Cover Story
Pay for Performance Quality and Cost Control Go Arm in Arm
By Jan Greene
Early in 2005, Alan Beason found out that the 10 cardiologists in the Shreveport, La., specialty practice he managed would be singled out by a major insurer based on the quality of care they provided and how much they spent to provide it. The doctors who met United Healthcare’s standards would get a gold star by their names. And for a few big national employers with a presence in Shreveport, employees would pay less for choosing a gold-star provider.
This did not go over well with the doctors in Shreveport. Besides feeling that this new plan came as a surprise with no local physician input, they were upset with the way they were to be assessed and with the possibility that many would be unfairly judged and would lose business because they didn’t have stars by their names.
“There is a right way to do this,” says Beason. But United Healthcare’s evaluation, based on claims data, wasn’t it, he says. “The acceptance by the medical community would be much better if this was focused more on touching the bases for quality care and better outcomes.”
Beason and others in Shreveport put up a fuss. There was an even bigger dustup in St. Louis, another of the 20 markets where the plan was introduced; BJC Healthcare, one of the nation’s largest health systems, nearly severed its relationship with United Healthcare over it. Nevertheless, the insurer stood firm and plans to expand its “premium designation” program to 17 more markets.
From the insurer’s perspective, it was simply trying to give health care consumers information to choose the best, most efficient doctors in town. “Consumer-directed health plans are placing increasing responsibility on the shoulders of consumers to help make decisions … and they ought to have credible information in hand to help them,” says Roger Rollman, director of public relations for United Healthcare’s southeast region. He defended the use of the claims data, saying that United’s database is large, varied and statistically sound.
United Healthcare’s experiment is just one of dozens around the country designed to put some muscle in all the talk about improving the quality of health care. Some efforts are relatively simple quality reporting systems like United Healthcare’s; others are incentive programs that pay a bonus to providers that meet certain quality or efficiency standards. These attempts to orient the health care system in a new way are known as pay for performance programs (often called P4P), and they could completely restructure the way health care is paid for in this country.
United Healthcare’s gold-star system is not P4P per se, but it’s being used by some self-funded employers as one—they’re giving employees a lower co-pay for using designated doctors. Some programs offer financial bonuses to providers who meet certain criteria, and others tie future rate increases to quality measures, such as preventive care, chronic disease monitoring and/or investing in information technology. Ultimately quality experts hope to develop standards that measure actual health outcomes.
Hospitals have been dealing with this kind of quality reporting through the voluntary Hospital Compare reporting program and, more recently, through Medicare’s move to offer a small increase in the annual reimbursement update to hospitals that report on 10 quality measures. But physicians have just started to see these efforts aimed at them.
“It’s much more than a fad,” says Michael Millenson, a Chicago-based independent consultant and author of Demanding Medical Excellence, noting that the health care system must move away from paying for volume, which is inefficient and expensive. “It’s a question of how we are going to reimburse health care. Pay for performance is a recognition of the fact that if you don’t link payment to quality, it’s not sustainable,” he says.
Gimmick or Better Way to Pay?
Some see pay for performance as yet another health care gimmick, the latest in the insurance industry’s attempts to control physician behavior and cut costs beneath a thin veil of “quality” to give it respectability.
And yet, many health care policy authorities see the practice of paying for quality as the wave of the future. The most important of those authorities from a practical standpoint is Medicare, which has a series of pay-for-quality demonstration programs under way looking at both physicians and hospitals. Most likely, Medicare will choose to make pay for performance a permanent policy. The impact of that move would be huge for providers of all sizes throughout America, including small and rural hospitals.
In November 2005, the Senate approved legislation as part of the budget reconciliation package that would expand Medicare’s commitment to pay for performance. The language is not included in the House version of the bill, and by Trustee’s press time, it was unclear whether it would survive conference talks between House and Senate members reconciling the two bills. However, CMS officials are optimistic that Congress will ultimately approve new P4P authorization, says Barry Straube, M.D., acting director of the Office of Clinical Standards and Quality for CMS.
“Managers and policymakers don’t realize that if Medicare implements pay for performance, [it will] be on the leading edge [of P4P], which is breathtaking,” says Hoangmai Pham, M.D., senior health researcher at the Center for Studying Health System Change in Washington, D.C. “This is one of the reasons physicians everywhere accept that [pay for performance] is becoming reality. They see the writing on the wall.”
For hospital leaders, the pay-for-quality trend should be a big flashing dot on the radar screen, requiring boards to get reports from both their chief financial officer and the quality folks about how the trend will likely affect their markets. The pressure to measure and report quality—such as giving beta blockers to heart attack patients and closely monitoring those with chronic diseases—is moving from being a best practice to a standard with a direct impact on the bottom line. And the more providers can influence the decidedly evolving science of defining just what “quality” means, the better off they’ll be in the long run.
Quality, Efficiency, IT Problems
Pay for performance is a market response to several trends. One is the growing body of medical journal articles documenting the distressingly high prevalence of medical errors in hospitals, along with inconsistent and inadequate care for a large proportion of the U.S. population. Then there’s the American health care industry’s slowness to use information technology’s potential to standardize care. Voluntary measures haven’t done a lot to improve commitment to change, so some believe financial incentives might do the trick.
At the same time, employers are watching their health insurance premiums rise in double digits each year. They’re looking for ways to regain control of costs that they lost when managed care’s hold on the market loosened in the late 1990s.
This situation raises an essential question behind the pay-for-performance trend: Is it all about quality or is it all about saving money? The answer will vary, depending on who’s sponsoring the program and what their motivations are. Many would argue it should only be a quality issue.
“Pay for performance is not about cost control,” says Kenneth Kizer, M.D., president and CEO of the National Quality Forum, Washington, D.C. “It’s about quality improvement and getting a better outcome. It just so happens that a side effect, or collateral benefit, of improving quality is that we are likely to save money for at least some things and for some period of time.”
But if there are employers who believe P4P is the antidote for their rising premiums, they will be disappointed, Kizer says. “We shouldn’t delude ourselves into thinking pay for performance is going to solve the health care cost problem. It will not,” he says. “It may help in some ways, but fundamentally it’s about incentivizing the system to provide better care.”
Whether pay-for-performance programs actually produce higher quality care is an open question. Bruce Vladeck, who directed the Medicare program in the mid-1990s, is skeptical. He believes the health care system is too complex to allow simple financial incentives to align everything in a positive direction. “Why doctors do what they do and hospitals do what they do is complicated,” he says. “The notion that you can add $4 to a payment, and it’s all taken care of doesn’t make sense.”
Payment systems can be used to change behavior, but only to a point, Vladeck says. “We have a long-standing tendency to try to load too many other kinds of expectations on payment systems. People think they are magic.” He also worries that payment systems will become too entrenched to adapt to evolving best practices, and that pay for performance misses what motivates the vast majority of doctors. “Health professionals want to provide the best quality care. That’s what gets them up in the morning,” he says. “Not that they’ll make another $1.19 that day.”
On the other hand, Michael Millenson argues, what is the alternative to finding some way to pay for quality? Continuing to pay for volume, which results in higher costs? Or going back to managed care, which was unpalatable to consumers?
What’s Happening Out There
Because hospitals and physicians are generally on different payment systems, pay-for-performance programs thus far have focused on either one or the other. A more integrated approach might be developed in the future that would make sense, providing a more comprehensive and sophisticated way to encourage quality across the continuum. The pay-for-performance trend hit hospitals first, in part because it was easier to gather data from a large institution than from a small medical practice. But now, physicians are being targeted by a fast-growing number of payers. Med-Vantage, a San Francisco consultant, surveyed pay-for-performance programs and found 35 of them in 2003. The firm expects that number to grow to 160 this year.
Probably the most advanced example of pay-for-performance is run by the Integrated Healthcare Association (IHA), a consortium of seven large California HMOs that offers financial incentives to participating physicians that post improvement across multiple measures of clinical quality. (See “Integrated Healthcare Association’s P4P Measures,” page 9.) More than 35,000 doctors in 225 medical groups participate.
IHA reported second-year measurement results in July 2005 that indicated that pay for performance can offer results. The measures, focused on preventive and chronic care, showed impressive gains in childhood immunizations—an 84 percent increase in children receiving DTP shots—as well as 8 percent more women getting cervical cancer screenings. There was also a big jump in groups meeting IHA’s information technology standards, rising from 34 percent to 53 percent in a year. Financial incentives amount to about 5 percent of total capitation rates.
Because California was a leader in using capitation during the heyday of managed care, it makes sense that such an experiment would start there. In fact, an ongoing study of 12 health care markets around the country by the Center for Studying Health System Change found the most active markets in pay for performance were Orange County, Calif., and Boston.
One potential problem the study’s researchers identified is the growing number of conflicting sets of standards each of these programs requires. Add to that the standards set by Medicare and accrediting agencies, and both hospitals and physician groups could easily be overwhelmed, no matter how good their information technology systems are.
“Across 36 hospitals in 12 markets, we counted 38 different quality reporting programs,” Pham says. “It gets very complicated. We don’t think most of [these] programs … appreciate that there is this dizzying array of sponsors and programs.”
A Long List of Challenges
There are a lot of potential problems with paying for quality that these experiments must resolve. They raise such questions as:
- How large a financial incentive does it take for a physician to change behavior—1 percent, 5 percent, 50 percent?
- Where does the bonus money come from for incentive programs? Is it new money invested by payers or taken away from some other part of the benefits package or from other providers?
- Are the programs voluntary or mandatory?
- How do you get enough data for a given health plan with an individual provider to make analysis statistically significant?
- How do you avoid penalizing physicians for their patients’ noncompliance, such as failing to get follow-up care or a diagnostic test that’s been ordered?
- What data are used to evaluate provider claims, which may not be adjusted for risk, or to conduct chart analysis, which is more rigorous, but expensive?
- How will the multitude of health plans, employers and quality accreditors around the country coordinate the criteria they use to measure quality, so providers don’t waste time and money answering the same questions many different ways?
Physicians Object
In the past couple of years, nearly every U.S. health care organization, from the American Medical Association to the Joint Commission on Accreditation of Healthcare Organizations, has developed its own criteria for how P4P should be carried out.
Not surprisingly, physician groups’ criteria include those that protect their members from potential harm. For example, the AMA asks that these programs be voluntary, that practicing physicians be involved in their design, that they don’t penalize doctors for treating noncompliant patients, and that they involve rewards rather than penalties.
The AMA isn’t against the idea of pay for performance, says John Armstrong, M.D., a spokesman for the AMA and chair of its task force on the issue. But it wants to be sure that the intent behind the plans is actually quality, not cost savings.
“AMA believes there need to be pilots and demonstrations to look at P4P and make sure it has its intended effects of quality improvement,” Armstrong says. “Physicians are concerned that this is another tactic by payers to reduce costs.”
At the same time, it may be hard to find a pay-for-performance model that physicians approve of, argues Millenson. “There has never been any payment model that organized medicine has not opposed,” he says. “They have legitimate concerns, but their whining is so pervasive and so self-righteous that it overwhelms any legitimate concerns.”
Physicians will have to be willing to give up something to address the quality problems and waste that exist in American medicine, Millenson maintains. “If you’re giving [appropriate] care only 55 percent of the time and wasting 30 percent of the money, could you explain to me a way to deal with this that does not cause some doctor, somewhere, to lose some income?”
What Trustees Need to Know
What does all this mean for hospital trustees? Obviously, hospital pay-for-performance programs such as those now being developed by Medicare will have a direct impact on hospitals. And physician incentive plans are likely to alter the local health care marketplace in a variety of ways—particularly, by putting added pressure on physician groups to invest in IT, for which they may look to the local hospital for help.
For hospital trustees, the P4P trend is another reminder that boards can no longer focus only on finances. They need to get regular updates from the quality side of the hospital as well.
“Trustees need to think about performance data beyond just pay for performance,” advises Carmela Coyle, vice president for policy at the American Hospital Association. “They really need to think about this in the broader context of sharing that information with their community and with their patients. We are at the point where sharing this information is critical to building your relationship with your community.”
That goes for hospitals of all sizes, in all markets. Even without pay-for-quality moves by payers, smaller hospitals are feeling the pressure from their own communities to share information about the quality of care they provide. “In some cases, hospitals have a lot they are proud of and are grateful someone’s finally interested,” says Suzanne Delbanco, executive director of the Leapfrog Group, whose hospital quality survey is seeing a rapid rise in the number of rural hospitals participating in it.
For trustees, the idea of paying for quality may be easy to understand because they may come from industries where customers expect to get value for what they buy. Trustees should be educating themselves about how health care purchasers are seeking that same kind of value.
“They’re all going to have to deal with it, because pay for performance is coming to your neighborhood,” says Kizer. “The board should spend as much or more time talking about quality as it does about finances. As boards move forward, the two will be inextricable.”
Jan Greene is a writer based in Alameda, Calif.
This article 1st appeared in the December 2099 issue of Trustee Magazine.
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