Pay for Performance: What’s Next?

Payers are convinced that compensating physicians and hospitals for meeting quality targets, also known as “pay for performance” (P4P), is an important step in bridging the quality chasm identified by the Institute of Medicine in 1999. Yet physicians and their professional societies, led by the American Medical Association, remain “skeptical to hostile” about “a danger that lurks that a gap will widen between large high quality groups and smaller lower quality physician practices.”1 American Medical Association trustee Nancy Nielsen, MD, reiterates the AMA’s goal of helping physicians improve care quality but says that P4P programs “represent an additional burden on physicians doing more with less.” She notes that the AMA shared its concerns with (former) Centers for Medicare and Medicaid Services (CMS) administrator Mark McClellan, who listened. The result was that the starter set of quality measurements was pared to 16 from 36 (and is now 26), but concerns remain about P4P’s administrative burden.

Physicians are wary of P4P and its implications for their incomes and way of practicing medicine. In fact, in the largest P4P program undertaken thus far, the CMS’s ranking and rewarding of 278 hospitals meeting a series of “core measures,” physician resistance to the program was cited as a major barrier to P4P implementation. Indeed, many but not all physicians seem threatened by this movement. A March 2006 survey of 2727 physicians conducted by the market research firm Hospital Research Associates of Parsippany, N.J., showed that 36% of respondents supported P4P, 27% opposed it, and 47% called it a smokescreen to cut costs.2

Recent History

The P4P movement has been driven by payers’ desire to change the existing reimbursement system, which traditionally has paid physicians the same regardless of the quality of care provided. Instead, through P4P, payers financially reward physicians meeting specific goals around clinical measures, preventive care, patient satisfaction, use of information technology, and cost containment. Although P4P’s overall goal is to reward providers financially for better quality care, laggards might be penalized by a percentage point or two of their revenue streams.

Currently, P4P is still far from being accepted universally by all of health care’s constituents, yet a number of hefty P4P initiatives draw a roadmap to where payers are headed. Medicare’s Health Support Pilots (www.cms.hhs.gov/CCIP ), targeting heart failure and diabetes, encourage participating health plans to pay physicians quarterly for meeting clinical benchmarks and for work performed. The Care Coordination Project, also sponsored by Medicare, rewards physician groups that demonstrate quality-of-care improvements. Results of the Care Coordination Project thus far show that bigger is better: Large group practices far outperform the 75% of physicians practicing either solo or in groups of 10 or fewer physicians, according to the Center for Studying Health System Change. California’s Integrated HealthCare Association (IHA), a consortium of seven major health plans and corporations, started P4P in 2003, paying out more than $50 million in performance bonuses to large physician groups.

P4P: A Moving Target

Dealing with P4P is difficult because different payers use different structures to mete out incentive pay:

• Physician organizations or groups pay their individual doctors bonuses for meeting quality targets.
• Large employers pay individual physicians for improved performance.
• Individual health plans or Medicare pay individual doctors for improved performance.
• Individual health plans or Medicare pay performance bonuses to physician groups, which then allocate incentive pay.
• Multiple health plans coordinate incentive payments to physician groups.

Another twist is that P4P models use both threshold and tiered systems. With thresholds, doctors meeting a quota of required processes or outcomes get financial rewards. Tiered systems rank providers according to their achieving target measures, with top performers receiving bonuses, and outliers losing dollars.

P4P and Otolaryngology–Head and Neck Surgery

David Roberson, MD, Assistant Professor of Otolaryngology and director of patient safety and quality at Boston’s Children’s Hospital, has long tracked his group’s performance outcomes, and sees many obstacles to successful P4P implementation. “I understand why this is happening. In every other field you have objective standards. You read Consumer Reports before buying a car, and Boeing releases detailed specs to its customers before they buy airplanes. Now medicine is going that same route. We need to do this, but it’s going to be extraordinarily expensive and may have negative consequences for some physicians,” he says.