Pay-for-Performance in the United States Health Care System:

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Pay-for-Performance in the United States
Health Care System

• An Overview and Recent Findings
• from the
• Community Tracking Study

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OVERVIEW

• Definition
• Reasons for Increased Interest in
  Pay-for-Performance
• Examples of Pay-for-Performance
• Pay-for-Performance at the Market Level the
  Community Tracking Study
• The Future of Pay-for-Performance in the United
  States Current Debate

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DEFINITION

• Pay-for-performance is
• The use of incentives to encourage and reinforce
  the delivery of evidence-based practices and
  health system transformation that promote better
  outcomes as efficiently as possible
• American Healthways, 2005 as quoted in Forrest,
  Villagra and Pope, American Journal of Managed
  Care, February, 2006
• Pay-for-performance represents the next great
  hope- or, in skeptics eyes, hype for
  reforming the U.S. health system
• Adler, Benefit News.com, October, 2005

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Reasons for Increased Interest in
Pay-for-Performance in the United States

• Managed Care Backlash (1993-1997)
• Decline in reliance on capitation
• payments due to
• concern over incentives to withhold care
• shift in bargaining power between health plans
  and providers due to provider consolidation

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Physician Pushback

• Halverson pricing power has shifted back
• to the consolidated, locally dominant
• providers, which are doing with that power
• exactly what we might expect raising fees
• Strunk, et al financial pressures, coupled
• with greater sophistication in managed care
• contracting strategies and tactics, have
  spelled
• the end of a period when some providers
• uncritically accepted contract
  termsproviders
• are testing the waters to see just how far
  they
• can push their emerging bargaining power.

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Reasons for Increased Interest in
Pay-for-Performance in the United States continued

• Institute of Medicine Spotlights Quality and
  Safety problems (1997-2000)
• The IOM To Err Is Human report underscored
  system failures that expose patients to
  unnecessary risks
• The IOM Crossing the Quality Chasm report and
  follow-up studies highlighted areas where current
  approaches to treatment are inadequate and
  substantial improvements in care are warranted
  identified misaligned financial incentives as
  important cause of quality deficiencies
• Quality deficiencies reinforced by McGlynn, et
  al. NEJM and Health Affairs articles

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Reasons for Increased Interest in
Pay-for-Performance in the United States continued

• Rising health insurance costs cause employers to
  search for new strategies to manage health care
  benefits
• Pay-for-performance endorsed by highly visible
  national employers
• Pay-for-performance is here to stay. It will
  evolve and change over time, but already we know
  that it is working and we see that quality is
  improving. So to retreat to the previous system
  makes no sense to anyone. There is no turning
  back.
• Francois de Brantes, program leader for
  healthcare initiatives with
• G.E. Corporate Healthcare and Medical Services
  Programs, quoted in Conklin and Weiss,
  Thomson-Medstat, 2005

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Key Evolutionary Steps A Benefit Consultant
Perspective

• Year 2002 Performance Disclosure
• Comparisons of hospitals, physicians and
  pharmaceuticals
• ?
• Consumerism and Pay-for-Performance
• Market sensitivity to hospital and physician
  performance
• ?
• Chasm Crossing
• Clinical re-engineering by physicians and
  hospitals
• Year 2012 Improvement
• 50 percentage points improvement in quality
  measures
• 40 percentage point reduction in cost increases
• _____________
• Source Adapted from A. Milstein, MD, 2004

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Reasons for Increased Interest in
Pay-for-Performance in the United States continued

• Improvement in information technology
• (1995 present)
• -Growing implementation of the electronic
• medical record
• -HIPAA and the standardization of
  reporting
• cost and use of services

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Reasons for Increased Interest in
Pay-for-Performance in the United States continued

• Rhetoric of Health Care Crisis
• Broder, Washington Post
• The American Health Care System is urgently in
  need of being overhauled
• Senator Frist (R. Tennessee)
• The status quo of health care delivery is
• unacceptable today and the health care sector
  needs
• to be radically transformed
• - Medicare budget pressures

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Pay-for-Performance U.S. Examples(from 100)

• CMS
• Requires hospitals that participate in Medicare
  to report selected performance data to qualify
  for full payment .4 penalty for non-reporting
• 98 of Medicare hospitals report
• Integrated Healthcare Associations P4P
  Initiative (California)
• 6 plans, over 200 physician groups, 7 million
  commercial HMO enrollees
• Standardized performance data and public report
  cards
• Total payouts to high ranking groups will be 40
  million to 100 million

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U.S. Examples

• Bridges to Excellence
• Physicians who earn recognition via NCQA programs
  receive annual incentive payments of 50-100 per
  employee or family member of participating
  employers
• Rollout sites Louisville, Cincinnati, Albany,
  Massachusetts
• Major employers GE, Raytheon, Proctor and
  Gamble, Verizon, UPS, Ford

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• Pacific Care Health Systems
• In 2003, PacifiCare contracted with 300 large
  multispecialty physician organizations in
  California with groups providing care to an
  average of 10,000 enrollees each
• PacifiCare had measured performance of groups on
  quality since 1993 and first made the information
  public in 1998
• New quality improvement program based on a subset
  of measures was announced in 2002 to become
  effective in 2003 contracts
• 163 groups had enough PacifiCare patients to be
  eligible for the program

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Pacific Care Health Systems continued

• KEY COMPONENTS OF THE PROGRAM
• Performance targets set at 75th percentile of
  2002 average performance of groups
• Groups received a bonus of 23 cents PMPM for each
  target met or exceeded
• Overall, groups with 10,000 PacifiCare enrollees
  could receive 270,000 annually for perfect
  performance
• This was about 5 of the professional capitation
  paid by PacifiCare to average group and 0.8 of
  overall group revenue
• Performance assessed on rolling year of data and
  payments made quarterly
• Groups anticipated that other plans soon would
  implement similar programs

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Pacific Care Health Systems continued

• OUTCOMES
• Improvement occurred in all three quality
  measures studied but this also was true for
  PacifiCare provider groups in a comparison area
  (Pacific Northwest)
• For only one measure, there was a significant
  difference in the rate of improvement
• In the first year, PacifiCare awarded 3.4
  million out of 12.9 million in potential bonus
  payments
• 60 of groups received payments initially and
  this increased to 75 after one year only 14
  groups received payment for 5 or more (out of
  ten) measures
• High performing groups, prior to the program,
  received most of the bonus money but improved the
  least
• __________
• Source Rosenthal, JAMA, October 12, 2005

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Pay-for-Performance at the Market Level The
Community Tracking Study

• Background
• Goal of CTS Better understanding of how health
  systems change over time at the community level
  and how market-specific factors influence change
  across different communities
• Design
• 12 randomly selected communities (1996)
• Surveys of providers and consumers
• Site visits for collection of interview data
  every two years
• Most recent site visits
• January June 2005
• Over 1,000 interviews using structured protocols
• Representatives of provider organizations, health
  plans, large employers, third party
  administrators, benefit consultants, health
  insurance brokers
• Multiple interviews with the three largest health
  plans in each community
• Funding The Robert Wood Johnson Foundation

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(Principal) Employer (Agent) Health
Plan (Principal) (Principal) Medical
Group (Agent) (Agent) Physician
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Pay-for-Performance at the Market Level The
Community Tracking Study

• Employers
• Local benefit managers had limited interest in
  health plan pay-for-performance efforts
• Saw these efforts as a normal part of network
  maintenance
• More focused on shifting costs to consumers,
  implementing disease management and wellness
  programs
• Benefit managers who were aware of
  pay-for-performance efforts were often skeptical
• Some employer involvement in community efforts to
  encourage collaboration among plans in defining
  performance measures (eq Phoenix, Seattle)

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Pay-for-Performance at the Market Level The
Community Tracking Study (continued)

• Health Plans
• 27 of 34 Plans had pay-for-performance programs,
  pilot efforts or planning stage efforts
• Plans not developing pay-for-performance
  initiatives
• Were focusing instead on changing consumer
  behavior
• Didnt have resources necessary to mount program
• Were waiting for direction from corporate offices

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Pay-for-Performance at the Market Level The
Community Tracking Study (continued)

• Health Plans (continued)
• Broad range of measures in use, including many
  that are efficiency-related
• Local market relations between providers and
  plans shape pay-for-performance implementation
• Money at stake ranges from small to substantial
  sums
• Miami plan 4,000 per physician is average
  award with maximum award of 12,000
• Growing consensus that plans need to have at
  least 10 of provider compensation tied to
  pay-for-performance to get a response
• Substantial variation across programs in percent
  of providers receiving bonuses
• Few plans risk adjust or have a strategy for
  evaluating impact

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Pay-for-Performance at the Market Level The
Community Tracking Study (continued)

• Providers
• Gaining provider acceptance of pay-for-performance
  is major health plan challenge
• Providers voice support in theory but negotiating
  details has gone slowly
• Local plans have emphasized a collaborative
  approach
• Provider concerns include
• Choice of measures
• Administrative burden
• In-consistencies across health plan approaches
• Sample size on which measures are calculated (for
  physicians)

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Pay-for-Performance at the Market Level The
Community Tracking Study (continued)

• Providers continued
• Communities where most physicians practice in
  organized medical groups are further along in
  implementing pay-for-performance for physicians
• Orange County
• Integrated Health Care Association has developed
  pay-for-performance for HMO patients
• California Blue Cross has developed
  pay-for-performance for its PPO patients
• Health plans pay-for-performance money is added
  to medical group bonus pools for physicians with
  distribution to frontline physicians being highly
  variable
• Boston
• The three largest plans include
  Pay-for-performance in physician contracts
• About half of pay-for-performance dollars reward
  cost containment
• Frontline physician awareness of
  pay-for-performance is minima\
• New money or withheld dollars?

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Pay-for-Performance at the Market Level The
Community Tracking Study (continued)

• Summary
• Implementation of pay-for-performance is highly
  variable across communities depending on local
  market characteristics
• No consensus has emerged on key issues
• Measures to be used
• Dollars needed to stimulate behavior change
• Medical groups play an important role in
  implementation of physician pay-for-performance
  programs and their subsequent impact
• Disconnect between public support expressed for
  pay-for-performance by large, national employers
  and awareness and support on part of local
  employers
• Pay-for-performance further along for hospitals
  than physicians
• Evaluation of effectiveness is generally missing

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The Future if Pay-for-Performance in the United
States Current Debate

• Standardization of measures at the national level
  versus negotiated solutions at the local level
• The role of organized medicine
• AMA pact with Congress on Medicare
  pay-for-performance
• specialty society response
• Medicare support for pay-for-performance
• de-facto standardization?
• -- will health plans mimic Medicare?