Editorial: Pay for performance: Ready or not, here it comes!

November 1, 2007

Recent articles attest to a growing interest in an alternative way to provide reimbursement for health-care services in both the United States and Great Britain. Individual physicians, multispecialty groups, and hospitals are rewarded for meeting pre-established quality and/or expense targets for their services.

Key Points

Although the concept of paying for high-quality and efficient care is not new, recent developments have catapulted this model into the mainstream. The Institute of Medicine (IOM) in its 2006 report, Preventing Medication Errors, recommended that hospitals, clinics, pharmacies, insurance companies, and manufacturers adopt such incentives so that their profits are more dependent on patient safety and quality.1 This was followed by another IOM report, Rewarding provider performance: Aligning incentives in Medicare, which pointed out that existing systems don't do a very good job of focusing on quality and efficiency in the prevention and treatment of chronic conditions.2 The report recommends pay-for-performance (P4P) programs as a way to formulate incentives that would improve performance.

P4P, OR "VALUE-BASED PURCHASING", rewards clinicians who meet certain performance measures, usually focused on commonly accepted quality indices, reduced costs, or both. There are also disincentives under discussion, such as denying or reducing payments for negative outcomes or increased costs. In the UK and the US, P4P programs are gaining popularity as a way to address the demand for increased quality and the rising costs of health care that have accompanied our rapidly aging populations. Pilot programs in several large health care systems and hospitals have produced very modest, though measurable, improvements in outcomes, predominately in the treatment of heart disease.3,4 Unfortunately they have not saved a significant amount of money because they generate significant administrative and monitoring costs.

Several American medical societies support P4P programs designed to increase health care quality but have almost uniformly expressed concern over the choice and validity of P4P measurements and the fact that they are being linked to cost. The AMA, for example, has published P4P principles that emphasize voluntary participation, positive incentives, and physician autonomy.5 The Association has also generated guidelines for designing and implementing P4P programs.6 Several other physician organizations remain skeptical about the validity of performance measures, and are concerned with the preservation of individual physician clinical judgment and patient preferences, autonomy, and privacy. They, too, point to the increased administrative costs required for participation.

DESPITE THE RESERVATIONS of our professional societies, over half of private sector US HMOs have initiated some form of P4P covering more than 80% of their enrollees.7 In the public sector, the Center for Medicare and Medicaid Services (CMS) has a congressional mandate to introduce a P4P program for Medicare. In Britain, the process is much further along, as their National Health Service's version of P4P now puts 25% to 30% of the income of family practitioners at risk. Initiated in 2004, the Quality and Outcomes Framework grants general practitioners increases in income associated with performance on 146 quality indicators, covering clinical care for 10 chronic diseases.8

CMS has several demonstration projects underway offering compensation for improvements; among them is its first value-based purchasing pilot project, the 3-year Medicare Physician Group Practice Demonstration.9 The 10 participating practices are phasing- in quality standards for preventive care and diabetes management. The initial report on the pilot project concluded that the model indeed rewards quality and efficiency, but cautions that without investment in new systems for case management, the future viability of the program is questionable.10