PREPARING FOR PAY-FOR-PERFORMANCE

There’s a new kid in town, and health care won’t be the same. That, at least, is what CMS and many payers and purchasers are hoping. The “new kid” is pay-for-performance. Payers believe that by aligning payment with quality, “P4P” will significantly reduce medical errors and their associated costs. Health care organizations need to be prepared for P4P. In this issue, we talk about where and how P4P is being implemented, and key issues that it raises. In our next issue we will focus on implications for your organization.

MANY EXPERIMENTS, LITTLE EXPERIENCE

Pay-for-performance is a trend with a lot of traction. CMS administrator Mark McClellan says, “In the next five to 10 years pay-for-performance-based compensation could account for 20% to 30% of what the federal program pays doctors” ². In addition to CMS, P4P supporters include the Leapfrog Group and the California Health Care Foundation. Pennsylvania’s Independence Blue Cross is including P4P in some hospital contracts, while Health Partners (MN) and Pacificare are also taking steps in that direction. Current initiatives are being carefully watched. Few have been around long enough to support rigorous evaluation. The momentum behind the P4P movement has motivated the AMA to move forward in establishing principles for P4P program developers, despite member resistance. The JCAHO is taking similar steps. The Ambulatory Care Quality Initiative is establishing a list of metrics (now more than 25) that can be used in an ambulatory care setting.

STRUCTURING THE REWARDS

Just as there are many ways to set up a risk-sharing contract, there are a range of possibilities in structuring a P4P incentive system:

Incremental scoring bases bonuses on how performance has changed over time. A provider is measured only against its own former performance.
Relative rank scoring looks at how an organization performs in relation to its peers. Any downside risk generally has a maximum limit.
Threshold, or absolute scoring sets an absolute numeric threshold for each metric, which must be met to receive a bonus.

With incremental scoring, an organization will soon find a declining rate of possible improvement. Relative ranking provides a push for constant growth that is lacking with incremental or absolute scoring. Because an organization doesn’t know how well it is doing at any point in time, relative ranking encourages constant striving for excellence. Absolute scoring provides clarity about how to receive a bonus, but is not in wide use. There is considerable debate about whether P4P is more appropriately targeted to primary care physicians or to specialists. The expense of P4P could be quite onerous to primary practitioners. Because specialists earn more and would require higher incentives to change their behavior patterns, providing incentives to specialists would make P4P more expensive for payers.

P4P DATA: NOT READY FOR ITS CLOSEUP

Generating the data to support pay-for-performance requires an investment in staff and new IT systems. The Premier initiative uses 34 indicators in five clinical conditions, while the Physician-Focused Quality initiative uses 32 metrics for chronic and long‑term condition. Clinical indicators such as “85% of AMIs receive aspirin at ER arrival” can rarely be evaluated based on existing coded information. Typically much of the data required may exist only as handwritten notes in patient charts. Without historical data, measuring incremental improvement may be impossible. Even projecting the possible impact of a particular bonus structure on an organization may be a major challenge. Clearly there is a lot of work to be done before pay-for-performance systems come of age. In the next issue of this newsletter we’ll offer help in thinking about how to evaluate specific P4P proposals that may affect your organization. ¹ 44 to 98 thousand deaths annually according to the National Institute of Medicine, and as much as one-third of employer health care dollars as estimated by the Juran Group and the Midwest Business Group on Health. ² “To Get Doctors to Do Better, Health Plans Try Cash Bonuses,” Wall Street Journal, September 17, 2004.

SELECTED PAY-FOR-PERFORMANCE INITIATIVES


Initiative	Who and How
Premier Hospital Quality Initiative CMS/Premier Hospitals, 2003	300 hospitals 2% bonus to DRG payment if hospital in top decile; 1% for 2nd decile. Reduced reimbursement in bottom two deciles (after 3 years)
Physician-Focused Quality Initiative CMS, 2004	10 physician groups with 200 or more physicians Rewards physicians for better outcomes from coordination of care for chronically ill and high cost beneficiaries
California Integrated Health care Association	230+ physician organizations California’s 6 largest insurers, providers, and corporations working together; covers 8 million HMO enrollees Incentives based on rate of claims growth compared with rate for Medicare “non-assigned” beneficiaries Performance payment limited to 5% of performance target
Bridges to Excellence BCBS of Ohio, Kentucky, Alabama, and Illinois; Aetna	Collaboration between payers, providers and employers Physicians must meet specific criteria to participate Data collected by National Committee for Quality Assurance