Pay-for-performance programs pressure and please physicians.

Steve McDermott is an unapologetic Darwinian.

"In competition there are winners and losers," he says. "In the health care profession, people have a lot of trouble with that."

He lifts an eyebrow. "According to the AMA, doctors are only 'good,' 'better' and 'best.' But it's my contention that there are many medical groups that we know aren't doing a very good job at all. Over time they should be driven out of business if they don't improve.

"That's not," he admits, "a position that's widely agreed upon."

McDermott, founder and CEO of one of the largest independent practice associations in the nation--2,100-doc Hill Physicians Medical Group, headquartered in San Ramon, California--has done his part to help nudge U.S. medicine closer to that survival-of-the-fittest model. For the past five years, the amount of money a Hill primary care physician can earn has been tied to individual clinical performance.

Cost and utilization benchmarks along with participation in group activities like CME are factored in when bonuses are divvied from a pool the group has pegged at close to $10 million this year. But the greatest weight is given to how well a doctor stacks up on a long list of quality criteria from the Health Plan Employer Data and Information Set (HEDIS, which captures activities related to prevention and management of a variety of chronic and acute conditions as well as customer service and access) and other evidence-based gauges of state-of-the-art medical practice.

Top-performing Hill physicians can sweeten their paychecks by up to 30 percent if they max out on a 40-point scale. The average Hill doctor pockets a 15-percent performance bonus, or about $10,500 per quarter, McDermott says. And yes, about one in seven slouches home empty-handed.

Those are "economic consequences that motivate people's attention," McDermott says.

A signature program

But McDermott isn't content simply to shake his own doctors out of a professional lethargy that allowed patients in the United States to receive substandard medical treatment almost half the time. (That sorry situation was documented in the New England Journal of Medicine last year, when a nationwide study found that only 55 percent of patients benefit from the level of care recommended for their conditions. (1))

"I wish health care was uniformly of extremely high quality," says Samuel Nussbaum, MD, executive vice president and chief medical officer of Anthem Blue Cross and Blue Shield, headquartered in Indianapolis. "But the evidence shows it's a flip of a coin."

In 2000, McDermott was elected chairman of the Integrated Healthcare Association, a brain trust of major players in California's health care sector. "I was looking for a signature program, something that would put IHA on the map," he recalls.

For a long time he'd been chafing at the lack of any bankable distinction between the best medical groups and the worst--between an organization like Hill, whose physicians are universally acknowledged as stellar on health plan report cards, and competitors who were "performing really miserably and dragging down the whole product, and yet getting paid the same as we were [under fee-for-service]. We think that's crazy."

So McDermott proposed and actually persuaded his fellow stakeholders to agree to a reimbursement scheme that is the most sweeping medical group pay-for-performance experiment of its kind in the United States.

California's seven largest health plans--all IHA members, covering 85 percent of the state's 10 million commercial HMO enrollees--have agreed to scale payments to some 159 provider organizations according to a common set of performance measures in three key domains:

1. Clinical quality

2. Patient experience

3. Investment in information technology

Several insurers had already embarked on their own tentative quality reward programs. Initially the payouts were piddling, McDermott says, "even though we were the top group, we got no more than 0.03 percent" as a performance premium.

Under mounting moral suasion to take into account the quality as well as the economy of medical services, insurers rapidly ramped up their performance incentives. Last year, Hill Physicians received an extra $3.9 million from health plans to parcel out among its high achievers. (That's still only 1 percent of gross revenues, grumbles McDermott.)

The first annual checks under the IHA Pay for Performance aegis--using a more-or-less consolidated data set that simplifies the reporting task for physicians and eliminates "dueling scorecards"--will be issued this summer.

And high quality, when it's celebrated so visibly, bestows another boon, points out PacifiCare chief medical officer Sam Ho, MD. In the five years since his health plan began publicly rating and compensating physician groups for service excellence, upper-end practices have attracted 30,000 more patients than their lower-end counterparts--an $18 million boost to revenues over and above any bonuses.

Hill Physicians continues to crown the medical group charts and rake in the biggest bounty. McDermott expects to receive at least $4.7 million and perhaps as much as $7 million in IHA performance payouts this year, depending on how certain plans finalize their criteria.

The total amount to be distributed the first year will range from $16 million to $20 million, and will add about 3.5 percent to the average group's bottom line.

"This would indicate we still have a ways to go," McDermott observes, "to achieve our full potential."

Claptrap

To McDermott, compensating medical providers according to how good a job they do simply means "introducing business principles into an industry that's resisted business principles--yet is the nation's biggest industry! It's an oxymoron."

William G. Plested III, MD, chairman of the AMA Board of Trustees, doesn't see it that way, to put it mildly.

In a recent editorial in American Medical News, he railed at the concept of pay for "quality"--he applied the quotation marks as an ironic device. It's "the newest scam dreamed up by the multimillionaire CEOs of health insurance companies and HMOs," he says, "to reduce payments to the vast majority of physicians." And he added, "What amazes me is how many physicians actually believe this claptrap."

Plested maintains that "every physician knows that he or she would not even consider practicing anything but the best or highest quality of medicine possible."

McDermott won't gainsay the high-minded intentions. But he notes that when Hill Physicians began collecting and publishing internal data on its own individual doctors' adherence to best practices 12 years ago--blinded and without any economic consequences--a modest rise in performance ensued.

As soon as cold cash was introduced into the equation, however, there was a sharp upward spike. And adherence to evidence-based guidelines and customer satisfaction measures has continued to improve in direct correlation to the amount of income a Hill doctor can earn simply for doing the right things.

But are they the right things?

Critics like Plested make no bones about their distrust of payers and their motives. He complains that insurers won't divulge their criteria and won't reveal which physicians are getting how much.

That charge doesn't hold, though, for the IHA program whose parameters are described in detail on the organization's Web site, www.iha.org/Ihaproj.htm.

Nor is it true when participant plans like PacificCare, HealthNet and Blue Cross paper the media with press releases praising the groups who've made their quality honor rolls.

Neither is it true of Diabetes Care Link, a large employer-led pay-for-performance initiative launched last year under the rubric of Bridges to Excellence. Selfenrolled physicians in Cincinnati and Louisville get a $100-per-patient bonus if they meet National Committee for Quality Assurance (NCQA) and American Diabetes Association standards of care for their diabetic clientele.

One practice, after six months, banked $7,500, and higher payments are forecasted as more doctors sign up. Bridges to Excellence has similar arrangements in the works for cardiac care and implementation of information technology--with the best-performing practices to be highlighted in company provider directories.

Unintended consequences

There are always arguments about whether the indicators selected to determine "medical quality"--here borrowing Plested's usage--are appropriate, and whether adequate risk adjustment is applied to validate performance comparisons.

The gold standard would be actual outcomes data. In fact, advances in electronic medical record keeping may eventually make those available. That's one reason, along with error reduction and closer attention to patients' needs, that investment in clinical information systems will this year account for 20 percent of the IHA Pay for Performance formula.

Critics like AMA senior public information officer Robert Mills fret about the IT costs doctors are being asked to absorb to play in the game. "Will financial incentives be sufficient in scope to warrant the expense of new documentation systems necessary to meet the incentive criteria?" he asks.

As it stands, admits McDermott, of the 300 medical groups in California eligible to participate in the IHA program, upwards of 40 percent are not yet equipped to track their own data.

For the time being, he says, the HMOs will keep score for them. But those practice associations will only receive an annual report card, and will be unable to make corrections on the fly. Moreover, they will have to meekly accept the plans' numbers--a position McDermott finds as untenable over the long term as Plested.

Still another strong talking point for skeptics is, as Mills puts it, the possibility that "big bonuses for hitting performance targets might lead docs to avoid patients who might do poorly, rather than improving care for all patients."

The "boldest (pay-for-performance scheme) ever attempted anywhere in the world" has just been enshrined in the new contract between general practitioners in the United Kingdom and that country's National Health Service, says UCLA medical professor Paul Shekelle, MD. Doctors who can satisfy "76 quality indicators in 10 clinical domains of care, 56 in organizational areas, four assessing patients' experience, and a number of indicators for additional services" stand to receive up to 50 percent more in government compensation.

But sure enough, no sooner were the details of the NHS proposal announced than an enterprising medical student examined the files of one local practice and calculated that by gaming the system's hypertension management criteria it could realize [pounds sterling]1,800 more a year--about $3,300.

Although failing to record every patient's blood pressure at least once every nine months would incur a $1,100 penalty, Alistair Revolta pointed out that the practice could simply exclude that statistic for its 110 patients who did not meet the benchmark of 150/90 and record instead, at more frequent intervals, the blood pressure of an equal number of better-controlled patients.

"This and other perverse incentives we identified are simply a matter of diverting resources to do exactly what our contract requires and are not fraudulent," Revolta wrote to the British medical journal BMJ. "If we collude with these, we will get more money, the government will get statistics 'proving' that patient care has improved as a result of the quality framework, and yet the care of the population is probably poorer."

Acknowledged Shekelle: "As with any program designed to bring about a certain change, unintended consequences present a worry."

The old identity

"Any strategy that rewards quality--for infrastructure development, for improvement of patient care--is a winning strategy," maintains Anthem's Nussbaum. "The real issue is refining and advancing performance measures that can tell a powerful story."

Anthem, with operations in nine states, has been a pioneer in physician pay-for-performance. Some 13,600 doctors are currently participants in such incentive programs, including all the primary care providers in New Hampshire and a group of ob/gyn practices in central Ohio. Quality bonuses are currently in the 5- to 10-percent range, says Nussbaum, who adds, "I believe we should see that grow. Physicians have said, 'Find a way to reward those of us who practice high-quality medicine.'

"I believe everyone wants to give exceptional care, timely care, care that's free of error," he explains, "and pay-for-performance is creating the infrastructure that can support that."

Wound specialist Ronald Bangasser, MD, president of the California Medical Association, is a member of the IHA and a proponent. "It's only a voluntary opportunity to receive more money, not a punitive thing," he asserts. "The CMA took a position to make sure the measures and indicators were important for real quality improvement, not just 'Do you like your doctor?'

"Even for patient satisfaction," he continues, "the plans are using a validated instrument. This is of great value--and we'll be adding more substance and raising the bar every year."

Of course, it probably doesn't hurt that Bangasser's 145-doctor Beaver Medical Group in Redlands expects to split $1 million or so when the IHA distributes its first pot.

And notwithstanding Plested's antipathy--"we should simply say 'Thanks, but no thanks,' to this insult to our basic intelligence and professional integrity,"--McDermott says he's encountered "surprisingly little or no negative reaction" among Hill doctors. "They think it's fair. And once they get over the idea of it, they like being scored--and getting information on how to improve.

"You know," he adds, "doctors started out as major students. But once they graduated from medical school they were on their own. A doctor gets little or no feedback. A student gets feedback. For a lot of them, this is going back to their old identity."

IHA Pay for Performance Measurement Set, 2003

Condition        Measure Description                           Weighting

Childhood        The percentage of children who turned two
Immunizations    years old during the measurement year, who
                 were continuously enrolled for 12 months
                 immediately preceding their second birthday,
                 who received each of the following:
                 * four DTaP/DT or
                 * three IPV/OPV or
                 * one MMR or
                 * three H influenza type B or
                 * three hepatitis B or
                 * one chicken pox vaccine
Breast Cancer    The percentage of women age 50 through 69
Screening        years who were continuously enrolled for two
                 years, and who had a mammogram.
Cervical Cancer  The percentage of women age 18 through 64     50%
Screening        years who were continuously enrolled for
                 three years, and who received one or more
                 Pap tests.
Asthma           The percentage of patients with persistent
                 asthma continuously enrolled for two years
                 and who received at least one dispensed
                 prescription for inhaled corticosteroids.
                 The measure should be reported for each of
                 three age stratifications:
                 * 5-9 year-olds
                 * 10-17 year-olds and
                 * 18-56 year-olds
Coronary Artery  The percentage of patients age 18 through 75
Disease          years old as of December 31 and who were
                 discharged alive by Dec. 31 for acute
                 myocardial infarction (AMI), coronary artery
                 bypass graft (CABG) or percutaneous
                 transluminal coronary angioplasty (PTCA) and
                 had evidence of LDL-C screening.
Diabetes         The percentage of members with diabetes
                 (Type 1 and Type 2) age 18 through 75 years
                 old continuously enrolled for one year and
                 who had evidence of Hemoglobin A1c (HbA1c)
                 screening.
Patient          1. Specialty care                             40%
Satisfaction     2. Timely access to care
                 3. Doctor-patient communication
                 4. Overall ratings of care
IT Investment    1. Integrate clinical electronic data         10%
                 sets at group level
                 2. Support clinical decision making at
                 point of care

IHA Pay for Performance IT Investment Measure

IT Domain             Description                Eligible Qualifying
                                                 Activities

Domain 1.             Rewards group-level        Print-out from an up-to
Integrate clinical    integration of any two     -date electronic
electronic data sets  clinical data sets,        disease registry
                      including:                 showing integration of
                      * Encounter/claims         at least two data sets
                      * Lab results              Example: A list of
                      * Prescriptions            patients diagnosed with
                      * Inpatient or ER records  CHF by practice site
                      * Radiology findings and   (encounters) showing
                        the ability to report    hospitalizations and ER
                        at the patient level.    visits in the past
                                                 year. Internally
                                                 generated report to
                                                 individual physicians
                                                 showing actionable
                                                 patient-level data
                                                 derived from at least
                                                 two data sets.
                                                 Example: A list of each
                                                 physician's diabetic
                                                 patients (encounter
                                                 data) with HbA1c above
                                                 9.5 (lab results), or a
                                                 list of children who
                                                 visited the ER for
                                                 asthma and had no
                                                 follow-up visit to PCP.
                                                 (ER records plus
                                                 encounter data).
                                                 Internally--and
                                                 electronically--
                                                 generated numerator and
                                                 denominator results for
                                                 any HEDIS measure that
                                                 includes lab results in
                                                 numerator.
Domain 2.             Rewards actual use of      * Over 50% of primary
Support clinical      electronic lab or            care physicians
decision making at    pharmacy clinical            access lab results
point of care         information at the point     electronically.
                      of care in the             * Over 50% of primary
                      physician's office.          care physicians
                                                   produce computer-
                                                   generated
                                                   prescriptions.
                                                 * Over 50% of primary
                                                   care physicians
                                                   automatically check
                                                   drug-drug
                                                   interactions
                                                   electronically before
                                                   signing prescription.
                                                 * Over 50% of primary
                                                   care physicians
                                                   access clinical notes
                                                   from other physicians
                                                   (or hospital)
                                                   electronically.
                                                 * Over 50% of primary
                                                   care physicians
                                                   receive visit-
                                                   specific preventive
                                                   or chronic care
                                                   reminders
                                                   electronically.

SCORING

Year 1   0%  Group does not demonstrate any functionality
         5%  Group demonstrates one qualifying activity in either domain
        10%  Group demonstrates two qualifying activities in either
             domain
Year 2   0%  Group does not demonstrate any functionality
         5%  Group demonstrates one qualifying activity in either domain
        10%  Group demonstrates two qualifying activities, one of which
             must be in Domain #2

Ensuing years: P4P envisions continuing to raise the requirements for
the IT measure over time, to encourage development of greater IT
capability.

IN THIS ARTICLE ...

Discover how performance incentive plans are permeating some health care organizations, with physicians bringing home tens of thousands of dollars in extra income each year.

Implementing technology visit the Technology Implementation Network at www.acpe.org

References

1. McGlynn EA, and others. N Engl J Med., Jun 26, 2003, 348:2635-2645.

RELATED ARTICLE: ELECTRONIC PRESCRIPTIONS AND BETTER PAY

Not all pay-for-performance incentives are thrust upon physicians.

In Knoxville, Summit Medical Group--a 155-doctor IPA--has been negotiating with its major health plan payers for preferential reimbursement because the group recently invested $1.2 million in an electronic prescribing system.

"We're not looking for token incentives," declares Summit medical director Dwight Wade, MD. Rather, Summit wants a "substantial" share of the savings the health plans are reaping from the group's improved formulary compliance, generic prescribing and 100-percent script legibility.

Summit hopes to recoup some of its technology costs and underwrite the next step, implementation of an electronic medical record, explains Wade, through bonuses that acknowledge its physicians' ability to outperform their competitors in the East Tennessee marketplace.

--David O. Weber

David Ollier Weber is a freelance health writer and frequent contributor to this journal. He can be reached by e-mail in Mendocino, Calif., at [e-mail]