On Jan. 1, the CMS will begin delivering the highly anticipated yet much-maligned Medicare prescription drug benefit to beneficiaries, marking the biggest expansion of the program since its creation. The upcoming changes also include new regional PPOs in the rechristened Medicare Advantage (formerly Medicare+Choice) and significant subsidies for lower-income beneficiaries to cover the cost of prescription drugs.
The health policy community, meanwhile, has already been thinking about the next steps in the continuous path to improving Medicare. The Institute of Medicine and the Medicare Payment Advisory Commission each have recommended retooling Medicare to support better-quality performance. We wholeheartedly agree that to improve the care that beneficiaries receive, Congress should link new Medicare payments with public reporting of quality information and performance on measures of healthcare quality.
Deficiencies in healthcare quality are increasingly well-documented. An IOM report found that 44,000 to 98,000 Americans die each year as a result of preventable medical errors. National Committee for Quality Assurance data show that poor-quality care leads to 66.5 million sick days and $1.8 billion in excess medical costs. The Rand Corp. found that patients receive recommended care only about 55% of the time. And Dartmouth College researchers show vast variation in service-area payments among Medicare regions. In fact, they find that more money is not associated with better care.
Historically, Medicare has been the proving ground for innovations that are eventually adopted by the larger healthcare system. It is poised to lead the payment-for-quality effort, because it has the experience to measure and make available to providers and the public information about quality performance that is necessary to support such a program.
Medicare is also undertaking a national effort to encourage public reporting of quality data. The CMS' original National Voluntary Hospital Reporting Initiative, now called the Hospital Quality Initiative, is using payment incentives to promote public reporting on 10 measures of healthcare quality for three medical conditions. Hospitals that did not submit performance data for 10 quality measures by July 1, 2004, received 0.4% smaller Medicare payments in fiscal year 2005 than institutions that reported data. This precursor to full-fledged payment-for-performance prompted nearly all acute-care hospitals to participate.
Experiments with comprehensive pay-for-performance are also under way. One Medicare demonstration involving 274 Premier hospitals will provide financial rewards to institutions that demonstrate high performance on quality measures for five conditions. Hospitals in the top 10% of quality for each clinical area will receive a 2% payment bonus, while institutions in the second decile will receive 1%. In the demonstration's third year, hospitals that do not achieve performance improvements above the demonstration baseline will see their payments adjusted downward.
Also in progress is an IOM study, included in the Medicare Modernization Act, which will become the basis for new quality measures and approaches for payment incentives throughout Medicare. Slated for release in late 2005 is a report that will evaluate existing approaches to performance measurement, and in mid-2006 will come a report on selecting and calibrating measures for performance-based payment.
Under the leadership of CMS Administrator Mark McClellan, Medicare has taken significant steps toward quality measurement, public reporting and payment-for-performance. The challenge that now confronts policymakers is how to establish a clear schedule by which performance measurement and payment-for-performance is initiated for all of Medicare.
While the policy community awaits the results of current demonstrations, there are certain components of a performance-based payment system that members of my organization, the Alliance of Community Health Plans, have long believed are essential to its initial operation and success.
For two years, MedPAC has said that it should begin with health plans, because they have the history and capacity to collect and publicly report the quality information necessary to measure performance. These capabilities do not yet exist in traditional fee-for-service Medicare.
Just two months ago, MedPAC signaled that a performance-based payment system should be developed for hospitals, physicians and other Medicare participants. Such a system should eventually apply to all providers in Medicare, once measures have been agreed upon and a strong culture of transparency has been established.
To establish a payment-for-performance program in the near term, Medicare should use existing clinical effectiveness and consumer satisfaction measures-which are already collected by the CMS for health plans-with a special emphasis on the clinical indicators.
To evaluate performance on these measures, Medicare should reward with new funds both those with the highest quality and those whose performance shows marked improvement from one year to the next. Examples of these measures include the ability of a health plan to keep blood sugar under control for diabetes, the ability to keep blood pressure under control and a patient's perception of their health plan or doctor.
Paying for performance offers a compelling reason for providers to improve quality and provide the transparency that is necessary for patients to make informed choices about their health plan, hospital and providers.
Jack Ebeler is president and chief executive officer of the Washington-based Alliance of Community Health Plans.