Pay-for-Performance: A wave that has not yet crested?
By Kevin Burchill
Director
Beacon Partners, Inc.


With the recent release of the much-touted results of the third year of Medicare’s so-called “value-based purchasing” for short-term, acute care inpatient stays, comes a key question to consider: are these initial results worth replicating and expanding across all segments of the healthcare market?

To look forward to the future of pay-for-performance (P4P), one needs to briefly look back a few short years to the Centers for Medicare and Medicaid Services' (CMS) initial proposition to providers. Simply put, if you do the right things clinically then they’ll pay you an incremental amount of reimbursement. With that as a backdrop, the Premier Hospital Quality Demonstration (HQID) was started. Now, reporting results from its third year, some 250 hospitals are participating in 36 states. To date, over $24.5 million has been awarded by CMS to HQID providers.

CMS has measured an average Composite Quality Score (CQS), and aggregated the data for patients who have a heart attack (acute myocardial infarction or AMI); coronary artery bypass graft (CABG); heart failure; pneumonia; and hip and knee replacement. According to CMS’s press release dated 6/17/08, the three-year results show the following overall score improvements

• AMI improved from 87 to 96%
• CABG improved from 85 to 97%
• Heart failure improved from 64 to 89%
• Pneumonia improved from 69 to 90%
• Hip/knee replacement improved from 85 to 97%

While these results are important, and the effect of clinically appropriate care to any individual patient is not to be minimized, the rate of return to providers for these efforts should also be considered. Hospitals that achieve performance in the each of the categories can be awarded incentive payments of 2% for being in the top 10% of performers and 1% for being in the next tier, up to the top 20% of performers. One hospital, Sacred Heart Medical Center in Spokane, Washington, was awarded $385,342 for its third-year performance in HQID according to the CMS press release. In fact, the top 112 hospitals earned a total of $7.0 million.

Where does that leave everyone else? Scrambling to participate in a myriad of programs, adopting a plethora of performance measures, and repositioning their organization for the next onslaught of public accountability. We have the now-famous Institute of Medicine’s report, “To Err is Human,” to thank for beginning these efforts of tying clinical performance to public scrutiny and, also, to financial performance.

Providers have been reacting to the published quality measures from a variety of sources over the recent number of years, including the Joint Commission on Accreditation of Healthcare Organizations, the Agency for Healthcare Research Quality, the National Quality Forum, the American Hospital Association, the Institute for Healthcare Quality Improvement, the Leapfrog Group, and CMS, itself, to name but a few. In addition, managed care plans have incorporated a variety of measures into their individual provider contracts that detail both expected levels of clinical performance and specify additional financial incentives for their attainment. The Center for Health Care Strategies, as part of CMS’s 11/4/05 publication of the Description of Services for Performance Incentive Programs for Managed Care Organizations (MCO), Primary Care Case Management (PCCM), Behavioral Health Organizations (BHO), and Fee-For-Service (FFS), listed over 14 pages of initiatives from across the country. The Medicaid/State Children’s Health Insurance Program (SCHIP) Quality Initiative, published in a letter of 8/23/05, notes the specific quality-based payment strategies for this patient population. Also, the Post-Acute Care Reform Plan, part of the Deficit Reduction Act of 2005, is now being piloted across rehabilitation, long-term acute care, and home care providers to establish elements of a common assessment tool for patients that move across or through the continuum of care from inpatient acute care. Perhaps this tool will end the age-old debate of what exactly happened to the patient’s level of care in the ambulance ride between facilities or to home.

We should not lose sight of the Agency for Healthcare Research and Quality’s April 2006 (AHRQ Publication No. 06-0047) caution from their Final Contract Report entitled “Pay for Performance: A Decision Guide for Purchaser.”

Finally, we must note that, while P4P programs create explicit incentives to reward or improve performance, the pre-existing underlying payment system exerts its own set of (mostly implicit) incentives. For example, fee-for-service payment creates an incentive to increase utilization, while capitation payment involves incentives to reduce services. Purchasers must account for the pre-existing payment services incentives when contemplating additional ones. Also, the value of a P4P program will be a function of both gains in the quality of care and the total costs of the program, including additional payments to providers (if any) and the costs of implementation and monitoring.

It has been often said that healthcare is a business, but it is perhaps the most important business in the world to folks in need of care at any level or setting. The balance has seemingly shifted to refocus providers on the importance of quality care and to incentive payments to further that end. Like previous pendulum swings in healthcare, we can tend to move too quickly from one extreme to the other. As these national demonstration pilots continue and as states continue to adopt payment reforms for so-called “never events,” let’s not lose sight of the efforts needed to adopt uniform guidelines for P4P payments, to suggest standard contract provisions for public and private payer agreements, to encourage local provider oversight boards to govern their facilities well and to participate in these quality-based purchasing arrangements, and to incent the performance throughout the provider organization with the adoption of transparent gain-sharing programs for all employees.

This latest payment wave has safely reached a rocky shoreline as Medicare and Medicaid did over forty years ago, as diagnostic related groups did more than twenty years ago, and as capitated contracts did some ten years ago. Let’s not have past payment reform histories and attempts sweep the much-needed patient protections and clinical improvements of P4P back out to sea.

About the Author
Kevin Burchill, Esq., is director at healthcare management consulting firm Beacon Partners, Inc. He can be reached at email.

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