Issue: November 1, 2006

ByErin L. Boyle

November 01, 2006

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Institute of Medicine report: CMS should adopt P4P forMedicare

The advisory group suggests gradual implementation, with voluntary participation for small practices.

Issue: November 1, 2006

ByErin L. Boyle

A new report from the Institute of Medicine urges the Centers for Medicare and Medicaid Services to adopt a pay-for-performance approach to reimbursement. The current payment system does little to improve or maintain the quality of Medicare beneficiaries’ health care, the report said, and therefore it should be replaced by one that rewards good performance.

The Institute of Medicine (IOM) report, titled “Rewarding Provider Performance: Aligning Incentives in Medicare,” makes the case for gradually replacing the existing fee-for-service payment system with a system that attempts to reward improvements in quality, generally referred to as pay-for-performance or P4P. The report details a number of funding scenarios and recommends rewards for clinical quality, patient care, efficiency, performance improvement and excellence. It also suggests shifting and increasing rewards as providers reach new performance benchmarks.

The IOM’s study was sponsored by CMS and the U.S. Department of Health and Human Services. The IOM, a part of the National Academies, is an independent body that provides evidence-based advice to policy makers and the public.

“The overall quality of health care delivered to Americans is worse than it should be,” the report begins. “The existing [payment] systems do not reflect the relative value of health care services in important aspects of quality … . Fundamental changes in approaches to health care payment are necessary to remove impediments to and create incentives for significant quality improvement.”

Medicare reimbursement does not vary with the quality of the care that patients receive, a summary of the IOM report on the National Academies’ Web site points out.

“The current system pays for treating injury and illness — and encourages use of new, high-tech interventions — but it does not generally reimburse for preventive services such as patient education. Nor does it pay for coordinating the care of patients whose conditions involve multiple providers, and it offers no incentives to improve patients’ overall health status,” the summary says.

Not all support P4P

Not everyone supports the concept of pay-for-performance.

According to the Alliance for Health Reform, “Critics have questioned why Medicare or any other payer needs to pay more for good quality. Skeptics suggest that payment incentives may simply reward already high-performing providers.”

A brief from the Alliance for Health Reform, released in February, cites an article by Meredith B. Rosenthal and colleagues in the Journal of the American Medical Association showing “only modest or no performance increases” in three clinical quality measures for which physicians received bonus payments for improvement. Physicians who exceeded the performance threshold improved least but received most of the bonuses, according to the brief. The latter finding suggested the need to modify P4P models to pay for improvement in lieu of, or in addition to, attainment of an objective score, the brief said.

Challenges to successful P4P implementation, according to the Alliance, include avoiding overuse of specific services; the nature and cost of appropriate information technology systems; finding the appropriate P4P systems for specialists, nonspecialists, home, hospital or nursing home care, and providers in poor and affluent communities; rewarding improvement, not just high performance; and preventing providers from “teaching to the test,” or focusing too much on measures that carry rewards at the expense of measures that do not offer high rewards.

For more information:

References:

“Pay-for-Performance: A Promising Start,” an issue brief from the Alliance for Health Reform, can be read on the organization’s Web site: www.allhealth.org/publications/pub_4.pdf.
Rosenthal MB, Frank RG, et al, Early experience with pay-for-performance: From concept to practice. JAMA. 2005;294(14):1788-1793.

Phase in P4P

A number of P4P-type programs have been launched by private-sector insurers in recent years, but few of them have been assessed in published studies, the IOM report noted. The Department of Health and Human Services and the CMS have implemented demonstration P4P projects that have shown promise, the report said.

“Some of these projects have begun to show that providers respond positively to payment incentives that promote and reward quality improvement practices, but it remains unknown whether the improvements seen will be significant and sustained,” the IOM report said.

“Because Medicare’s current fee-for-service payment system does little to promote improvements in the quality of health care for the program’s 42 million beneficiaries, the U.S. Department of Health and Human Services (HHS) should gradually replace it with a new pay-for-performance system for reimbursing participating health care providers,” the report said.

Because little is known to date about the effects of P4P on quality of care and because of the cost and difficulty of recording and storing the complex data involved in these efforts, a “gradual transition” from fee-for-service to P4P is called for, the IOM said. Large providers with the resources to participate in P4P should be required to do so as soon as it is launched. Smaller practices should be allowed to participate voluntarily for the first 3 years, the report said.

“Given that pay-for-performance does not yet have an established track record, the new system should be phased in, so that involved parties can build on successes along the way and avoid unintended negative consequences,” the report said.

Still, providers must be aware that P4P is not the only way to ensure quality health care, the IOM said.

“We should remember that pay-for-performance is just one part of the solution,” said Steven A. Schroeder, the chairman of the IOM committee that produced the report. “Other interventions will be needed to achieve the level of quality that Medicare patients deserve.” Mr. Schroeder was quoted in the summary of the report on the National Academies Web site.

Funding reward pool

Money for a reward “pool” may come from existing funds, generated savings or direct investment of “new money,” the report said. A combination of the three strategies is also possible, the report said.

Existing funds are those already in the Medicare payment system. In P4P, the reward pool may be created by reducing fee schedules, withholding part of the base payment or imposing Medicare program cuts, the IOM report said.

“Using a reduction in base payments to fund bonuses should be used initially while other, more sustainable strategies are explored,” the IOM report said. “Sustaining the rewards pool through savings generated by improved efficiency and cost-reducing reforms has great potential.”

In the generated-savings model, the reward pool would come from money saved as a result of cost-reduction reforms and the efficiencies afforded by quality improvement efforts. Under the direct investment model, new money would be added from Medicare’s Hospital Insurance Trust Fund or general revenues and redistributed as a bonus over the scheduled payment, the report said.

California insurance group cites own experience, joins IOM in calling for Medicare P4P

The Integrated Healthcare Association, which runs what it calls the nation’s largest pay-for-performance program in California, joined the Institute of Medicine in calling for the Centers for Medicare and Medicaid Services to adopt pay-for-performance initiatives.

In September, the IOM issued a report making the case for adopting pay-for-performance (P4P) in lieu of the existing fee-for-service payment system. In response, the IHA announced its support for the IOM recommendations, which included rewards for clinical quality, patient care and efficiency.

The IHA called its own P4P program a “potential model” for other programs, such as a Medicare initiative.

In July, the IHA reported “continued quality improvement” among member physician groups in 2005, especially in cancer screening, diabetes testing, childhood immunization and information technology use, according to an IHA news release. The release did not mention any information on eye care measures.

The IHA’s P4P program, launched in 2001, includes seven health care plans: WellPoint division Blue Cross of California, Blue Shield, Aetna, CIGNA, Health Net, PacifiCare and Western Health Advantage. It involves 225 physician groups representing about 35,000 physicians who serve 6.2 million HMO patients in California, according to the report.

Program design template

“There are some design components that we feel would be very much applicable and seem to be reflected in the IOM report,” the IHA’s executive director, Tom Williams, told Ocular Surgery News in a telephone interview.

Information technology use is key to both measuring performance and delivering quality care, Mr. Williams said. Electronic data collection has been vital to the California program’s success, he said.

“It allows you to do something on a much larger scale and keep the administrative costs down,” he said. “We found that it was really important to help physicians develop the infrastructure for both performance measurement and patient care. We also learned that that happens in two ways: by directly paying dollars for IT adoption but also, when you require that clinical data be sent electronically, that is a very strong indirect incentive for IT.”

Medicare P4P ‘inevitable’

William
Rich III

P4P incentives may help eye care physicians bear impending Medicare reimbursement cuts, said William Rich III, MD, FACS, medical director of health policy for the American Academy of Ophthalmology.

“I think it is inevitable. We are going to have to accept P4P to get away from the ongoing cuts to Medicare. Congress and MedPAC have made that quite clear,” Dr. Rich said, referring to the Medicare Payment Advisory Committee.

The AAO has been involved in the development of potential clinical measures that could be used to assess the performance of ophthalmologists under P4P, Dr. Rich said.

He was not enthusiastic about the IHA’s P4P initiative, however. In an e-mail interview with OSN, Dr. Rich questioned the California program’s wider applicability and its heavy reliance on IT.

“The California program is far from a national model for Medicare,” Dr. Rich said. “The measures do not have professional input, are for primary care and have too much emphasis on IT. We would hope any Medicare program would have the specialty input into development of quality measures, better transparency and be field tested before implementation.”

For more information:

William Rich III, MD, FACS, medical director of health policy for the American Academy of Ophthalmology, can be reached at the AAO, Governmental Affairs Division, 1101 Vermont Ave. NW, Suite 700, Washington, DC 20005-3570; 202-737-6662; fax: 202-737-7061; e-mail: hyasxa@aol.com.

Tom Williams, executive director of the Integrated Healthcare Association, can be reached at the IHA, 344 Thomas L. Berkley Way, Suite 350, Oakland, CA 94612; 510-208-1740; fax: 510-444-5842; e-mail: twilliams@iha.org.

Reference:

The Integrated Healthcare Association’s 5-year report, “Advancing Quality Through Collaboration: The California Pay for Performance Program,” as well as a news release describing the report, can be read at the IHA’s Web site: www.iha.org.

Funding conundrum

The report urged CMS to study ways to maintain funding sources for bonus payments in the long term.

“The [IOM committee] deferred to Congress to determine by how much to decrease Medicare base payments to create a pool of funds for bonus payments,” the National Institutes summary of the report said. “However, it recommended that the percentage be sufficient to create rewards large enough to motivate health care providers’ participation in real improvements.”

Congress will face a funding dilemma, the report said.

“Most important, there will be concern over whether the program is budget-neutral, that is, whether it will add to government spending,” the IOM said. “In an era of high and escalating budget deficits, lawmakers are likely to object to spending more on a program that is already very costly, with expenditures growing rapidly. Provider groups, on the other hand, will want new funds to be used, arguing that payment rates are already too low and that redistributing a portion of these inadequate amounts will leave some with insufficient resources to do their jobs well and respond to new demands.”

The report noted that physician fees are already scheduled to be reduced in the next several years through automatic yearly adjustments to the Medicare conversion factor, so legislators may have no choice but to appropriate new funds for P4P.

For more information:

Matt Hasson is an OSN Staff Writer who covers all aspects of ophthalmology and focuses on regulatory, legislative and practice management topics.

Reference:

Rewarding provider performance: Aligning incentives in Medicare, the Institute of Medicine report, a part of the Pathways to Quality Health Care series, can be purchased through the Web site of the National Academies: www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=11723. A press release summarizing key points of the report can be read at that same Web address.