Ever since the Institute of Medicine published its seminal report on the poor state of healthcare quality in the U.S., providers, payers and policymakers have searched for the holy grailsomething that would stimulate improvements in quality and cost efficiency.
Don’t expect pay-for-performance programs to solve quality, cost problems
Many have embraced pay-for-performance programs, in hopes that they have found the magic bullet. At the very least, they hope that by measuring the quality of care provided, and linking it to payment, they can get the attention of physicians and hospitals, hoping to change their behavior.
Although there has been expansive growth in the adoption of pay-for-performance since 2000 and a host of policy recommendations for expanding its use across all healthcare settings, there is little research about how well they work and what strategies work best.
Since 2003, the Integrated Healthcare Association in California has operated the largest U.S. pay-for-performance experiment. The program targets 225 capitated integrated medical groups and independent practice associations, which contract with the seven largest HMO plans in California. The physician organizations represent approximately 35,000 physicians who care for more than 6.2 million patients enrolled in commercial HMO and point-of-service plans. The IHA program is unique because of the alignment of pay-for-performance measures across seven major payers whose enrollees constitute roughly 60% of the revenue stream for the physician organizations. Between 2003 and 2007, the participating health plans paid $203 million in incentives to participating physician groups.
Cheryl Damberg, a senior researcher at the not-for-profit RAND Corp., and I have been evaluating the IHA pay-for-performance program since its inception. Our goals include determining how the program has been implemented, how stakeholders view the program, and whether it has met its goals of breakthrough improvements in quality. In a recently published article in Health Affairs, Damberg and I, with our colleagues Stephanie Teleki and Erin de la Cruz, reported on the views of stakeholders. We gathered information from 35 medical groups, the seven health plans and two leading purchasers that are involved in the pay-for-performance experiment. We found that:
Our research found that IHAs program made important strides in bringing together diverse stakeholders to focus on quality improvement. By creating a common set of quality measures, and linking that to payment, the program motivated physician organizations to focus on quality. Despite these investments, stakeholders, in particular health plans and employers, have not seen changes in quality they had anticipated. Moreover, although it was not an explicit goal of the program at that time, health plans said that there was no evidence of any savings or moderation in cost trends to justify increased investment in the program.
It has been well-documented that quality of care in the U.S. is less than adequate, and that costs are increasing at unacceptable levels. In response, pay-for-performance programs have promised to address the ills of our health system. Although there are some promising findings in our study of the largest program operating in the U.S., we do not observe the sea changes needed to address the quality deficiencies of the U.S. healthcare system.
We should acknowledge that pay-for-performance is a small fix for a much larger toxic payment system. Alone, economic incentives are unable to incentivize the system changes required to simultaneously improve quality and cost efficiency.
Kristiana Raube is an adjunct professor and the executive director of the graduate program in health management at the University of California at Berkeleys Haas School of Business.
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