Medicare tests pay-for-performance

Washington -- Doctors might want to pay close attention to how Medicare reimburses 10 large physician practices over the next three years. One day, this could be how the federal government pays many of the program's participants.

The Centers for Medicare & Medicaid Services this month revealed the names of the practices that will be participating in the first public pay-for-performance demonstration for physicians.

CMS, which plans to launch the project in April, will encourage the groups to lower Medicare costs and improve health care quality by offering to return to physicians a portion of the money that they save the government program.

"It is time that we pay for the quality of the health care provided to our beneficiaries, not simply the amount," said CMS Administrator Mark McClellan, MD, PhD. "We are working to apply this in every setting in which Medicare and Medicaid pays for care."

To attain project goals, participating practices have proposed several methods, such as disease management, to find efficiencies in health care delivery and to improve patient outcomes in a way that cuts down on the number of needed services over the long run. Already, some groups have achieved similar successes with privately insured patients.

Several doctors who will direct these strategies suggested that such a move is long overdue in Medicare.

"Under the current system, practices are paid only according to how much they provide, and there's absolutely no incentive for them to limit care," said Michael Hillman, MD, a neurologist and the medical director of quality improvement and care management at Marshfield (Wis.) Clinic. "One of the biggest obstacles that we've had in health care is defining and paying for the performance that we want out of the health care system."

The clinic's physicians are confident that enhancing the use of disease management techniques and health information technology on their target group of Medicare beneficiaries will save the program enough money for the practice to qualify for pay-for-performance dollars, Dr. Hillman said. In the first year of the demonstration, CMS will place the bulk of the per-facility savings that exceed a 2% target into a pool for eventual distribution to the eligible practices.

One major area of concern for the American Medical Association is whether such programs focus on saving Medicare money at the expense of improving the quality of care, said AMA Trustee John H. Armstrong, MD, a trauma surgeon in Miami. In the first year, only 30% of the pay-for-performance pool will be available to practices based on quality improvements, with the remainder being distributed according to each facility's ability to lower costs.

"With a focus on improving patient quality, this could be an innovative pilot, but if the focus is on cost-cutting, we're going to be very concerned right from the start," Dr. Armstrong said. "If the program is focused on quality, one would expect to see a greater percentage of the [payment pool] across all three years based on quality."

A successful program must take into account the fact that improving the quality of patient care likely will require a short-term increase in treatment costs rather than a decrease, Dr. Armstrong noted.

The upfront expense of providing more preventive care has the potential to save money over the long run by avoiding costly treatments years down the road, but the project's three-year span might not be long enough to register this.

Official AMA policy on pay-for-performance could emerge as early as June, when delegates meet in Chicago for the Association's Annual Meeting. Dr. Armstrong is heading an AMA task force that is planning to produce a position paper on the issue in time for the meeting.

The participating practices also are exhibiting some wariness about the role of quality improvement in the demonstration.

The list of quality measures used to assess the groups' progress -- and the percentage of pay-for-performance money that is dependent on it -- becomes larger each year, while some of the real cost-saving effects of enhancing quality might not emerge until years later.

Dr. Hillman said participants are confident that they can demonstrate marked progress in providing more chronic and preventive care, such as the administration of beta-blockers to coronary disease patients with a prior heart attack. But there is less predictability to the Medicare cost savings that can be tied to this care.

"Those services will probably pay off in a longer time frame than this demonstration has," Dr. Hillman said.

Skirting payment adequacy

For the practices participating in the demonstration, the bulk of the physician payments will continue to come via a fee-for-service system that many doctors say is deeply flawed. Pay-for-performance benefits could prove insufficient to offset the losses sustained under a payment formula that does not adequately track physician practice costs.

Both federal officials and physician practices will need to account for the fact that many elements of care management essentially will go unreimbursed until the performance payments kick in, said Barbara Walters, MD, senior medical director at Dartmouth-Hitchcock Clinic in Bedford, N.H.

"You don't get any payment for a visit with a care manager, or a phone call, or an outreach letter," she said. "So fee-for-service doesn't easily lend itself to this type of a project."

Potential Medicare cuts stemming from the sustainable growth rate formula become part of the financial assessment that each practice must undertake before volunteering for the pay-for-performance programs. Marshfield Clinic and Dartmouth-Hitchcock Clinic, for instance, plan to invest millions in implementing their care management programs with the anticipation that they will be able to recoup the money through the combination of fee-for-service and pay-for-performance dollars.

For the time being, CMS is forging ahead with pay-for-performance without a permanent SGR fix, which must come from Congress. The agency nevertheless is aware that the success of such a program could rest in part on creating an underlying reimbursement system that is more equitable to doctors, said Stuart Guterman, director of the CMS Office of Research, Development and Information.

"If physicians don't have any faith in the payment system, it's going to make it harder to establish a credible pay-for-performance program," Guterman said.

The AMA's Dr. Armstrong agreed. "Clearly, we need to have physician payment reform before any pay-for-performance program is put into effect across the entire system."