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By J&C Research Associates
Health care providers look to pay-for-performance (P4P) systems in the hopes of reducing costs and improving quality of care. P4P aims to reward physicians for achieving a set of measurable goals—improving patient health, lowering costs, or following certain protocols, for example, but defining what these goals should be—in other words, defining the “Performance” half of P4P—raises a host of questions.
The foundation of effective P4P programs is the partnership between patient, physician, and provider. Collaboration and cooperation ensure that these different stakeholders, each with their own set of incentives, all end up aiming for the same goal. Implementing P4P without this relationship in place can easily lead patients and physicians, and subsequently heath-care providers themselves, into frustration and failure. On the other hand, if all the stakeholders are on the same page, they can support each other in achieving goals and show improvement.
Measuring the success (and failure) of various P4P systems is an ongoing process, but early results suggest the concept can work when physicians are willing and able to provide extra time and care for patients. The added compensation gives them an incentive to put in the added time. However, many doctors and policy groups remain deeply skeptical of P4P programs, arguing that the small gains found in a number of recent studies are the results of confounding variables and that the economics of these systems haven’t been thoroughly thought-out.
An uneasy truce seems to be in place between doctors and insurance companies in particular. The American Medical Association adopted strict P4P guidelines in 2005 and has viewed efforts by insurers with a skeptical eye. Insurance companies, on the other hand, have worried that each of the 50 states will adopt their own set of P4P guidelines, leading to an administrative quagmire. On April 1st, 2008, the Consumer-Purchaser Disclosure Project, representing some of the nation’s largest health plans, announced a nationwide set of standards for physician pay-for-performance initiatives. According to AMA president Nancy Nielsen, "While there have been problems with methodology in the past,” this initiative “goes a long way to try to resolve some of those, in particular that physician report cards will not be based on cost alone.”
Compensation Models
There are two broad compensation models in P4P: Incentive-based and Productivity-based. Incentive-based plans generally pay a base salary and then reward physicians for meeting certain performance measures. Productivity-based plans, on the other hand, are far more variable and complex but tend to compensate physicians with a set percentage of their total collections or billings.
Incentive-based
Under an incentive-based compensation plan, the physician is typically paid a base component, such as a salary, but is then given the opportunity to gain additional compensation by achieving a range of predetermined performance measures. For the majority of cases, these benefits are established by the following:
-Revenue produced
-Quality standards (e.g., HEDIS, patient satisfaction, peer reviews)
-Administrative/leadership responsibilities (marketing, staff management, protocol development)
-Teaching/mentoring (e.g., training of new physicians, Pas, NPs, nurses)
-Utilization of services (e.g., hospital, ancillary care, specialty referrals, pharmacy)
-Cost-effectiveness (e.g., staffing, supplies, office space, etc.)
Incentive-based packages provide physicians with the security of a guaranteed income but also offer additional motivation to keep the financial bottom line in mind and improve performance. Incentives, in these cases, are normally based on a percentage of the base salary. These models are very straightforward and are most often used by large HMOs, academic institutions, and large corporate or physician-owned practices.
Productivity-based
Unlike incentive-based models, productivity-based compensation models are often highly variable and complex. The foundation for these models is the physician’s productivity. Physicians are compensated with a percentage of either their billings or collections. Under this system, it is essential for a physician to know beforehand which one their pay depends on. For example, if earnings are based on collections, it would be in the physician’s best interest to learn what percentage of billings the group typically collects. In addition to having this knowledge, a physician will also be able to determine their likely rate of pay.
A doctor’s ability to maintain and increase both efficiency and proficiency determines their compensation. In a productivity-driven arrangement, the volume of patients treated or services performed by a physician directly correlates with how much they are paid. In some cases, a physician’s pay is based on the “resource-based relative value scale” (RBRVS), with units assigned to procedures or types of patient visit. For these arrangements, both the fixed and variable overhead costs of the practice are distributed among the paid physicians.
Physician productivity can be determined in a number of ways, including net revenues produced for the practice, patient encounters, hours worked, or relative value scales. This type of arrangement promotes any extra effort on the part of individual physicians by paying them for their added effort. On the other hand, this system can also create a highly competitive environment for peers, which can be unappealing to some physicians and patients. Similarly, managing a productivity-based arrangement and the subsequent relative overhead allocation can be increasingly difficult administratively as well as politically.
Quality Performance
Evaluating the quality of care or performance for physicians and hospitals has proven challenging. A number of studies have attempted to quantify the effects of P4P programs in the past 5-10 years, but the results are always contested and have never been conclusive. Most of the studies reviewed for this report showed moderate (4-6%) though statistically significant gains in measures of basic health and patient satisfaction. Financial improvements are impossible to gauge so far because studies fail to include added administrative costs. Widespread adoption of electronic health records should improve this data and reduce administrative costs at the same time.
Critics, however, point out that many of these studies are skewed, as increased focus and record keeping for specific illnesses, such as heart disease, lead to greater attention to that specific case but may not improve patient health overall. Better controlled studies are needed before any wide conclusions can be drawn.
Finally, a number or papers have called for a balanced use of P4P practices in combination with wider quality-improvement efforts such as public reporting and electronic medical records.
In the U.K., implementation of P4P practices in the National Health Service (NHS) led to fears that doctors would jump ship and switch to private practice. The past five years have not shown any sign of this, although a 20% increase in NHS funding and public-education efforts helped smooth the transition. In the U.S., some doctors and insurance companies are skeptical of the benefits of P4P, often simply because of administrative costs, but the addition of some P4P methods to Medicaid ensures a high level of participation. The more important questions may be whether the incentives identified by insurers or Medicaid lead to new disparities in healthcare and whether smaller practices can afford the accompanying costs.
P4P arrangements are spreading quickly. They are still more likely to be found in primary care practices, but HMOs seem to be adopting the model more quickly than PPOs. It is not altogether that surprising that these programs target more primary care physicians than specialists because fewer measures have been developed in specialty areas so far. A doctor’s participation in P4P programs is dependent on the arrangement and how the physicians take to the additional incentives and the corresponding competition. As of right now, these programs are predominately in place through primary care physicians, but the demand for P4P models has been growing steadily to reach all health providers.
-American Academy of Family Physicians: "There are a multitude of organizational, technical, legal and ethical challenges to designing and implementing pay for performance programs"
-American College of Physicians: "Adoption of appropriate quality improvement strategies, if done right, will result in higher quality patient care leading to increased physician and patient satisfaction. But the College is also concerned that these changes could lead to more paperwork, more expense, and less revenue; detract from the time that internists spend with patients, and have unintended adverse consequences for sicker and non-compliant patients." "...[We are] concerned about using a limited set of clinical practice parameters to assess quality, especially if payment for good performance is grafted onto the current payment system, which does not reward robust comprehensive care."
-American Geriatrics Society: "Quality measures (must) target not only care for specific diseases, but also care that addresses multiple, concurrent illnesses and (are) tested among vulnerable older adults. Using indicators that have been developed for a commercially insured population...may not be relevant"
-American Academy of Neurology (AAN): "An unintended consequence is that current relative payments are distorted and represent a misaligned incentive system, encouraging diagnostic tests over thoughtful and skilled patient care. The AAN recommends addressing these underlying inequities before a P4P program is adopted.
-The Endocrine Society: "It is difficult to develop standardized measure across medical specialties...variations must be allowed to meet the unique needs of the individual patient...P4P programs should not place financial or administrative burdens on practices that care for underserved patient populations"
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