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Pay-for-Performance Plans Could Have Hidden Costs

P4P is viewed with suspicion by many physicians. Of special concern are the validity of performance measures and the source of P4P-based pay increases in a finite budget.

The fast-moving train that is pay for performance has picked up a little more speed. The federal Centers for Medicare and Medicaid Services (CMS) announced a demonstration project under which it will pay physicians in 10 large physician groups around the country according to the quality—as opposed to the quantity—of services they provide to Medicare and Medicaid beneficiaries.

"It is time that we pay for the quality of the health care provided to our beneficiaries, not simply the amount," said CMS Administrator Mark B. McClellan, M.D., Ph.D. "We are working to apply this in every setting in which Medicare and Medicaid pay for care."

Few other ideas in American medicine today are moving with as much momentum as pay for performance, the concept of paying hospitals and physicians for adhering to practice guidelines and meeting standards for quality improvement. It is part of a broad movement in both the public and private sectors toward the incorporation of "performance indicators," an effort to create greater accountability and transparency in the practice of medicine.

Performance indicators are under development by organized medicine, including the AMA, as well as many private health plans and the federal government. They are also under development by accrediting agencies such as the Joint Commission on Accreditation of Healthcare Organizations and the National Commission on Quality Assurance.

Pay for performance—which is referred to in the shorthand P4P—appears to be the logical extension of the development of performance indicators by reimbursing hospitals and physicians at a higher rate for adhering to those indicators. Ideally, measures of quality would be based on clinically derived practice guidelines and result in better patient outcomes.

"Effective performance-based payments have shown results in the private sector, and CMS has already started programs and demonstrations to reward quality improvement in hospitals," McClellan said. "By bringing the same kind of enhanced support for better quality to physicians, we are reaching the providers that have the greatest impact on decisions about patient care. This approach has great potential for improving care for our beneficiaries and strengthening the Medicare program."

Do Measures Reflect Clinical Reality?

P4P is greeted with skepticism and suspicion in many quarters, and a great many uncertainties remain to be resolved before it becomes the norm.

Prominent among these is the fact that public-sector dollars for reimbursing physicians come out of a finite budget, so that increases in payment are certain to be taken from somewhere else. And some fear that P4P can be used to penalize hospitals and physicians that fail to meet performance measures.

Also potentially problematic is the fact that adherence to measures will require ability to track performance over time; physician practices that do not have electronic record collection will have to rely on office personnel to pull and review charts—a labor-intensive exercise that is likely to go uncompensated.

Finally, physicians groups are expected to monitor closely the validity of performance measures to ensure that they reflect clinical reality.

Despite these concerns, the Medicare Payment Advisory Committee (MedPAC), an advisory board that counsels Congress on Medicare physician payment issues, recently recommended that the government adopt P4P.

"For the most part, Medicare still pays its health care providers without differentiating on quality," said MedPAC Chair Glenn M. Hackbarth, J.D., in testimony last month before the House Ways Means Subcommittee on Health. "Providers who improve quality are not rewarded for their efforts... .Congress should adopt budget-neutral pay-for-performance programs, starting with a small share of payment and increasing over time."

But in a letter written to Hackbarth prior to his testimony, APA, the AMA, and more than 40 other medical groups expressed their concern about MedPAC's interest in P4P and about the prospect of its implementation under Medicare.

"MedPAC appears to be considering recommendation of a pay-for-performance experiment that will be budget neutral within the physician reimbursement system," the letter stated. "Although specifics of this plan have not been resolved, we are concerned that this will improve payments to some physicians by reducing payments to practices that are already in financial jeopardy and unable to commit needed financial and/or human resources to participate in pay-for-performance programs."

The AMA has appointed a task force to come up with recommendations regarding P4P that will be presented at the June meeting of the House of Delegates.

APA Director of Government Relations Nicholas Meyers told Psychiatric News that whether P4P can work in the Medicare program is at least partly dependent on reform of the formula that is used to derive physician payment—particularly replacing the sustainable growth rate (SGR) component of the formula.

That component is built into the formula to compensate for increases in utilization of services by forcing a reduction in physician payments. Meyers noted that since introduction of P4P is likely to increase the volume of some appropriate services, the payment formula would then work to penalize physicians inappropriately.

MedPAC has long recommended replacement of the SGR, and at the group's January advisory meeting it adopted a recommendation to increase physician payments in 2006 by 2.7 percent.

"APA and the rest of medicine are deeply concerned about the prospects of implementing pay for performance either as a demonstration project or systemwide," Meyers told Psychiatric News. "The details of how these programs will go forward are essential. What works for one specialty may not work for another specialty at all. And if you insist on experimenting with pay for performance as an offset to the Medicare [physician payment] update, then you will have potential problems."

Administrator Cites Consensus

In the meantime, the government appears determined to proceed with an experiment that it is counting on to improve efficiency, quality, and cost-effectiveness of its public health insurance programs.

"Not only is there a growing consensus that providers who furnish better care should be rewarded, there should be an agreement on how to reward those providers," said McClellan. "Our new pay-for-performance initiative for physicians reflects hard work by physicians, consumer advocates, and other health care payers and purchasers to develop valid measures of quality and efficiency, and to use them effectively to support better care."

The 10 physician groups participating in CMS's three-year Physician Group Practice project demonstration are Dartmouth-Hitchcock Clinic, Bedford, N.H.; Deaconess Billings Clinic, Billings, Mont.; Everett Clinic, Everett, Wash.; Geisinger Health System, Danville, Pa.; Middlesex Health System, Middletown, Conn.; Marshfield Clinic, Marshfield, Wis.; Forsyth Medical Group, Winston-Salem, N.C.; Park Nicollet Health Services, St. Louis Park, Minn.; St. John's Health System, Springfield, Mo.; and the University of Michigan Faculty Group Practice, Ann Arbor, Mich.

According to CMS, the quality measures that will be used focus on common chronic illnesses in the Medicare population, including congestive heart failure, coronary artery disease, diabetes mellitus, and hypertension, as well as preventive services, such as influenza and pneumococcal pneumonia vaccines and breast cancer and colorectal cancer screenings.

The groups were selected based on organizational structure, operational feasibility, geographic location, and other considerations. The multispecialty groups have at least 200 physicians and include free-standing group practices, integrated delivery systems, faculty group practices, and independent practitioner associations, according to CMS.

Under the demonstration project, physician groups will continue to be paid on a fee-for-service basis, but will be eligible for performance payments for developing and implementing strategies designed to anticipate patient needs, prevent chronic disease complications and avoidable hospitalizations, and improve quality of care.

More information on the demonstration project is posted online at <www.cms.hhs.gov/media/press/release.asp?Counter=1341>.

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