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Newsletter Article


IOM Report Urges P4P Approach in Medicare

By Mary Agnes Carey, CQ HealthBeat Associate Editor
September 21, 2006 -- A "pay-for-performance" system in Medicare would do more than the current fee-for-service payment system to improve the quality of health care provided to the program's approximately 43 million beneficiaries, according to an Institute of Medicine panel's report released Thursday.

Funding for the program could come from existing Medicare funds, with a reduction in payments, perhaps a 2 percent cut for some services, that would be redistributed to higher-performing providers.

"In general we think this is the way to go in the initial period," said panel member Gail R. Wilensky, senior fellow at Project HOPE. The panel also stated that more money may be needed eventually to encourage greater participation.

Capitol Hill lawmakers are currently considering giving Medicare physicians financial incentives to report data on the quality of care they provide. Many hospitals are already submitting quality data as part of the Medicare drug benefit (PL 108-173).

The shift to pay-for-performance in Medicare should be phased in over time, with participation by small physician practices voluntary for the first three years, the panel recommended in its report to Congress. Larger health care providers and companies that already have the ability to report quality data should be required to do so immediately, the panel said. After three years, the secretary of Health and Human Services should decide if participation must be mandatory for Medicare fee-for-service providers.

While the current Medicare system pays for treating injuries and illness and encourages the use of technology, it often does not reimburse for items such as patient education, which could save money over time, the panel found. Medicare also does not pay for the coordination of care from several different physicians—a common situation for beneficiaries suffering from several chronic conditions—nor does it offer financial incentives to improve a patient's overall health.

Panel members said that one difficulty they experienced in drafting the report was the limited amount of information on existing pay-for-performance programs. While more than 100 performance incentive and physician reward programs have been introduced over the last decade "a robust evidence-base on the effectiveness of these programs is not yet available," the panel concluded.

Health care providers and insurers praised the IOM findings, saying they would improve the Medicare program.

"This is ultimately about better care for Medicare beneficiaries," Jack Ebeler, president and chief executive officer of the Alliance of Community Health Plans, said in a statement. "The quality of care that they receive varies form plan to plan and provider to provider, and falls short of the consistent standards of excellence that we all deserve."

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