Paying for the Best

Pay-for-Performance Initiatives Hold Promise, Concerns  


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Medical Economics Feature - May 2005

By  Ken Ortolon
Senior Editor  

Incentive clauses that reward players for certain performance levels are well-known tools in Major League Baseball contracts. Players can earn substantial bonuses for reaching designated numbers of wins, hits, or runs batted in.

But should physicians receive bonuses for reaching certain performance standards in their practices? Some large employers, health plans, government agencies, and others say yes.

Pay-for-performance (PFP) initiatives are springing up across the country, and proponents say they can be effective tools in improving the quality and efficiency of health care. Physicians, however, are reserving judgment until they have a better idea of how PFP programs will be administered.

"If the purpose of the program is to actually improve quality -- if that's the real purpose, with quality defined as effective, safe care -- then these programs may hold promise," said Miami trauma surgeon John H. Armstrong, MD, secretary of the American Medical Association Board of Trustees. "If, however, they have as their basis cost cutting, then we are very concerned that these programs will imperil patient care."

PFP is not in Texas yet, but it likely will be eventually. 

Setting the Standard  

A November 2004 AMA report says PFP stems from a growing movement to measure quality care and separate efforts to measure PFP programs at the physician and hospital levels. It says PFP initiatives include:

  • Rewarding quality by creating financial incentives large enough to motivate structural change in the health care system;
  • Bringing about changes needed to reduce errors and improve quality;
  • Reducing cost and improving the efficiency of care; and,
  • Encouraging physicians to do more patient population management.

Bridges to Excellence (BTE), a coalition of large employers, health plans, and others created about four years ago to address quality and cost issues, is one of the prime movers behind PFP. The group has developed three PFP programs it believes will realign the incentives of everyone in the health care system around higher quality.

The BTE programs include Physician Office Link, which rewards physician offices for implementing specific processes to reduce errors and increase quality. Physicians can earn up to $50 per year for each patient covered by a participating employer or health plan. Diabetes Care Link offers bonuses of up to $80 per patient for achieving one- or three-year recognition for high performance in diabetes care. Cardiac Care Link pays up to $160 per patient for physicians who achieve three-year recognition for high performance in cardiac care.

Additional information on the BTE programs is available at

The diabetes program bonuses are expected to cost employers $175 per diabetes patient per year, but save $350 per patient per year in medical services. The cardiac bonuses are expected to cost $200 per cardiac patient per year, while saving up to $390.

All three programs use National Committee for Quality Assurance (NCQA) recognition programs to designate physicians as "high-quality providers."

In 2004, UnitedHealthcare became the first insurer licensed by BTE to use its PFP model.

Lewis Sandy, MD, United's executive vice president for clinical strategies and policy, says the company has rolled out PFP initiatives in Omaha, St. Louis, Dayton, and several areas of Florida. While they are too new to show much impact, he says data developed from earlier BTE initiatives "have shown that quality is enhanced and affordability is promoted through the use of the designations."

But AMA has serious problems with the St. Louis initiative. (See " UnitedHealthcare Initiative Fails AMA Standards.") 

Healthy Skepticism  

Physicians support quality improvement, but there is some concern that quality might get lost in the drive to control costs. The U.S. Centers for Medicare & Medicaid Services in April launched a three-year pilot program in April to test PFP in 10 large group practices across the country. (See " Medicare Launches Pay-for-Performance Pilot.")   The fact that many of its first-year performance targets deal with cost and only a few address quality raised an alarm with organized medicine.

"The idea of encouraging the use of evidence-based guidelines in trying to improve outcomes is certainly an admirable goal," said Lewis Foxhall, MD, chair of Texas Medical Association's Council on Socioeconomics. "How we get there is the question."

In February, the AMA Board of Trustees recommended a series of principles and guidelines to govern PFP programs. It said such programs should ensure quality of care, foster the patient-physician relationship, offer physicians voluntary participation, use accurate data and fair reporting, and provide fair and equitable program incentives. (See " AMA Issues Principles for Pay-for-Performance Programs.")

Dr. Armstrong says the initiatives can be a "positive force" in improving patient care if they follow AMA's guidelines, but they can't be economic credentialing systems "masquerading" as pay for performance. Dr. Foxhall agrees.

"Cost tends to follow quality," he said. "Doing the right thing for patients at the right time generally will result in reduced cost.   But the focus and the driving force on this have to be on quality and doing the right thing for patients and providing evidence-based care."

PFP has not yet come to Texas, but those following this trend say it's just a matter of time. Dr. Sandy, of UnitedHealthcare, encourages Texas physicians to begin the process to gain NCQA recognition now so they'll be ready when the BTE model is rolled out here.

For Dr. Armstrong, the jury is still out. "If these programs are truly designed to improve quality, they will have staying power. If they are actually designed to reduce cost and pay short shrift to quality, then it is likely that these programs will not be around for very long."

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at Ken Ortolon.  



AMA Issues Principles for Pay-for-Performance Programs

Physician pay-for-performance (PFP) programs that are designed primarily to improve the effectiveness and safety of patient care may serve as a positive force in the health care system, according to the American Medical Association. But AMA wants to make sure such programs are patient-centered and link evidence-based performance measures to financial incentives.

Toward that end, AMA says fair and ethical PFP programs should be governed by these principles:

  • Ensure quality of care.  Fair and ethical PFP programs are committed to improved patient care as their most important mission. Evidence-based quality-of-care measures, created by physicians across the appropriate specialties, are the measures used in the programs. Variations in an individual patient care regimen are permitted, based on a physician's sound clinical judgment, and should not adversely affect PFP program rewards.
  • Foster the patient-physician relationship.  Fair and ethical PFP programs support the patient-physician relationship and overcome obstacles to physicians treating patients, regardless of the patient's health conditions, ethnicity, economic circumstances, demographics, or treatment compliance patterns.
  • Offer voluntary physician participation.  Fair and ethical PFP programs offer voluntary physician participation and do not undermine the economic viability of nonparticipating physician practices. These programs support participation by physicians in all practice settings by minimizing potential financial and technological barriers.
  • Use accurate data and fair reporting.  Fair and ethical PFP programs use accurate data and scientifically valid analytical methods.
  • Provide fair and equitable program incentives.  Fair and ethical PFP programs provide new funds for positive incentives to physicians for their participation, progressive quality improvement, or attainment of goals.

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UnitedHealthcare Initiative Fails AMA Standards

The American Medical Association has joined physicians in St. Louis in urging UnitedHealthcare to drop a new insurance product for General Motors employees that the physicians say is unfair to doctors and disruptive to patient-physician relationships.

In a Feb. 17 letter to UnitedHealthcare and General Motors, several physician groups said the United program "is disguised as a pay-for-performance [PFP] program, which, instead of rewarding physicians for providing quality care, punishes patients for seeing any physician who does not provide the lowest average cost."

The letter was signed by the AMA, the Missouri State Medical Association, the St. Louis Metropolitan Medical Society, and the St. Charles-Lincoln County Medical Society.

AMA Board of Trustees Chair Jim Rohack, MD, says the United program fails to meet principles and guidelines for fair and ethical PFP programs developed earlier this year by AMA. Under the program, patients who see designated physicians pay only a small copayment. Those who see physicians who have not been given "performance" status must pay high deductibles and coinsurance.

"They decided that they would allow certain physicians to be preferred physicians, but the criteria they used for selecting those physicians as being preferred were based purely on economics," Dr. Rohack said. Physicians also complained that doctors with small numbers of United patients were automatically excluded from the preferred list even if they met the program's quality measurements.

AMA officials say the United Health Performance program is not the same as United's offerings that use the Bridges to Excellence PFP model. United has offered to work more closely with the St. Louis physicians to develop standards for the program, better educate patients on its limitations, and help physicians understand the rating system.

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Medicare Launches Pay-for-Performance Pilot

The U.S. Centers for Medicare & Medicaid Services (CMS) has launched a three-year demonstration project to determine if paying physicians for the quality of care they provide can improve patient outcomes and reduce costs.

The pilot project began in April and includes 10 large physician groups in New Hampshire, Montana, Washington, Pennsylvania, Connecticut, Wisconsin, North Carolina, Minnesota, Missouri, and Michigan.

Under the pilot project, physicians will continue to receive fee-for-service payments, but also will be rewarded if they improve patient outcomes by better coordinating care for chronically ill and high-cost beneficiaries.

Quality measures will focus on common chronic illnesses in the Medicare population, including congestive heart failure, coronary artery disease, diabetes, and hypertension. The pilot also will stress preventive services, such as influenza and pneumococcal pneumonia vaccines, and breast and colorectal cancer screenings.

American Medical Association officials say they are pleased the pilot project will use quality indicators developed by the AMA's Physician Consortium for Performance Improvement.

As part of the demonstration, participating physician groups will implement care management strategies designed to anticipate patient needs, prevent chronic disease complications and avoid hospitalizations, and improve quality of care. Depending on how well these strategies improve quality and avoid costly complications, physician groups will be eligible for performance payments that will be determined annually based on savings each group achieves. Savings will be calculated by comparing the claims experience of the assigned beneficiary population against the actual growth rate of Medicare spending for other beneficiaries in the local market who were not assigned to the participating physician group.

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