Medicolegal Issues

Is P4P Paying off?


Pay for performance (P4P) has been the hottest topic among physicians for quite a while. Perhaps the time has come to ask: Is it worth the hype?

“In terms of organized pay-for-performance programs, we’re at the very beginning of seeing pay for performance in action,” says Patrick J. Torcson, MD, MMM, FACP, member of SHM’s Public Policy Committee and director of hospital medicine at St. Tammany Parish Hospital in Covington, La.

Although P4P is still in its infancy, one major demonstration trial is complete, and researchers have begun to mine results for indications of success.

The largest national P4P trial to date is the Centers for Medicare and Medicaid (CMS)/Premier Hospital Quality Incentive Demonstration Project, which involved more than 260 hospitals reporting on 34 quality measures from October 2003 through September 2006. The measures were grouped in five clinical areas: acute myocardial infarction, heart failure, coronary artery bypass graft, pneumonia, and hip and knee replacement.

Hospitals in the top 10% for each of the quality measures received a 2% bonus of their Medicare payments for the measured condition; hospitals in the top 20% received a 1% bonus; and hospitals in the bottom 20% returned 1% to 2% of their diagnosis-related group (DRG) payments.

Policy Points

Cuts Proposed for CMS Physician Payments

On July 2, CMS issued a proposed rule that would slash Medicare payments to physicians in 2008 by nearly 10%. CMS projects that it will pay $58.9 billion to 900,000 physicians and other healthcare professionals next year.

SHM is working to block this cut, as well as to urge CMS to replace the sustainable growth rate formula (SGR) with a stable, predictable annual update based on the Medicare economic index, which reflects inflation in the healthcare sector.

PQRI Participation Still Open

Although the Physician Quality Reporting Initiative began July 1, you can still climb on board. Participation can start at any time during this P4P project, which ends Dec. 31, and there’s no application necessary. For more information, visit the SHM Web site at—JJ

CMS has paid $17.55 million in incentives to the top-tier, participating hospitals and reported savings of $1.4 billion in terms of avoidable deaths, complications and readmissions prevented, and shortened lengths of stay.

As for quality improvements, results from the first two years of the demonstration project show proven improvement across all five clinical focus areas. The average improvement of the composite quality scores (CQS), an aggregate of all quality measures within each clinical area, in the project’s second year was 6.7%, for total gains of 11.8% over the project’s first two years.

The CQS improved significantly between the start date and the end of the second year in all five clinical focus areas:

  • From 87.5% to 94.4% for patients with acute myocardial infarction;
  • From 64.5% to 82.4% for patients with heart failure;
  • From 69.3% to 85.8% for patients with community acquired pneumonia;
  • From 84.8% to 93.8% for patients with coronary artery bypass graft; and
  • From 84.6% to 93.4% for patients with hip and knee replacement.

“In many circles, this is proof positive that pay for performance works,” Dr. Torcson says of the results of the Premier demo. “However, this was hospital-level P4P and involves a different methodology than physician-level P4P. I don’t think it’s safe or accurate to extrapolate these results.”

What the Research Says

Various researchers have examined available P4P data to see if incentives improve care.

Recent studies include one led by hospitalist Peter Lindenauer, MD, MSc, FACP, medical director, clinical and quality informatics, Baystate Health in Springfield, Mass., and assistant professor of medicine at Tufts University School of Medicine in Boston.1 Dr. Lindenauer and his colleagues examined data from the CMS data warehouse gathered as part of the Hospital Quality Alliance (Hospital Compare) project. Specifically, they compared P4P CMS Premier hospitals with 408 hospitals that participated only in public reporting, with no compensation.

They found that the P4P hospitals showed modestly greater improvement in all composite measures of quality than hospitals that simply reported on measures. Specifically, improvements in the P4P hospitals ranged from 2.6% to 4.1% over two years. “The small gains in process of care measures observed in the study are unlikely to have translated into meaningful improvements in outcomes,” Dr. Lindenauer says.

Other studies of P4P are inconclusive. A literature review on the subject finds “little evidence to support the effectiveness of paying for quality.”2

A second literature review out of the Baylor College of Medicine in Houston based on 17 studies “suggests some positive effects of financial incentives at the physician level, the provider group level, and the healthcare payment system level. The findings also suggest that ongoing monitoring of incentive programs is critical to determine whether incentives are having unintended effects on quality of care.”3

Finally, a study of P4P programs for family practices in the United Kingdom revealed that serious financial incentives for physicians resulted in 83.4% achieving goals for 10 chronic diseases in a year.4

“There is no conclusive evidence that physician-level P4P works to improve quality of care and reduce cost of care,” concludes Dr. Torcson. “The U.K. experience demonstrates that given a sufficient incentive, physicians will adhere to and report on performance measures. Further study is being done to see if this translates into quality improvement for patients.”

The next phase of P4P is pay for reporting—which may help pin down the true value of P4P.

The Physician Quality Reporting Initiative (PQRI), now well under way, “is the first nationwide pay-for-performance program, and one of the first to include hospitalists,” says Dr. Torcson. “This is the first taste we’re all having of physician-level pay-for-performance since the PQRI started on July 1.”

The incentives for participating in the trial aren’t high. “Based on projections of PQRI reporting, hospitalists can earn a bonus of $807,” says Dr. Torcson. “This may not be a strong motivator to participate in PQRI. However, it’s a beginning. If you’re going to fail [at reporting], this is the time to do it.”

The PQRI trial is short; it will end Dec. 31. And early next year, it’s guaranteed that all eyes will be on outcomes from this program. “Private payers are watching this very closely; they’re ready to jump into the game,” says Dr. Torcson. Healthcare organizations and professionals should be ready to jump as well, because next steps for P4P and other payment factors are still unknown.

“What happens after Dec. 31 is wide open,” Dr. Torcson says. “We don’t know what to expect from Congress. Right now we’re looking at a proposed 9.8% cut to physician fees. Will this cut be made up by pay-for-performance bonuses? Congress determines what will happen, and the [2008] election could change everything.”

To date, P4P has not lived up to its hype; however, the use of incentives to improve quality is in the early stages. Time will tell if P4P pays off in improved care—but CMS and many physicians seem committed to the idea.

“I think there’s a lot to be said for the concept of providing incentives that encourage hospitals to invest in quality of care,” says Dr. Lindenauer. “Our current system of healthcare hasn’t done that.”

Dr. Lindenauer’s advice for moving ahead with P4P? “We need to proceed cautiously and be mindful of some of the unintended consequences,” he concludes. TH

Jane Jerrard has been writing for The Hospitalist since 2005.


  1. Lindenauer PK, Remus D, Roman S, et al. Public reporting and pay for performance in hospital quality improvement. N Engl J Med. 2007 Feb 1;356(5):486-496.
  2. Rosenthal MB, Frank RG. What is the empirical basis for paying for quality in health care? Med Care Res Rev. 2006;63(2):135-137.
  3. Petersen LA, Woodard LD, Urech T, et al. Does pay-for-performance improve the quality of health care? Ann Intern Med. 2006;145(4):265-272.
  4. Doran T, Fullwood C, Gravelle H, et al. Pay-for-performance programs in family practices in the United Kingdom. N Engl J Med. 2006;355(4):375-384.

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