Pay-for-performance: Federal Proposals Could Reshape Physician Incomes Dramatically

Federal Proposals Could Reshape Physician Incomes Dramatically

Christine Wiebe 

Introduction

By now, most doctors have heard of "pay for performance" programs that reward providers for meeting certain patient care goals, but many think the concept is simply being tested in isolated areas. If Medicare has its way, all doctors eventually could be paid on the basis of their performance.

The Medicare Payment Advisory Commission, or MedPAC, is recommending an expansion of pilot projects that link physician payments to performance goals. Officials would set aside a portion of the money budgeted for physician services, and doctors would have to earn those funds by demonstrating they are following established medical guidelines. Doctors who meet the goals would earn more for treating Medicare patients than those who fail.

Advocates of such incentive programs note that many other industries, such as automakers, have adopted similar strategies with great success. In fact, some private sectors of the healthcare industry already are testing performance programs, and initial reports suggest they are achieving their goals.

"It's a direction that's long overdue in health care," said Steve McDermott, Chief Executive Officer of Hill Physicians Medical Group, an organization that includes 2600 doctors in northern California. The group introduced its own performance incentives 8 years ago, and joined a larger California performance program 2 years ago. That program, called the Integrated Healthcare Association, and another in the Midwest called Bridges to Excellence, are pioneers in performance pay systems and are reporting early success.

Medicare, by virtue of its size and clout in the industry, will fuel that trend if it adopts recommendations outlined in MedPAC's annual report. Federal officials already have expressed their commitment to moving in that direction.

In fact, another MedPAC proposal could further differentiate physician payment levels by imposing new standards on office-based imaging services. Those services have become a growing source of revenue for doctors, and Medicare officials would like to contain that growth. Stricter standards would mean fewer doctors could offer such services in their practices.

Taken together, those two proposals represent a sweeping overhaul of how the federal program pays doctors.

"They take Medicare in directions that it's never been before," said Hoangmai Pham, a senior researcher at the Center for Studying Health System Change in Washington, DC. Although some physicians undoubtedly will object to such changes, current research supports the need for them, she said.

"MedPAC is reflecting a growing consensus among policy analysts and some policy makers -- and probably some physician leaders -- that the current system is irrational," she said.

Providers currently are rewarded for doing more because they are paid for each service they provide, whereas a performance-based system would reward outcomes. For instance, a doctor could earn a bonus for helping diabetic patients manage their blood sugar levels, regardless of how often they came to the office or needed medical intervention. That could not only improve patient care but also hold down costs.

 

Winners and Losers

Even enthusiasts acknowledge, however, that significant hurdles remain before performance-based systems can be expanded to the broader physician population. The Medicare demonstration projects currently involve 10 large multispecialty groups, which are not really representative of the profession, said researcher Pham.

"Those groups have more capital, so it's easiest to start with them," she said. Participating groups have had to invest in information technology, for instance, in order to collect and report information required for the bonuses. Smaller groups and solo practitioners may have more trouble paying for such systems, she said.

In addition, doctors who currently are not meeting clinical guidelines will need help improving their care processes, which should be a goal of quality improvement programs, Pham said.

"If you pay for performance without providing support, they will continue to perform poorly," she said. That could widen the gap between successful and struggling practices.

In the Hill Physicians network, some practices receive as much as 10% less than comparable practices if they don't meet the broader group's internal standards, said McDermott. He meets with leaders of the struggling groups to discuss ways they can improve their care systems and qualify for the bonuses.

"That's a great conversation," he said. "They're all striving to do better next time." He has heard no complaints about the payment structure, which he attributes to widespread acceptance of the performance standards.

In the Medicare demonstration project, participating groups proposed their own methods for achieving efficiencies, such as implementing disease management programs that improve patient outcomes, and thus reduce the need for services. Groups will share in the savings when they receive their performance bonuses.

Some critics say such efforts amount to pay cuts for doctors, not true financial rewards. The American Medical Association has urged Medicare not to impose further demands on doctors but rather to provide new funds to help them achieve quality improvements.

In fact, the MedPAC recommendations would tie initial performance awards to adoption of information technologies, phasing in patient care measures a few years later. That could require significant investments for some doctors if they hope to capture the financial rewards.

Although Medicare plans to set aside a relatively small amount of its budget for performance pay, even a 1% to 2% pool could amount to $5-$10 billion. And, it would increase over time.

Officials make no bones about the fact that a performance-based system will result in different pay levels for different doctors.

Mark Miller, Executive Director of MedPAC, recently told a Congressional committee, "It is time for the Medicare program to start to differentiate among providers when making payments."

 

Restrictions Could Shut Down Some Services

Some doctors undoubtedly will bristle at such pay differentials, but the proposal to restrict office-based imaging services will generate even stronger opposition, said researcher Pham. The very notion of limiting which doctors can provide such services and make money off them deviates from longstanding traditions in the federal program.

"Medicare has never, ever excluded physicians from participation," she said.

The proposal strikes at a rapidly growing sector in healthcare spending. In recent years, many doctors have looked for other revenue sources to offset declining clinical incomes, and many began integrating imaging services into their practices. From 1999 to 2003, Medicare's payments to physicians for imaging services grew twice as fast as for other medical services. Currently, doctors can bill for ordering a patient's diagnostic test, performing the test, and then interpreting the test.

Cardiologists have been particularly successful at tapping into the technical fees, said Fred Simmons, Chief Executive Officer of Clearwater Cardiovascular and Interventional Consultants, a group of 18 cardiologists in Florida. Other specialties that have prospered by moving services out of the hospital and into their offices include ophthalmologists, orthopaedic surgeons, and oncologists, he said.

His group decided several years ago to make the risky investment in diagnostic equipment, and that move has paid off, he said. He is not concerned about new Medicare restrictions because he is confident the group will meet the standards.

"If physicians are going to provide services in their offices, they need to be able to provide a high-quality, efficient service," he said.

Studies have found serious deficiencies in some office-based imaging services, however, and regional variations also highlight a lack of control over that sector, the MedPAC report concludes. It recommends using private organizations to develop and administer quality standards. Any doctors whose services did not meet those standards would not receive Medicare reimbursements.

In addition, MedPAC recommends tightening other controls over imaging services. It would more closely scrutinize claims to detect charges for services that are inappropriate or that duplicate each other. For instance, separate bills for a patient's head CT scan and face CT scan would be bundled into a single claim.

The advisory commission also is recommending that federal officials close a loophole in physician self-referral regulations, which currently allow doctors to invest in companies that provide services to imaging centers where they refer patients. For instance, a doctor could buy MRI equipment and lease it to an imaging center, then receive a reimbursement each time it is used.

MedPAC also wants to extend federal ethics standards, known as the Stark law, to cover nuclear medicine and PET scans, which were excluded from current regulations designed to eliminate conflicts of interest for doctors.

A Silver Lining

As physicians ponder the looming changes and consider the impact on their own practices, they can take solace in at least 1 proposal that could boost their pay levels. MedPAC included in its recent report a recommendation that the federal program raise physician fees by about 2.7% for 2006.

"MedPAC taketh away," said Pham, "but they also giveth back."

The current formula for establishing physician payments calls for a 4.3% cut next year, followed by more cuts in subsequent years. Congress would have to approve the change.

In fact, the proposed pay increase is only a short-term solution for a physician fee schedule that everyone agrees is flawed. MedPAC officials have expressed their intention to re-examine the federal program's entire payment system in the near future. Without an equitable payment baseline, experts say, any other changes such as performance-based programs are less likely to succeed.