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PAYMENT: P4P: Return Of The Repressed

October 31st, 2006

Is pay-for-performance really such a new thing? After all, “aligning incentives” was the ubiquitous mantra of the ‘90s. It applied to capitation and integrated care in the managed care era. But times change. It’s a fee-for-service world again, and aligning incentives means something different now -– although it’s still assumed that how we pay for care is the key to making things better. The same bipartisan consensus that embraced managed care and managed competition as a red-blooded market solution to health care’s problems now welcomes P4P for the same reasons.

The worrisome thing about these parallels is that they may mask some of the same contradictions that subverted managed care. It’s no secret that the biggest challenges for P4P lie on the physician side, where the technical problems of measurement and data are the toughest and where the imponderable issue of responsibility for coordinated care also resides. The unsolved mystery of coordination is the living legacy of the failure of integration to catch on across the system. It hasn’t gone away, and thoughtful discussions of P4P -– like the recent Institute of Medicine report -– warn clearly that payment system tweaks like P4P (and increased consumer cost sharing or disease management, for that matter) merely nibble at the edges of the delivery system’s fragmentation problem.

What all these tactics have in common is that they circumvent the central problem of medical decision making and the noneconomic dimensions of doctor-patient interactions. This is the problem that blew up managed care, and it will blow away peripheral tinkering with a resurgent fee-for-service system in the absence of a more comprehensive and integrative vision. “Experience with other health care initiatives suggests that the rapid implementation of new payment strategies based on theory and preliminary results does not always achieve the desired goals,” the IOM panel noted.

Hal Luft and others have argued that reform has to drive through the delivery system. It’s not the kind of transformation that can be captured in simple slogans or formulas. The IOM artfully suggests that P4P should be viewed as a “pathway to change,” and that’s good advice. Historically, though, the toughest nut to crack in the nexus between payment and delivery system organization has always been establishing accountability for medical utilization decisions, which are subject to clinical imperatives first and economic consequences secondarily -– or such is the order of precedence originally assumed in private insurance and subsequently written into the Medicare statute.

It is a measure of how far policymakers are from tackling this problem that Congress has been unable to come to grips with an annually recurring emergency over the sustainable growth rate formula. The SGR, like volume performance standards before it, has proved to be an inadequately sensitive instrument for controlling utilization. Nor has Medicare’s system for reimbursing doctors, widely imitated in the private sector, succeeded in redressing the imbalance of incentives between primary care and subspecialization.

Fortunately, perhaps, frustration with the SGR has become a burr under Congress’s saddle. Both the Ways and Means and Energy and Commerce (July 26, 27, and 28) committees in the House have held extensive hearings on physician payment in the past year or so. The underlying issues are well explained in a recent National Health Policy Forum brief. Energy and Commerce chair Joe Barton and others have reportedly expressed interest in a more localized volume control mechanism that might push the behavioral buttons better than Medicare has been missing heretofore. Health Affairs will have more on this subject in upcoming months. The American College of Physicians has continued to press for reconsideration of primary care disincentives in the current system, leading back to the problem of fragmentation and coordination.

Maybe we’re getting somewhere.

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3 Responses to “PAYMENT: P4P: Return Of The Repressed”

  1. LFBaltrucki Says:

    Re: “unsolved mystery of coordination” and the “failure of integration to catch on across the system”

    The transformation of the VA over the past 12 years or so (improved safety and quality and decreasing costs per patient) is noteworthy.

    Equally interesting is what Kaiser-Permanente will be able to accomplish when they move their new EMR from the implementation phase into optimization, in combination with their pre-pay model.

    Other integrated delivery systems, like Intermountain, consistently achieve some of the highest ratings year after year.

    Microsoft Windows became the standard because it was, quite simply, the best operating system available at that time.

    After being in the private sector and then moving to the VA, and using the VAs Computerized Patient Record System for the past 10 years to provide a full range of diagnostic pathology and clinical laboratory services to Veterans and their clinical providers it is my considered opinion that the integrated delivery system is the “Microsoft Windows” of health care.

    From almost any perspective or metric we choose, (patient safety, quality, cost-efficacy, market competition) the IDS is, or will ultimately prove to be, superior to any other system.

    In the VA setting (as a salaried Federal employee) my practice has become transformed into something that is quite different from that of my private sector colleagues (fee-for-service, contracts for services, etc.) I am free to bring who I am (professionally) to what I do.

    The essence of integrated health care delivery is based on each component in the system developing a deeper understanding of the other components, and then adapting their practice accordingly, to optimize the system’s performance. Each individual and service having an excellent “systems knowledge” is incredibly valuable to patients and the system. HOW DO WE PAY FOR THIS?

    Concerning the value the Pathologists and Laboratory Professionals bring to patients, their clinical providers, and to the integrated delivery system as a whole; in addition to continously developing our knowledge base, our communication skills, and our proficiency in managing information, it is our knowledge of the system itself and its other components, how we are connected to each other, and how we share our knowledge with patients and each other, that maximizes our value to the system.

    Thanks to the EMR, and by working in close collaboration with the medical technologists who operate the instruments in the clinical laboratory, we can now anticipate and meet the informational needs of the clinicians in our system and the patients they serve; such that the exact information they need to make a patient management decision is reported with precision, to the specific providers that need to know it, at the point of care, in the clinically relevant timeframe. This model of laboratory practice creates a flow of information that frequently determines how a patient “flows” through the delivery system and it can represent incredible value to the delivery system because patient flow is inextricably linked to the patient outcome and the cost of care.

    This type of coordinated team effort represents “an integrated laboratory” for the integrated 21st century delivery system. From a professional standpoint it takes leadership, training, commitment and oversight. From an financial standpoint, it is much more about recombining existing resources, (than it is about asking for more). I am convinced that this recombination of resources can be driven by P4P incentives. HOW DO WE PAY FOR THIS?

    Beyond sharing information, we are sharing our knowledge. In fact, for integrated delivery systems, strategies for knowledge management will contribute significantly to their competitive advantage in the health care marketplace, and knowledge sharing will prove to be an important element of these strategies. What patients need in most every clinical setting is not just access to information, they need unrestricted access to health care knowledge (and wisdom). If it is our knowledge that is most valuable, (and that benefits patients the most) then shouldn’t we find creative ways to reimburse providers for sharing their knowledge, (as well as developing new knowledge).

    The EMR changes everything. It has allowed the creation of an entirely new paradigm for health care delivery. Integrated health care and the systems that support this delivery model are still in their earliest stages of development and this forms part of the challenge for those who are charged with developing P4P incentives.

    (As in previous posts) with the advent of the EMR the “input” of every provider in every specialty (and everything that results from it) can now be documented and the value that we each bring to patient care can now be determined objectively (and jointly) based on hard data. This function of the EMR would be somewhat analogous to abstracting patient records for coding/billing purposes, and there is absolutely no reason why we should not be moving towards this model of “data-driven” valuation.

    Right now, it seems that the role of the clinical laboratory in integrated health care and the value that laboratory professionals bring to the delivery system remains to be defined. To develop meaningful P4P incentives, health policy makers, health care executives, etc. will need to gain a deeper understanding of each of the “components” in the integrated delivery system. This requires an ongoing dialog between those who care about health care and their respective professions.

  2. agosfield Says:

    The real dilemma with P4P is that it is not sustainable as a payment model. It’s mostly designed today to encourage public transparency of performance, to reward today’s “good guys”, and to stimulate a dialogue about the importance in linking payment to performance. It will only, however, palliate the shortcomings of fee for service and traditional capitation, not change them.

    The real issue is that we all want and need a system which will pay providers fairly for what medical science says is the optimal care for the patient’s condition, reduce administrative burden throughout the system, measure the results of the care delivered, and provide real value to purchasers and consumers. And to the extent such a system would also encourage clinical collaboration among the providers treating the patient, the better the results are likely to be.

    In fact, such a model has been in the works for two years. PROMETHEUS Payment™ ( has been designed by a team which includes me,
    Francois de Brantes, Beth McGlynn, Meredith Rosenthal and others to create Provider payment Reform for Outcomes Margins Evidence Transparency Hassle-reduction Excellence Understandability and Sustainability. The model uses Evidence-based Case Rates™ (ECRs) constructed from good clinical practice guidelines to establish a budget for all the providers treating the patient. ECRs are risk adjusted to take into account the additional resources necessary to treat co-morbidities and complications.

    Providers come forward in whatever configurations make sense to them to negotiate a price to deliver those elements of the CPG they are comfortable to deliver. To foster clinical collaboration, 10% on chronic care and 20% on acute care of the agreed on rate is held back as a performance contingency fund to be sure the provider(s) deliver what they bargained to do. This is measured in a comprehensive scorecard which looks at whether the salient elements of the CPG were delivered, the patient’s experience of care, and the outcomes. Seventy-percent (70%) of a provider’s score turns on what the provider does; 30% turns on what all the other providers do. The withheld funds are returned pro rata based on the scores as long as a quality threshold is met. There is more to the model than can be reduced to a paragraph.

    There are a host of complexities to developing the infrastructure to make this work. That development is in process. Pilot markets are being identified now and will likely be launched in July 2007.

    Relating back to the Porter Teisberg controversies, this approach uses case rates, but not as they describe them. It is explicitly designed to address the failures of fee for service and capitation, and, unlike P4P, it is sustainable and addresses overuse and efficiency as well as underuse, while accounting for the fact that patients do not present with single conditions only.

    PROMETHEUS Payment offers advantages to plans in administrative burden reduction and certainty of scope of payment. For providers it assures that they do not have insurance risk but only medical management risk. It is not limited to primary care only. Under this model, physicians have far less administrative burden themselves, which burden is a real impediment to optimal quality. (

    The PROMETHEUS Payment Design Team believes quality will improve by the model’s application. The first conditions to be modeled into ECRs are lung and colon cancer, interventional cardiology, preventive services, diabetes, depression and joint replacement. We believe there will be much to learn from pilots but we think this is a significant start on a new way of doing things which will never supplant all payment models in existence. We encourage blog readers to go to the website to read our white paper, FAQs and shorter publications. We welcome comments here and there.

    Alice G. Gosfield, Esq.
    Chairman of the Board, PROMETHEUS Payment™ Inc.
    Alice G. Gosfield and Associates, PC

  3. Johnathon Ross Says:

    The whole notion of pay for performance on the individual institution or physician basis runs counter to the basic ethic of sharing of information that will benefit all patients. Will the tools to improve your own quality be shared with others or will they become proprietary? The competiton is with disease and disability and all of us as caregivers and patients or potential patients are on the same team. We need a system to work in that focuses on improvement and shares the tools to make those gains widespread. The p4p ought to be for quality improvement ideas that spread and are shared and only when the entire system benefits should the innovators be rewarded ( think Nobel prize ).

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