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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