Paying for Better Care, Not More:
Medicare Joins the P4P Movement
February 3, 2005; Page A2

About 46 cents of every dollar spent on health care in the U.S. comes from the government, the bulk of it from the Medicare and Medicaid health-insurance programs for the old, the poor and the disabled. The government pays nearly 60% of the hospital bills and 20% of the doctor bills.

So if the government changes the way it pays doctors or hospitals, it makes big waves in the health-care system. Which is why it's worth paying attention to the latest government experiments in paying doctors not for providing more care, but for providing better care.

Paying for performance, known as P4P, is a fad in health care. Programs vary, but all have the same aim: Reward doctors and hospitals that provide objectively better (more on that later) and more-efficient care (yes, this is about saving money).

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Aetna Inc., for one, has scoured claims files to identify doctors in a dozen specialties in nine metropolitan areas whose patients are being readmitted to a hospital less frequently (because readmission is usually a sign that something has gone wrong), have shorter hospital stays (adjusted for the severity of illness) or avoid avoidable complications. It checks pharmacy claims to see if patients with high cholesterol are taking cholesterol-lowering drugs. It's talking quality and cost. "It's not quality at any cost," says Jack Rowe, Aetna's chief executive.

The top-tier doctors don't get higher fees, but Aetna predicts they'll get more patients because participating employers typically pay more of the tab if employees use these gastroenterologists, gynecologists, urologists and other specialists.

But the government is the heavy. "If Medicare puts money on the table, you'd expect it to matter. They are a big source of income to physicians," says health economist Karen Davis, president of the Commonwealth Fund. "Until the government moves into this, what one individual insurer does isn't enough to move the market."

Mark McClellan, the physician-economist who oversees Medicare and Medicaid, didn't start this, but he is a true believer. "When doctors are not being rewarded and not being encouraged to take steps that improve quality and may even reduce costs, something is wrong," he says. When Congress ponders the fees Medicare pays physicians this year, he will push to expand the pay-for-performance approach.

Once upon a time, health economists hoped giving health-maintenance organizations a flat fee for a year's worth of a patient's care would give them lots of reason to provide preventive care, avoid unnecessary surgery and the like. But Americans didn't like HMOs. So Medicare is now trying to inject some incentives into fee-for-service care.

This week, five years after Congress authorized it, the government announced its latest experiment: a deal with 10 big physician group practices that care for 200,000 Medicare beneficiaries. They'll continue to get the same fees as other doctors. But they'll get a bonus if total spending on their patients -- including the tab for hospitals -- rises more slowly than it does for other Medicare patients in town. They get a bigger bonus if they improve their performance in 32 quality measures, such as regular blood-testing of diabetes patients to be sure their blood sugar is under control.

"Today it really depends heavily on the patient coming to the office," says Bruce Hamory, chief medical officer of Geisinger Health System in Danville, Pa., one of the participants. "What this will allow us to do for those people who have severe illness, such as people with advanced diabetes, is contact them by mail or phone or maybe even send a visiting nurse" to be sure they're doing what will reduce the risk of costly complications. Medicare doesn't pay for that now. The prospect of a bonus will allow Geisinger to hire the additional staff, he says.

The logic is compelling: Spending more on health makes sense only if we're getting more valuable care. The first problem is measuring quality properly. "The stuff that's easiest to measure may not be the stuff that's most important to the health of the population," cautions Elliott Fisher, a Dartmouth College physician. The second is pushing the health-care system to use information technology as effectively as the rest of the economy to monitor quality and cost. In California, where seven health plans made $100 million in performance-based payments last year, some medical groups installed new computer systems only because the payment changed, says Peter Lee, president of Pacific Business Group on Health. "There wasn't money on the table before."

The third is that Americans are uneasy about turning their doctors into penny-pinchers. "The fear is that somehow people will interpret this to mean the doctors aren't doing things that should have been done," says Dr. Hamory. "This project is not about denying care. It's about providing more-effective or more-efficient care so that folks don't have to go into the hospital to have their leg amputated because their diabetes is out of control."

Doctors probably won't like this. Medicare and Medicaid are already squeezing them, they say, and they're right. But tweaking the way the government and private insurers pay doctors may be the only way to avoid much more painful and disruptive approaches to restraining costs in health care.

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