Frank Diamond
Managing Editor

Yes, it failed to uproot the volume and intensity incentives of fee-for-service medicine. But P4P deserves credit for getting the world ready for today’s value-based payment.

When Doug Moeller, MD, a medical director at McKesson Health Solutions who specializes in coding compliance, assessed just what role pay for performance plays these days, he had to reach. “I’m not hearing the same level of energy around it,” says Moeller. Studies show that for an incentive or penalty to be effective, it needs to involve nearly 20% of annual salary, he says, and “P4P never got close to that.”

But in addition to having a tweet-friendly nickname way ahead of its time, pay for performance paved the way for the current surge toward value-based payment that may finally wean American health care off fee-for-service that rewards volume and intensity over quality and cost. P4P changed the mindset by attaching strings to payment. And at a practical level, many of the quality measures developed for P4P programs have been applied to today’s value-based payment systems.

“To a very large extent, P4P has played out its role,” says François de Brantes, executive director of the Health Care Incentives Improvement Institute (HCI3), one of several organizations pushing value-base care these days. De Brantes says pay for performance focused attention on linking fee-for-service payment to something other than the simple provision of a health care service. “As a result,” he says, “it launched the national dialogue around the absurdity of paying for all services irrespective of their outcomes or the value they deliver to patients.”

P4P ÷ in to 2 types

HCI3’s website calls P4P a misnomer because fee for service can be characterized as a type of pay for performance: It pays for every service, and the performance sought is production of volume. But that kind of thinking is for insiders and wordsmiths. In every­day health care parlance, P4P is used to describe payment systems that link a portion of a clinician’s or hospital’s payment to certain performance criteria. The performance criteria vary and can be endlessly tinkered with, but traditionally they have been process measures—how many patients have received the appropriate cancer screenings, for example—because they are the easiest to measure.

Although P4P is old news, it remains the dominant mode of value-based payment, according to Andrei Gonzales, MD, a colleague of Moeller’s at McKesson Health Solutions and the company’s director of value-based reimbursement. (Whether P4P really should be counted as value-based payment can be debated, but that’s an argument for another day.)

P4P programs can be devised in any number of ways, but Gonzales says they typically fall into two categories. In one, if providers meet the performance criteria, they get a small percentage increase on their FFS payments the next year. In the other, providers are ranked on performance measures and are paid bonuses according to where they fall in the rankings. For example, providers in the 90th percentile of the performance measures might earn larger bonuses than those in the 80th percentile. In essence, this is P4P grading on a curve.

Gonzales says it’s not clear which approach is more effective, although as behavioral economists like to say, the lump sum may be more salient—it grabs people’s attention. On the other hand, a 1% or 2% increase in FFS payments adds up. Gonzales says large medical groups have recognized that it’s enough money to make it worthwhile to hire someone to make sure the performance measures are recorded and reported, which is often half the battle.

Dollars short, years too early

Still, his colleague believes P4P often hasn’t put quite enough money on the table. “I think doctors were curious about pay for performance and I think that if the money had been bigger, they would have been a lot more curious,” says Moeller. A practice that gets 70% of its patients with diabetes to get an eye exam might get a bonus, but it needed to be “a large enough bonus, because chasing down those diabetics and getting them to have eye exams is some real work.”

Jeffrey Rideout, MD

Any incentive program works better if it’s been developed by physicians, but even that doesn’t guarantee buy-in, says Jeffrey Rideout, MD, of the Integrated Healthcare Association.

It hasn’t helped matters that P4P programs have typically been the brainchildren of payers, especially when the providers and payers were like a couple in a bad marriage and not making nice like they are now. “Physicians are appropriately focused on how they’re getting paid, what they’re getting paid, and whether it’s adequate to meet their needs to provide high quality care,” says Jeffrey Rideout, MD, president and CEO of the Integrated Healthcare Association, a not-for-profit group in California with an agenda similar to de Brantes’s national organization. Any incentive program works better if it’s been developed or endorsed by the physician leadership, says Rideout. “It gets very, very difficult when somebody outside the clinical enterprise is throwing expectations at you.”

But even benchmarks developed by physician leadership don’t guarantee buy-in among those on the front lines of delivering care, notes Rideout. “Physicians spend most of their time practicing, they don’t spend most of their time creating performance standards,” he says. “There’s a lot of physician involvement in performance standard creation. Every organization that issues standards has lots of physicians. Does that represent the rank and file in a way that the rank and file believes in? Probably not.”

Another reason why P4P programs haven’t made as much of a difference as their proponents had hoped is that a great percentage of money still gets pumped through the fee-for-service system, with P4P getting a relative trickle of dollars for care that is supposed to result in better outcomes. Little wonder that volume and intensity win out. “Pay for performance pays people a little more or a little less but the fundamental system is still based on fee-for-service,” comments Rideout.

But there’s another way to look at the P4P programs. The fault is not so much in P4P but in the times when many of the programs were introduced. P4P was an attempt to revamp health care payment and delivery when the health care system wasn’t ready for rethinking payment, de Brantes, Moeller, and Rideout agree.

Doug Moeller, MD

CMS’s influence on the uptick in value-based efforts is a reflection of the fact that it is “the only payer ... that has the clout to just start making changes,” says Doug Moeller, MD, of McKesson Health Solutions.

What’s changed? A lot, and the sway of CMS is the reason. “When CMS finally says we’re going to do some things differently, they’re the only payer in the country, in my opinion, that has the clout to just start making changes,” says Moeller. “Everybody else has to sort of play ball. Even United and Aetna and some of the jumbos rarely have more than 20% or 30% in any single region.”

De Brantes credits the ACA with shaking things up enough to start wresting the system from fee-for-service. The exchanges have created an impetus to reduce costs in order to have competitive premiums, although it looks like there will be large increases in rates in 2016. CMS’s ACOs, bundled payment programs, and the Comprehensive Primary Care program “all have very significant incentives in overall payment that is related to provider performance,” he says.

The providers are listening this time, de Brantes adds. “The ACA has changed provider mindsets and focused them on accepting that old-style, fee-for-service payments are on their way out and will be replaced. Providers aren’t rebelling against accountability anymore. They’re trying to find ways to cope with it and the inevitable full transparency in price and quality that is coming.”

Expect hospitals and physicians to invest more in technology. “I’ve said for many years that until payment changed, the desire by providers to invest in technology systems that will link them together with patients and provide important feedback on patient outcomes would be lacking,” says de Brantes. “And now that payment has finally changed, I think you will see some very rapid adoption of new technologies to help providers vastly improve their efficiency.”

New software

McKesson, of course, is happy to oblige, as are hundreds of other companies. “Recent releases of claims-auditing software … are creating a new context for claims processing,” says Moeller. “In addition to helping enforce correct coding guidance, new software logic can use claims history to count the number of rewardable events in P4P programs, such as vaccine administration, diabetic eye exams, and other codable events in a health plan database.”

The Supreme Court’s King v. Burwell decision means that more ACA provisions will be implemented, says Moeller. “We’re just starting to see the cost-saving initiatives that were articulated in that legislation. I think it’s a little soon, oddly enough, to really evaluate the impact other than to say everybody is clear that it’s time to change.”

P4P will probably not be a crucial part of the conversation, Moeller predicts. “It did not make the difference that the advocates for that approach thought it would. It helped, but the increase in cost of care hasn’t subsided because of P4P.”