Developing Pay-for-Performance Programs

“Paying for performance” is a health care financing strategy that is gaining momentum. At its essence, a pay-for-performance program rewards health care providers, including physicians and hospitals, for improving the quality of care they provide to patients. Pay- for-performance programs are multi-faceted and their implementation is complex. Some private payers have initiated pay-for-performance systems and Congress is contemplating repealing its current formula for calculating Medicare physician payments and replacing it with a system under which physicians would be compensated for meeting certain quality thresholds.

HCFO research helps to inform policymakers who are debating the merits of this evolving payment strategy.

Public Report Cards

While improving the value of health care spending is a laudable goal, creating the proper incentives in pay-for-performance programs is a challenge. For example, to what extent could public reporting of quality improve these programs? As the consumer-centered movement continues to expand within the health care system, it will be important to determine whether there are natural and useful points of entry for the consumer within pay-for-performance programs, including consumers’ consideration of publicly reported information.

The 100-plus pay-for-performance programs that are currently underway are structured across a variety of clinical quality and patient experience dimensions¹. Much of the discussion around pay-for-performance programs focuses on clinical measures, including rates of immunizations and screenings, as well as disease management efforts. Many organizations view public reporting as an essential tool for effectively paying for performance. Bridges to Excellence², a multi-state, multiple-employer initiative designed to reward quality across the health care system, has developed a program called “Physician Office Link,” which offers bonuses to physicians who implement processes designed to reduce errors and increase quality. In this program, a report card describes physicians’ performance and is available to the public.³

The role of the consumer as the ultimate winner or loser relative to provider performance cannot be underestimated. Public reporting of physician performance and the potential for even greater quality of care should be considered as a component of or supplement to the rapidly developing pay-for-performance programs.

HCFO has funded work examining the usefulness and impact of public report cards and their effect on provider and consumer behavior. In the early stages of his project, Ted von Glahn from the Pacific Group on Health is exploring the impact of patient-reported physician performance information on patient selection of doctors, quality improvement activity in group practices, and patient-reported performance measures. He will test whether medical groups value a survey of patient-reported physician experiences, leading to quality improvement and also whether this survey is valued by consumers, aiding them with choice of physician.

HCFO grantee Meredith Rosenthal at the Harvard School of Public Health examined the impact of medical group (PacifiCare of California) report cards on consumer and provider behavior. Pacificare’s report cards provided a relative performance assessment of provider groups in selected areas of clinical, service, and administrative quality. Rosenthal found that while consumers changed behavior, particularly in response to clinical quality measures, provider performance trends did not show a sharp response to public reporting.

Judith Hibbard at the University of Oregon explored whether public reports of hospital quality motivated improved behavior and performance and how public reporting affected consumer perceptions of hospital quality. Hibbard found that making performance information public appears to stimulate quality improvement activities in areas where performance is reported to be low.

Systems to Evaluate Physicians

Measuring physician quality for purposes of rewarding high performance is a complex task. Determining which measures to use, how to collect the data, and the role of risk adjustment are all moving parts in the evolving development of pay-for-performance programs.⁴

HCFO grantee Bill Thomas at the University of Southern Maine has examined risk-adjustment methodologies used in the economic profiling of primary care physicians and specialists. The economic profiles evaluated practice efficiency and compared actual health care costs incurred by health plan members in a physician’s panel with the costs that would be expected for those members. The general theme of these studies is that some methodologies are able to generate more accurate cost estimates than others, and the accuracy of these systems is influenced by a number of factors. Accordingly, Thomas concludes that physician profiling systems should be used with caution, particularly to the extent they are used to reward or penalize performance.

HCFO-funded research:

Title: Testing the Value of Patient-Reported Physician Quality Information for Quality Improvement and Consumer Choice
Institution: Pacific Business Group on Health
Time: December 2004 – December 2005
Principal Investigator: Ted von Glahn

What is the value of periodic reporting of patient-reported quality information for quality improvement and consumer choice? The researcher is evaluating the impact of patient-reported physician performance information on patient selection of doctors, quality improvement activity in group practices, and patient-reported performance measures. Specifically, the researcher is testing the premise that a brief survey of patient-reported physician experiences is valued by medical groups for quality improvement and by consumers for physician choice. The project includes a case-control study at two California group practices, where patient-reported performance scores are already linked to financial reimbursement levels in HMO and POS plans. The objective of the project is to help overcome resistance to the public reporting of physician quality performance by evaluating the value to medical groups and consumers of patient-reported survey results.

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Title: The Impact of Performance Reporting on Consumer and Physician Organization Behavior
Institution: Harvard School of Public Health
Time: March 2003 – October 2004
Principal Investigator: Meredith B. Rosenthal, Ph.D.

How are public “report cards” on consumer and physician behavior being disseminated? The researchers evaluated PacifiCare’s Quality Index report cards, which provide a relative performance assessment of provider groups in selected areas of clinical, service, and administrative quality. The researchers tested: 1) how new and continuing health plan enrollees use comparative quality information to select a physician group; 2) how mobilization of consumer choice based on comparative quality information drives physician group performance improvements; and 3) how physician groups are responding to performance measurement when data are used for confidential benchmarking only while other dimensions of quality are reported to consumers. This project fills an information gap concerning the value of publicly reported quality information and provides guidance to public and private decision makers on the measurement and dissemination of provider quality information.

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Title: Assessing the Impact of a Public Report on Hospital Quality: A Controlled Experiment in the State of Wisconsin
Institution: University of Oregon
Time: September 2001 – August 2004
Principal Investigator: Judith H. Hibbard, Dr.P.H.

How do hospitals react to public reports of their quality and how do such reports influence consumers’ perceptions of hospital quality? This study will assess whether public reports of quality lead to improvement efforts within hospitals. The researchers also are studying whether the public reports create a general impression among consumers about the quality and safety of hospitals in the community. Hibbard and her colleagues are working with The Alliance, a large purchasing group based in Madison, Wisc., that will disseminate the public report. The researchers are conducting a controlled experiment in which hospitals will be assigned to one of the following three groups. Hospitals in The Alliance, 25 in the region surrounding Madison, will be included in the public report. The remaining 100 hospitals in Wisconsin will be separated by size (large and small) and randomly assigned to either the other treatment group or the control group. The second treatment group will receive a report of their own performance compared with other hospitals that will not be made public. The control group will not receive any reports.

Hibbard, J. et al. “Does Publicizing Hospital Performance Stimulate Quality Improvement Efforts?” Health Affairs, Vol. 22, No. 2, March/April 2003.

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Title: Using Physician Profiling Software to Evaluate the Practice Efficiency of Physician Specialists
Institution: University of Southern Maine
Time: July 2003 – June 2004
Principal Investigator: J. William Thomas, Ph.D.

How does examining the feasibility of using episode-based physician profiling systems help to evaluate the practice efficiency of physician specialists? The researchers evaluated the accuracy of seven primary care provider profiling methodologies and examined the implications of differences in accuracy for assessments of physician performance. They focused on two of the seven methodologies that were episode-based—Episode Treatment Groups (ETGs) and the MEDecision Practice Review System (PRS)¬—to examine 15 (10 medical and five surgical) specialties. The objective of the project was to determine whether the risk-adjustment methodologies used to generate reliable profiles in a primary care setting can be extended to specialists given the unique factors that arise in profiling specialty physicians.

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Title: A Comparative Evaluation of Risk-Adjustment Methodologies for Profiling Physician Practice Efficiency
Institution: University of Michigan
Time: May 1999 – April 2002
Principal Investigator: J. William Thomas, Ph.D.

How accurate are existing physician profiling products used by health plans at predicting/identifying resources used by physicians and physician groups? Researchers at the University of Michigan evaluated these products to answer the following questions: 1) Do some physician profiling risk-adjustment methodologies produce more accurate profiles of physician practice efficiency than others? If so, how do the methodologies compare? 2) How does the number of patients managed by a physician affect the accuracy of the physician’s practice efficiency profile? and 3) Are differences in accuracy among profiling systems’ risk-adjustment methodologies large enough to affect rankings of physicians’ practice efficiency? How consistent are physician practice efficiency rankings from different profiling systems, and how consistent are the systems in identifying outlier physicians? As the researchers noted, physician-profiling information “can be used to select network providers, channel patients, and identify both exemplary practice styles and those that suggest a need for education. Also, reports indicate that profiles are used by health plans for identifying physicians for de-selection from networks.” The objective of this study was to evaluate the accuracy of the profiling methodologies being marketed to health plans and examine the implications of differences in accuracy among the tools.

Thomas, J.W. et al. “Comparing Accuracy of Risk-Adjustment Methodologies Used in Economic Profiling of Physicians,” Inquiry, Vol. 41, No. 2, September 2004.

Thomas, J.W., “Economic Profiling of Primary Care Physicians: Consistency among Risk-Adjusted Measures,” Health Services Research, Vol. 39, No. 4, August 2004.

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Title: Evaluating the Use of Performance-Related Information and Financial Incentives in Employer Health Care Purchasing
Institution: Economic and Social Research Institute
Time: January 1997 - March 1999
Principal Investigator: Jack A. Meyer, Ph.D.

What impact does the dissemination of report cards of health plan performance or linking reimbursement to plan performance have on consumer selection of health plans? Researchers conducted the second phase of an evaluation of “value-based” purchasing efforts, where purchasers attempt to measure and compare providers and health plans and hold them accountable for achieving cost and quality goals. The first phase of this project was completed under a prior HCFO grant, Evaluating Business Initiatives in Health Care Purchasing. The project expanded beyond private employer coalitions to include state government purchasing and to evaluate the use of performance-related information and the impact of financial incentives. The researchers assessed five purchasing initiatives that provide report cards to consumers or tie reimbursement to performance, selecting a combination of initiatives by private business coalitions, states as employers, and state Medicaid programs. The objective of the project was to help public and private policymakers better understand the effects of disseminating performance information to consumers and of tying payments to plan performance.

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Title: Evaluating Business Initiatives in Health Care Purchasing
Institution: Economic and Social Research Institute
Time: April 1995 – September 1996
Principal Investigator: Jack A. Meyer, Ph.D.

Are voluntary, employer-based purchasing coalitions an effective means of controlling health care costs while maintaining quality of care? Researchers at the Economic and Social Research Institute evaluated the effects of health care purchasing coalitions on health care costs, utilization, and quality. This grant supported the first two phases of what is likely to be a three phase project, including: 1) a process evaluation; 2) an assessment of intermediate outcomes; and 3) a quantitative impact evaluation. During phase one, the researchers assessed the purchasing activities of six coalitions across the country, including how they have been implemented, and how they compare to past purchasing practices. The objective of this research was to give employers and policymakers more information on the effectiveness of community-based efforts of business coalitions and individual companies to reform the way health care is purchased.

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¹Testimony of Meredith B. Rosenthal, Ph.D., at the House Subcommittee on Employer-Employee Relations Hearing on Examining Pay-for-Performance Measures and Other Trends in Employer-Sponsored Health Care, May 17, 2005.

²http://www.bridgestoexcellence.org/bte/

³See presentation of Bridges to Excellence President Jeff Hanson, “Pay-for-Performance: Taking Health Care Quality to the Next Level,” Alliance for Health Care Reform/RWJF Briefing, July 15, 2005.

⁴See Medicare Payment Advisory Commission’s Report to Congress – Medicare Payment Policy, “Strategies to Improve Care: Pay for Performance and Information Technology,” Chapter 4, March 2005