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Medicare Physician Group Practices: Innovations in Quality and Efficiency


In April 2005, the Centers for Medicare and Medicaid Services (CMS) initiated the Physician Group Practice (PGP) Demonstration, which offers participating practices the opportunity to earn performance payments for improving the quality and cost-efficiency of health care delivered to Medicare fee-for-service (FFS) beneficiaries. The demonstration includes three performance years, for comparison with a base year (2004).

This report includes the proceedings of a site conference cosponsored by the Commonwealth Fund and CMS at the conclusion of the first performance year. At this meeting, held in Washington, D.C., on April 28, 2006, each of the 10 participating PGPs made a presentation on the key strategies and innovations it is employing under the demonstration.

Background on the PGP Demonstration
For each PGP, Medicare savings from the demonstration are calculated by comparing actual spending to a target: the PGP's own base-year per-capita expenditures trended forward by a comparison group's expenditure growth rate. Case-mix adjustments are made to account for changes over time in the types of patients treated by the PGP and changes in the types of patients included in the comparison group. Cost and quality performance payments for the PGP are calculated if it achieves Medicare savings of more than 2 percent.

To determine quality performance payments, the demonstration includes 32 quality measures drawn from CMS's Doctor's Office Quality (DOQ) Project. PGPs become eligible for such payments by meeting threshold or improvement targets. (More detailed information on the methods used for measuring quality and financial performance under the demonstration can be found on the CMS Web site.)

Participating PGPs
The demonstration includes 10 large PGPs that span all four Census regions. They each have at least 200 physicians, and together represent over 5,000 physicians. The PGPs include freestanding group practices, components of integrated delivery systems, faculty group practices, and a physician network organization made up of small and individual physician practices. Together, they provide the largest portion of primary care services for over 220,000 Medicare FFS beneficiaries.

Quality and Efficiency Innovations in the PGP Demonstration
Four cross-site themes emerged from the PGPs' conference presentations:

  1. Improving care management and coordination of care. Improving care management and coordination of care are common goals of the participating PGPs, as these interventions are viewed as having the potential both to reduce costs and improve quality simultaneously. Approaches include chronic disease management, high-cost/high-risk patient management, and transition management.

    Most of the participating PGPs have implemented chronic disease management programs for diabetes and heart failure patients. These diseases are emphasized because they have relatively high prevalence among Medicare beneficiaries, usually have room for improvement on quality measures, and also have potential to reduce costs. High-cost/high-risk patient management programs are usually more broadly defined than disease management programs, as the former usually target patients who have multiple chronic diseases while the latter tend to focus on single diseases. Transitional care interventions include enhanced hospital and emergency room discharge planning to ensure that appropriate follow-up care is received and readmissions are avoided.
  2. Expanding palliative and hospice care. Several PGPs developed or explored programs for expanding access to palliative, hospice, or end-of-life care. Everett Clinic's presentation on this topic prompted discussion at the conference regarding how best to define and distinguish the roles of these different services. Though currently underutilized for Medicare beneficiaries and other patients in the U.S. health care system, they are viewed as having promise both for reducing utilization of high-cost hospital care and improving patients' quality of life.
  3. Modifying physician practice patterns and behavior. Physician behavior is central to reducing costs and improving quality of care, given that physicians have the largest influence on patient treatment and resource utilization. As a result, all of the participating PGPs have considered ways to influence or modify physicians' practice patterns. They include modifying physicians' work processes, encouraging physicians to consider the health of a panel of patients rather than individual patients, and feedback reports to improve coordination and quality of care. A key challenge is in identifying the optimal ways to modify clinical work processes, such as when physicians can delegate routine care to nurses or medical assistants.
  4. Enhancing information technology. Most of the PGPs highlighted information technology innovations as critical for their success under the demonstration. These include applications that identify and track high-risk patients, develop chronic disease patient registries, provide doctors with detailed reports on individual patients, prepare broader feedback reports, and give automated reminders to physicians or support staff on needed care. Some groups have made enhancements to their electronic medical records, while others have focused on more limited and less expensive patient registries.

Implications for the Medicare Program and the U.S. Health Care System
The PGP demonstration experience to date has shown that it is possible for large multi-specialty group practices to respond to a hybrid set of quality improvement and cost-containment incentives layered on top of an FFS payment system. PGPs have used the demonstration as a vehicle for expanding data systems, care management programs, coordination-of-care efforts, and other interventions that are not directly reimbursed in FFS payments. As Medicare's first pay-for-performance initiative for physicians, the demonstration enables doctors to provide the high-quality and appropriate services they would like to give their patients but frequently feel they are penalized for under the current health care financing system. The focus among participating PGPs is less on direct financial rewards for individual providers and more on "getting the reimbursement system out of the way" so that doctors can provide services they know that patients need.

A goal for the future is to develop ways to expand the PGP demonstration approach to other practice formats. Middlesex Health System's experience as a "network" of small group practices, for example, was cited as one possible model.

A barrier to previous private sector attempts to establish direct financial incentives for improving quality and efficiency for providers has been the inability of many provider organizations to accept financial risk for patient care. The PGP demonstration addresses this concern by eschewing a downside penalty for underperformance; it focuses instead on the gains from better-than-expected performance. It tests whether a provider-based approach emphasizing "the carrot" rather than "the stick" will prove effective in enhancing the quality and efficiency of care received by Medicare beneficiaries.

Publication Details



M. Trisolini, G. Pope, J. Kautter, and J. Aggarwal, Medicare Physician Group Practices: Innovations in Quality and Efficiency, The Commonwealth Fund, December 2006