. Ann Intern Med. Sep 7;153(5):299-306.

Conflict of Interest:

None declared

Submit a Comment/Letter

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