The concept of pay-for-performance (PFP)—that is, the idea that an individual receives payment based on what he or she produces—seems very American to me and is certainly part of our capitalistic society. To use a sports analogy, a professional athlete who is one of the top performers in his or her sport commands higher compensation than an average or poor performer. So, why would therapy practice owners, directors, and executives not consider offering salary/compensation rates based on financial or quality performance? After all, many CEOs who lead their companies to profitability often share in that profitability.

But, when it comes to health care, there are a number of laws we must take into account when considering structured pay-for-performance programs for our therapists. First, let me say that pay-for-performance programs are not, in and of themselves, illegal. However, when it comes to establishing “fair market value” pay rates and bonuses based on PFP programs, the rules are different for businesses operating in the healthcare industry. Compared to their non-healthcare counterparts, healthcare entities and providers don’t enjoy the same freedom to pay employees in accordance with performance. On that note, there are several key laws to consider when discussing PFP:

  • Anti-Kickback Statue
  • Civil Monetary Penalties Law
  • Stark law
  • Specific state laws (possibly)

There also is an OIG advisory on pay-for-performance programs. Now, the crucial point of this advisory is that it only applies to the entity that asked for the opinion. That said, it’s still important, because it gives us an idea of how the OIG feels about this particular situation.

So again, pay-for-performance programs in outpatient practices are not necessarily illegal, but at this point, I need to provide my disclaimer that I am not an attorney—and proper interpretation of the above-mentioned laws and of OIG advisories require the expertise of an experienced attorney. But, I can tell you that the OIG likely would be concerned about an incentive program that paid therapists based solely on the revenue they generated or the number of referrals they garnered. Additionally, the OIG likely would not support incentive programs that could cause a decrease in the quality of services provided. Now, I know that we all provide the highest quality care possible, but under the current fee-for-service (FFS) system, we get paid more when we provide more services—regardless of the quality of those services.  So, PFP programs based solely on the number of services provided create a challenge when it comes to determining medical necessity.

If you’re thinking about implementing a pay-for-performance program, here are some things to consider:

  • The PFP agreement should clearly outline the criteria for payment in writing.
  • You should consider including as part of the payment criteria:
    • patient satisfaction scores,
    • employee performance evaluation scores, and
    • changes in functional outcome scores.
  • It would be in your best interest to have independent auditors conduct regular documentation audits. (You don’t want to pay out an incentive only to pay it back to Medicare later as the result of an unfavorable documentation review.)

Pay-for-performance programs can be extremely complicated, and if you offer such a program to your employees, I definitely recommend that you have the program reviewed by an experienced health law attorney. That said, the pay-for-performance trend is quickly catching on across the entire healthcare industry, and implementing some type of PFP structure in your practice could put you ahead of the curve.


Have you considered adopting a PFP program in your practice? Why or why not? Share your thoughts in the comment section below.