IOM Report Evaluates Pay-for-Performance Incentives

Medicare is not getting the best value for the health care it purchases for America's seniors, according to a new report issued by the Institute of Medicine, or IOM. In general, says the report, the federal program rewards providers for the volume, rather than the quality, of services they provide -- a situation pay-for-performance incentives could help address.

"The system provides few disincentives for overuse of often high-cost medical services and does little to encourage coordinated, preventive and primary care that could save money and produce better health outcomes," says a summary of the report (PDF file: 4 pages / 124 KB. More about PDFs.) "Rewarding Provider Performance: Aligning Incentives in Medicare."

The IOM study, which was requested by Congress and sponsored by CMS, is the third in a series of studies undertaken to learn how to accelerate the pace of quality improvement in the country's health care system.

Recommendations from the study were released at a public briefing in Washington on Sept. 21; a free, read-only copy of the full report is available.

In general, the study found that Medicare's payment system focuses on rewarding health care providers for a high volume of services rather than for the quality of those services. "Pay-for-performance (or P4P) measures should shift rewards from service use to patient outcomes," says the study.

"The Medicare payment system needs to align its incentives to ensure that care meets professionally recommended quality standards, is centered on individual patients' needs and is delivered efficiently," says the report. Rewarding physicians who deliver high-quality care could speed the implementation of best practices, the report concludes.

Of particular interest to family physicians is the study's statement that care coordination is needed. "Medicare beneficiaries see, on average, five physicians a year; those with chronic heart failure, coronary artery disease and diabetes see an average of 13," says the report.

"Pay-for-performance mechanisms should recognize, promote and reward improved coordination of care among a patient's multiple providers and during entire episodes of illness," says the report. Furthermore, patients and their providers should collaborate to choose the caregiver who could be rewarded for successfully coordinating patients' care, the report concludes.

In an interview following the report's release, Bruce Bagley, M.D., AAFP's medical director of quality improvement, said that family physicians and internists would most likely take on the bulk of the care coordination role. "However, I am concerned about our capacity to do it properly," he said. "We must put systems in place -- such as registries -- that actually track patients with chronic illness and assign someone on the care team the responsibility to use the registry to assure that the evidence-based care is accomplished on a timely basis."

The report recommends phasing in P4P over a three- to five-year time frame using existing Medicare funds. It suggests Congress create provider-specific pools to fund a P4P program by reducing the base Medicare payment for each class of providers (hospitals, skilled nursing facilities, Medicare Advantage plans, dialysis facilities, home health agencies and physicians).

Bagley said such a system could benefit family physicians because the base for all physicians thus would be reduced to fund care coordination, leading to better overall compensation for primary care. "My assumption is that the reduction would come from all physicians, thereby affecting family physicians in a small way. But the benefit would come mostly to primary care, which would benefit family physicians the most," he said.

Robert Reischauer, president of The Urban Institute in Washington, D.C., and one of the authors of the study, was on the panel that presented study results and fielded audience questions on Sept. 21. His comments were captured on a live webcast of the event.

Responding to a question about funding P4P programs, Reischauer said, "Nothing in this report suggests that money should be taken out of the system; rather, we're redistributing resources within the Medicare program."

An audience member asked whether physicians would react to lower Medicare payments by dropping out of the Medicare program. "We're very sensitive to continued monitoring of the access Medicare beneficiaries have to the providers they desire to see," responded Reischauer.

Another question focused on how much "reward" money it will take to motivate physicians. "We struggled with that," said Reischauer. "Financial rewards are important, but public reporting, private reporting and letting physicians know where they stand relative to their peers is likely to be important as well. We suggested (in the study) moving forward slowly and examining what it will take to do the job. If we need more resources, we'll move in that direction."

The study's recommendation that a P4P program initially reward improved performance as well as exemplary performance met with approval from the AAFP's Bagley. "This is really the only way to engage all players and to get those who are already doing well to do better," he said.