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Across the country, insurers are beginning to pay physicians for improved quality and service. They'll get there faster with your help.

Fam Pract Manag. 2000;7(10):25-28

Health care financing is fundamentally different from other sectors of the U.S. economy, as Part 1 of this series described. In other areas of our lives, we purchase products and services with our own money. We make choices based on our needs and preferences, and we pay for the products or services we value. As consumers, we have significant choice and control — in all areas but health care.

In health care, although the patient is the customer and consumer, physicians are economically aligned with the insurer. Since the insurer holds the dollars, it can influence how care is delivered. Within this system, insurers use the contracting process to manage price. However, few insurers currently have mechanisms in place to stimulate quality and service.

Most physicians rightly feel that quality and service do not pay. Work harder to provide excellent service, and you will not get paid differentially for it. Work harder to incorporate more efficient methods of care, such as group visits or non-visit care using e-mail and outpatient triage systems, and you are unlikely to get paid for those services.


  • Some insurers are beginning to reward physicians financially for quality and service.

  • In one health plan, physicians can receive up to $1.50 per member per month for their performance in five key areas.

  • To move more payers in this direction, physicians must be creative, proactive and constructive in their approach.

It is a strange economy, and consumers (our patients) suffer; they receive far lower value for their health care dollar than they should receive. However, insurers are not solely responsible for the dysfunction of the current system. If we, as physicians, understand the restrictions embedded in the system and the effects on our patients, why haven't we provided a unified, coherent voice and the leadership necessary to bring payers to the table over these issues? Leadership demands more than complaining; it demands hard work and the forging of relationships upon which progress can be made.

While the current environment is undoubtedly flawed, it is not unchangeable. In fact, some insurers and health plans are already creating improved payment systems that seek to reward higher quality clinical care and service. To bring about similar changes in their own settings, physicians must not sit on the sidelines but rather must become engaged, active, positive participants in the process.

Working with insurers and health plans

Contrary to popular belief, it is possible to work with insurers and health plans to develop programs that pay for quality and service. This may require, however, that physicians begin the conversation. In doing so, physicians should keep two things in mind:

First, relationships matter. All change is promoted by strong personal relationships and is thwarted by a lack of relationship. While adversity describes our general feeling toward insurers, physicians should look beyond this and take the initiative to form productive relationships with payers. All too often we falsely assume that we do not share common interests. Begin by developing relationships founded around a common belief: the need for improved quality and service.

Second, individuals can lead these efforts. Do not assume that you do not have a voice simply because you are a single physician. One of the authors of this article (CMK) recently discussed these issues with a friend who is a senior executive at a large health insurance carrier. They were discussing innovations in office delivery, and CMK was lamenting the reluctance of insurers to pay for such innovations. He asked her about the process a physician should go through to make a request for payment for a new method of care, using the examples of e-mail care and group visits. Her reply was shocking. She said, “The physician should simply make an appointment to see me, and we would discuss it. However, in all of my years in insurance, I have never had a physician approach me to discuss new methods of reimbursement for innovative forms of care.”

We often erroneously assume that we as individuals are too insignificant to initiate such a major change, but most major changes begin with individual efforts. As individuals we can promote high-quality care, we can advocate payment changes to insurers, and we can rally others behind us.

Case studies

Across the country, a small but growing number of insurers and health plans (e.g., IPAs, group-model HMOs) are beginning to pay for improvements in quality and service. Their approaches vary, but they are moving in the right direction. Here are just a few examples:

1. Paying for e-mail care: This summer, First Health Group Corp., a managed care company based in Downer's Grove, Ill., announced it will reimburse physicians $25 for sending any “clinical content” to patients over an electronic mail network the company established (see First Health Group's goal is to create an incentive for patients with chronic diseases and their doctors to interact more frequently and thereby reduce hospitalizations. The idea for reimbursing online consultations came in part from First Health Group's member physicians.

The program is designed for the 300,000 patients in First Health Group's 24/7 Chronic Care Support Program. Patients must first go to the company's Web site and set up their own page to use as a conduit to reach their physician. Both the patient and the physician must agree to handle a consultation online. Physicians will then be reimbursed for company-defined clinical contacts. For example, doctors who answer questions patients pose about their conditions could be reimbursed. Depending on the plan, patients could have a co-pay for such services.

Many other such examples exist. Blue Shield of California, in partnership with Healinx, has also established a secure doctor-patient electronic communication system. (See and If the online interaction meets Blue Shield of California's specifications, practices can bill the individual directly up to the amount of the patient's standard visit co-pay. When they enter the system, patients are told there may be a charge for online services and must acknowledge that before they are allowed to proceed.

2. Paying for prevention: In March 1999, Blue Cross and Blue Shield of New Hampshire (BCBS-NH) and its Matthew Thornton Health Plan (MTHP) subsidiary launched a Quality Improvement Incentive Program that rewards primary care physicians for providing exceptional quality care to their members. The incentive program is based on the achievement of specific health care goals. (See

According to Allen Hinkle, MD, BCBS-NH's chief medical director and senior vice president of quality health care management, the incentive program is aimed at rewarding physicians for providing important preventive care services such as Pap smears, mammograms, dilated retinal eye exams for patients with diabetes and immunizations for children under age two.

To be eligible for the program, primary care practices must participate in the combined BCBS-NH/MTHP managed care network and have at least 100 of their members as patients. Specified measures are scored separately at the practice level. Practices that score above the 50th percentile and the network average for the previous year receive a payment for each member who receives a service. The per-member payment for practices in the top quartile is double what practices in the third quartile receive. Practices can receive up to $30 for each plan member.

3. Paying for quality initiatives: Blue Cross Blue Shield of Minnesota (BCBS-MN) has a program called Care Management consisting of “care management consultants” (CMCs) that include a medical director and staff with various health care backgrounds, mostly RNs, who have quality improvement training and experience. The CMCs provide each clinic with a care management report, which includes the age/gender distribution of the clinic's BCBS-MN patients, the morbidity of the clinic's population and the clinic's utilization in the areas of inpatient, outpatient, professional and lab/X-ray services, as compared to a set of reference clinics. The role of the medical director is to establish relationships with physician leaders at key clinics around the state and facilitate the improvement process.

The care management report provides practices with access to data that most do not routinely collect, such as clinical condition distribution among their BCBS-MN patients, variation in utilization by disease, and more. It is intended to help clinics find areas they might examine for process improvement. The CMCs are also available to help clinics with team development, facilitate team meetings, teach continuous quality improvement techniques, provide drill down data, etc.

BCBS-MN uses incentives to encourage clinics to take on quality improvement activities, and the medical director and CMCs help the clinics develop goals. The program often provides incentives of around $50,000 per project for up to three projects, but this amount can vary based on the relationship BCBS-MN has with the clinic and the needs in the region.

The dollars are intended to provide the practice with resources to develop improvement processes. For example, the money can be used to hire a nurse coordinator, to pay part of a practice's medical director's salary, or for other costs related to process improvement. BCBS-MN expects results that are measurable, and the plan allows the projects to be completed over an appropriate time frame (often several years, depending on the complexity). Therefore, a clinic could have a contract with BCBS-MN that provides $150,000 for care management.

Series overview

This article is the second in a three-part series exploring how quality and service can pay within a medical practice.

Part 1 discussed the current health care financing environment and the difficulty practices have in getting paid for providing quality care and exceptional customer service. The article focused on internal changes practices can make to improve quality and service while simultaneously improving financial performance.

This article, part 2, focuses on the external environment and how practices can work with insurance plans and other financial intermediaries (e.g., health plans, IPAs) to create financial incentives for improved quality and service.

Part 3 will explore emerging innovations in the financing system. There is hope. Experts predict health care financing will change dramatically in favor of the consumer in the next five to 10 years. These changes could be of great benefit to physicians as well.

4. Paying for overall quality and service. In 1992, Independent Health Association, a not-for-profit HMO in Buffalo, N.Y., developed the Quality Management Incentive Award (QMIA), a pay-for-performance program designed to improve overall clinical quality and service. The program uses a physician advisory group to develop its targets.

Independent Health covers 400,000 lives within a group-model HMO that includes approximately 1,000 primary care physicians. On average, Independent Health patients constitute 25 percent of a practice's patient population, with a range of 5 percent to 60 percent.

The QMIA budget is $1 per member per month (PMPM). It is a significant part of primary care physician compensation and constitutes a potential payment increase of 8 percent to 12 percent per physician.

The QMIA award is based on “performance” in five key areas: patient satisfaction, emergency room utilization, access, breast screening and colorectal screening. (Pediatricians are evaluated on their immunization rates and their use of preferred antibiotics for otitis media in place of the last two items.) The health plan uses patient-reported satisfaction surveys and claims data to establish a performance rating for its physicians. For each of the five variables, physicians earn an incentive award based on their level of performance:

  • High performance: $0.30 PMPM,

  • Average performance: $0.20 PMPM,

  • Below average performance: $0.00 PMPM.

Primary care physicians can earn up to $1.50 PMPM for high-level performance in all five areas. That could amount to $18,000 per year in a practice with 1,000 members. (See below for two real-life examples.)

The physician leader's role

The problem with many of the quality incentive programs described in this article is that they are underused. There are several reasons for this:

First, because the physician-insurer relationship is often marked by adversity, physicians are skeptical of the intentions behind such programs. Second, physicians often already feel overwhelmed and view additional programs as burdens, even if they promise better reimbursement. Third, because physicians often assume (without supporting data) that they already provide excellent care and achieve superior outcomes, many feel they deserve higher reimbursement without any additional requirements. Fourth, practicing physicians may not know about the programs that are available to them.

Real-life quality rewards

Two practices associated with Independent Health, a not-for-profit group-model HMO in Buffalo, N.Y., have been heavily focused on office redesign over the past two years. Their goals have been to improve clinical care, patient and staff satisfaction, and financial performance. Independent Health's Quality Management Incentive Award (QMIA) has been an important financial stimulant for these practices.

Site one includes a solo primary care physician with a total practice size of 5,000 patients of which 1,200 are health plan members. Site two is a primary care physician who practices within a larger group. The practice has 3,511 patients of which 500 are health plan members.

Both practices have adopted open-access scheduling and initiated systematic efforts to deliver care using evidence-based medicine. These primary care sites have earned significant incentive compensation for their quality of care and service efforts. (See below.)

All of Independent Health's primary care physicians received some level of QMIA payment. The mode for all primary care physicians was $1.10 PMPM; 64 percent of pediatricians and 54 percent of all other primary care physicians received above-average QMIA awards.

SitePlan membersQMIA per member per monthQMIA per yearDirect compensation per yearQMIA:direct compensation, % increase

To get beyond our current state of intractable, unproductive relationships with payers, physicians will have to exert effective leadership and begin to help drive both the construct of such programs and their adoption by other physicians. The examples provided in this article are important ones. They indicate payers are willing to create programs that reward physicians for their efforts to improve care and service. However, we need more examples and hope that you will take the steps necessary to create them in partnership with your payers.

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