Combining Medicare fee-for-service payments with new incentive programs could help physician groups save money for Medicare and reach quality-of-care targets, according to the February 2008 Medicare Physician Payment report issued by the Government Accountability Office. The Centers for Medicare & Medicaid Services undertook a pilot program involving 10 physician group practices with more than 200 physicians in each. The groups implemented care coordination programs that the participants believed were most likely to generate savings for specific patient populations (e.g., congestive heart failure).

In the first year, only two groups earned bonuses, but all 10 achieved most of the quality targets. To be eligible for a bonus, a participant had to save more than 2 percent of his target expenditure amounts relative to a comparison group of beneficiaries with similar characteristics.

The Marshfield Clinic and the University of Michigan Faculty Group Practice received performance bonus payments of $4.6 million and $2.8 million, respectively, in the first year.

How bonuses were determined
Step 1:
Eligibility for bonus payment
Did the participant generate annual Medicare savings greater than 2 percent of its targeted expenditures?
Step 2:
Size of the bonus pools
Participating groups that generated savings beyond the 2 percent threshold were eligible to receive up to 80 percent of those savings as potential bonuses. The remaining 20 percent, and all other savings not awarded to participants, was retained by Medicare
Step 3:
Actual bonus earned
Eligible groups could receive up to the full amount available in their bonus pools as cost-savings bonuses and quality-of-care bonuses. Of the bonus pool savings available:
  • 70 percent is awarded as a cost-savings bonus
  • Up to 30 percent is awarded (for those that received the cost-savings bonus) to those that also meet diabetes quality targets for the first year
  • Total bonus payment = cost-savings bonus + quality bonus received
Source: GAO analysis of CMS data

Source: Centers for Medicare & Medicare Services, February 2008

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