“Pay for Performance” Starts For California Docs

Initiative links substantial incentives to clinical outcomes and other elements

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CEO SUMMARY: California is a bellwether state for healthcare innovations. Six of its largest payers are collaborating on “Pay For Performance,” a program which pays financial incentives to physician group practices which achieve measurable outcomes in clinical care, patient satisfaction, and implementation of information technology. It’s expected to be a model for similar initiatives in other states.

FUNDED BY THE STATE’S largest health insurers, outcomes-based financial incentives are now a reality for physicians in California.

The program, called “Pay for Performance,” is a statewide initiative designed to create a “business case for quality” at the physician group level. It is a collaborative initiative between six participating health plans—Aetna, Blue Cross Blue Shield of California, CIGNA Healthcare, Health Net, and PacifiCare. Payments from these payers will be made to physician groups based on each plan’s individual bonus program.

Pathologists across the nation should pay close attention to “Pay For Performance.” California is the nation’s bellwether for bold initiatives in healthcare. If “Pay for Performance” leads to better healthcare outcomes and improves patient safety, then healthcare policymakers across the nation are likely to introduce similar bonus programs for physicians.

“This program was developed under the guidance of the Integrated Healthcare Association (IHA),” stated Beau Carter, IHA’s Executive Director. “IHA is a statewide leadership group active in healthcare policy and managed care issues. In July 2002, it formed a task force of high-level executives from healthcare purchasers, health plan medical directors, and practice administrators and medical directors of physician group practices. The task force was chartered to develop a statewide incentive program under which physician groups could earn bonuses for documented performances.

2003 Is Program’s First Year

“Based on the work of this task force, the ‘Pay For Performance’ incentive program was launched using calendar year 2003 as the first measurement year,” commented Carter. “ Financial incentives will not be paid to individual physicians, but to physician group practices which achieve performance levels in three areas of physician group activity: 1) clinical performance and quality; 2) patient satisfaction; and, 3)the medical group’s investment in information technology (IT).

“Clinical measures account for up to 50% of the total score,” Carter continued. “For 2003, physician groups will be measured in treating the chronic conditions of asthma, diabetes, and coronary artery disease; and providing preventive services for breast cancer screening, cervical cancer screening, and childhood immunizations.

“The second domain is patient satisfaction, which accounts for 40% of the total score,” noted Carter. “Individual patients’ satisfaction will be evaluated in four ways: 1) communication with their doctor; 2) specialty care they received; 3) timely care and service, and, 4) an overall rating of care.

“The third domain involves information technology (IT) investment and will comprise about 10% of the total score. This measure evaluates a physician group’s ability to integrate data at the group level and to provide physicians with data at the point of care,” he explained.

“At least 300 medical groups are eligible to participate in ‘Pay for Performance’,” added Carter. “These groups represent about 35,000 physicians and provide medical services to vered by Medicare+Choice or Medicare man- aged care plans will not be included in physician group measurements.

Group Gets The Money

Incentive payments under “Pay For Performance” will be made directly to the participating medical group practices. “We expect that some groups will pass this money on to individual physicians in the group,” observed Carter. “However, IHA hopes that at least some of the money will be retained by the group and invested in information technology (IT) and care management items.”

Based on measured performance during calendar 2003, plans are to issue first payments to physician groups by May/June 2004. During 2003, clinical measurements will be based on existing HEDIS specification, with modifications to reflect performance for the medical group.

“During year two, there are plans to tweak the measurement system as appropriate,” Carter said. “Enhancements are expected. For example, hemoglobin A1c levels will be used in monitoring patients with diabetes. LDLC levels will be used to help measure treatment outcomes for patients who experience a cardiac event.”

Initial Response Is Positive

Most California physicians practicing in medical groups which serve 50,000 or more patients are familiar with “Pay For Performance” and its objectives. “IHA did two direct mail campaigns to every physician group in California,” stated Carter. “The general response was positive. That is encouraging, because so many aspects of California’s managed healthcare system have been dysfunctional. As a result, physician groups have plenty of skepticism about payers and whether health plans will deliver on what they promise. So positive response to ‘Pay For Performance’ is an important sign that physicians are interested and supportive.”

For laboratory managers and pathologists, the launch of “Pay For Performance” in California should be viewed as a milestone development. It is a pioneering effort to place real dollars in the hands of providers, based on documented measurement of outcomes in clinical and operational areas.

This trend will be particularly relevant to pathologists. As physicians, they can expect to participate in future versions of physician performance incentive programs. It is THE DARK REPORT’S expectation that such incentive programs will provide clinical outcome measurements that will eventually be used to rank physician performance. Such rankings will be used by employers, payers, and consumers to select top-performing physicians over those doctors whose outcomes are less effective.

Clear Message For Labs

“Pay For Performance” does send one clear message to clinical laboratories and pathology group practices. Efforts to measure provider performance and pay differential reimbursement based on performance are arriving in the healthcare marketplace. Even Medicare is discussing such initiatives. It is currently working on a way to evaluate and rank hospital performance. Its intent is to make this information available to the public to help them pick the “best” providers.

California may be first to implement a statewide provider incentive program. Stay tuned as similar initiatives appear in other parts of the United States.

California’s Physicians React Warily To Concept of “Pay For Performance”

EARLY INDICATIONS ARE that physician group practices in California are taking one of three positions toward “Pay For Performance.”

Position A: These are medical groups which demonstrate enthusiasm for the concept, stating “it’s the right thing to do and we will strive to be ‘best in class’.”

Position B: Included are medical groups which remain wary of any promises made by payers, but are intrigued, observing, “Based on past experience, it’s not wise to trust these health plans. But there might be real money here, so its best to tread carefully.”

Position C: These are medical groups which simply don’t accept the premises of “Pay for Performance” with the statement “This is a game our group does not want to play.”

The Integrated Healthcare Association (IHA) believes that “Pay For Performance” will trigger significant changes in the way reimbursement flows from payers to providers. Some physician groups recognize that they can do a better job of improving the quality of care and patient services they provide. Over time, IHA’s bet is the system will reinforce itself.

Each health plan will decide how much money it wants to put on the table for performance incentives, what thresholds will trigger payments, and whether it will write a check or increase capitation payments moving forward. The early impact of “Pay For Performance” will not be known until the first payments are made in 2004.

Questions involving laboratory testing have yet to be answered. The medical groups have access to laboratory test data, encounter data, and pharmacy data. Because medical groups are closest to the point of care, they have a motive to be data integrators. However, payers, claim they are the most efficient broker of information and want to position themselves to be the data integrator and provide measurement information to providers.

One interesting consequence of “Pay For Performance” is that it may stimulate competition for access to laboratory data and other clinical information in the short run, but encourage more collaboration in the long run.


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