Make room for Medicare's P4P incentives

April 1, 2007

The attempt (of P4P) is to shift the focus of healthcare away from what is done to the patient toward what is done for the patient.

Many of his Medicare insurance patients present with complex medical problems and myriad skin problems at each visit. He finds that visits are too time-consuming, coding is very complicated and reimbursement is an ongoing problem. Recently he has heard about the possibility of a new Medicare-related issue: pay for performance. He is disgusted with his need to continually adapt to the changes.

Should he be concerned?

In an attempt to quell the pressure placed on policymakers to continually reduce Medicare spending, the Centers for Medicare and Medicaid Services (CMS) has launched several pay-for-performance (P4P) initiatives designed to improve the quality of care provided to Medicare patients while also reducing total Medicare expenditures.

P4P uses an incentive-based formula for determining payments to healthcare professionals that promotes quality, efficiency and use of resources. This marks a fundamental break from the traditional way physicians are paid for services.

The goal of P4P purportedly is to fix a flawed healthcare delivery system while, at the same time, improving quality of care through use of financial incentives to reward improved quality of care and patient outcomes. Thus, P4P programs offer financial rewards not for the failed capitation programs of the past, but for the provision of superior treatments as determined by pre-set standards and measures intended to improve quality of rendered care. The attempt is to shift the focus of healthcare away from what is done to the patient toward what is done for the patient.

Publication highlights problems

The thrust toward P4P initiatives emerged from the 2001 publication by the Institute of Medicine titled "Crossing the Quality Chasm: A New Health System for the 21st Century."

This pivotal report highlighted shortcomings in the quality of American healthcare. The premise of the report is that the quality of American healthcare has suffered from underuse of some services, overuse of other services, human error and misuse. These problems are accentuated by the fact that Americans are living longer, and, as a result, are developing more chronic diseases. In 1990 alone, $425 billion was spent on direct medical costs for individuals with chronic conditions.

The Institute of Medicine also focused on the issues of the current delivery model of healthcare and the lack of use of the latest information technologies. The report noted that the current healthcare model is decentralized, complicated and bureaucratic, resulting in patients finding the system extremely difficult to navigate.

In addition, the committee concluded that the healthcare industry was failing to adequately use the Internet and other new information technologies. Although there will always be concerns about Internet privacy and confidentiality issues, other technology applications, such as videoconferencing and electronic incident reporting, are available at a low price, but have not been adequately used because of a lack of public funding as well as trained personnel.

Since the publication of "Crossing the Quality Chasm," renowned institutes, such as the Agency for Healthcare Research and Quality, as well as the Joint Commission on Accreditation of Healthcare Organizations, have supported and implemented studies based on standardized measures of performance. These studies have showed that quality of service did improve once an institution began to report data with respect to standardized measures.

P4P goes further with its attempt to implement a system by which the collected data could be used to provide a financial incentive to physicians who perform well under standardized measures.

It should be noted that the P4P concept is not unique to CMS. Some private insurers, such as the California-based PacifiCare P4P program, have been using this concept since 2002. Since 1993, PacifiCare of California has measured the quality of performance of its affiliated medical groups on several clinical and patient-reported measures. It has been reporting these measures as report cards to both medical groups and the public since 1998. In 2002, PacifiCare announced that it was incorporating a new quality incentive program (the precursor of the CMS P4P program) into its California group contracts. For the first time, in 2003, PacifiCare began to pay bonuses to physicians and medical groups that met or exceeded certain clinical and service targets.