MANAGED CARE August 2011. ©MediMedia USA
Thanks to the fragmented compensation system, we are already paying more. The new payment system must elicit cooperation and coordination.
Unexplained clinical variation accounts for much of health care’s excessive costs. What are payers doing about it? They’re trying plenty, but their efforts are not enough. Payers are trying to sweeten physicians’ and hospitals’ paychecks to inject a bit more quality, safety, and efficiency into their care. They have embraced a form of bribery known as “pay for performance” (P4P) to try to get physicians and hospitals to do the right thing.
Here’s how it works: “Dear physician, if you prove to us that you follow these proven clinical processes for good care or achieve this level of successful outcomes for your patients, we’ll reward you with a little extra money.” Sometimes payers supplement the carrots with sticks, like withholding some money if providers commit avoidable errors.
Who can argue with such an approach? Payers ante up to prove to their customers that they care about quality; physicians and hospitals make a little more money; and patients get better care. The P4P concept is rapidly evolving, and new initiatives are cropping up around the country. We’ll take a look at some of them.
But we believe it’s not enough that P4P is a bandage on a gushing wound. Physicians’ practice patterns are notoriously difficult to change. Most P4P incentives tend to be too weak. Research demonstrates that at least 20 percent of the physician’s annual income needs to be on the table to motivate him or her to change practice patterns. Most P4P programs don’t come close.
The chief driver of wasteful and harmful clinical variation still remains: a piecework reimbursement system that rewards more care and more intense care. P4P programs are grafted onto that dysfunctional payment system.
Another glaring problem is fragmented care, and it continues to pose a huge challenge. It’s partly the price we pay for the deeply embedded culture of autonomy in physician training. It’s partly the hierarchical pecking order among surgeons, specialists, primary care physicians, nurses, physician assistants, pharmacists, physical therapists, and others. Does it make sense to think that paying each of these caregivers separately, even with P4P bonuses, will reduce miscommunication, waste, and error stemming from poor coordination among them?
Only the beginning
P4P tinkers on the edges of these problems. We believe that P4P is a transitional model to a more fully integrated payment approach. If we’re serious about encouraging physicians and hospitals to curtail unexplained practice variation, we’re going to need to bundle their payments somehow.
That means tying together payment for physicians, hospitals, and other caregivers so that they are jointly motivated to get patients’ care right, catch errors, work cooperatively, and track whether what they did worked. Some sort of bundled payment approach essentially gives a fixed amount of money to all providers involved in a patient’s care and tells them to divvy it up.
P4P incentive programs are proof that our health care payment system is becoming more sophisticated, but they must ultimately be folded into some form of bundled payment structure to fully transform the quality and efficiency of our health care. That transformation has begun.
This is an excerpt from Demand Better! Revive Our Broken Healthcare System  by Sanjaya Kumar, MD, MSc, MPH and David B. Nash, MD, MBA. Published by Second River Healthcare Press, February 2011. www.SecondRiverHealthcare.com 
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