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Medicare Begins Big Plunge into Quality-Based Payment

January 31, 2005—Starting with a 10-site pilot program testing doctor payment, Medicare announced new plans on Monday to pay providers more for providing better care. Medicare administrator Mark McClellan said the Bush administration's budget proposal will call for adopting quality-based payment—or the buzzword, "pay for performance," or "P4P"—broadly in Medicare. Such payment could be part of legislation this year, he noted. "This is a very special year in health care" where "tremendous progress" is possible, he said.

Separately, McClellan suggested that the administration's proposal to cover the uninsured would not be modest. He said the combined impact of the proposal would be a lot bigger than covering 10 percent or 20 percent of the uninsured. McClellan hinted that the administration would propose something similar to recommendations by the Medicare Payment Advisory Commission on pay-for-performance. The advisory panel voted Jan. 12 to recommend to Congress that it extend the form of payment to hospitals, doctors and home health agencies. Last year, MedPAC urged quality-based payment for managed care plans and dialysis facilities and dialysis doctors.

Noting the MedPAC recommendations, McClellan said the administration wants "a strong dialogue" on quality-based payment.

The details of how Medicare would change its payments are unclear. MedPAC has urged taking 1 percent of current payments to each sector and setting it aside for caregivers who improve the quality of their care or meet quality benchmarks. Last year, Congress paid more to hospitals who simply provided data on quality performance, and there's some thought that Medicare might do that for doctors in 2006. Thus doctors as a whole wouldn't yet be paid based on the performance evidenced by the data. McClellan hinted Monday that any move to erase projected doctor payment cuts might be tied to quality or quality-based data in some form.

While other markets reward those who provide better service at a lower cost, not so Medicare. Former Medicare administrator Gail Wilensky noted at a Washington conference Monday that Medicare rewards those who provide more care but not better care. "In Medicare we provide the same [payment] to those who are best-in-class and to those who are barely indictable," she said.

The pilot program allows doctors in 10 group practices around the country to be paid up to 5 percent more in a given year if they lower costs and provide higher quality care. The pilot will measure costs not in terms of Medicare spending on physician care, but on all Medicare spending for the beneficiaries involved. The approach reflects the control physicians have over other types of spending by ordering hospitalizations, for example.

Some of the most prestigious names in group practice will take part, including the Dartmouth Hitchcock Clinic along the New Hampshire-Vermont border, Geisinger Health System in Pennsylvania, and the Marshfield Clinic in Wisconsin.

Care more effectively coordinated by and among doctors can reduce expensive procedures and hospitalizations for costly complications, the Centers for Medicare and Medicaid Services said. "Electronic record systems, e-mails, telemedicine, and other innovative approaches can help patients not only avoid costly complications, but perhaps even avoid the need for some office visits," it added.

Participants in the three-year "Physician Group Practice Demonstration" will include a total of 5,000 doctors and 200,000 beneficiaries in the fee-for-service side of Medicare. If the pilot is effective in lowering costs and improving care, Medicare has authority to expand it to other group practices without legislative action. A separate pilot is planned to reward doctors financially in very small practices or solo practices who invest in information technology.

Doctors will continue to be paid on a fee-for-service basis. "Performance targets will be set annually for each group based on the growth rate of Medicare spending in the local market," CMS said. "Performance payments may be earned if actual Medicare spending for the population assigned to the physician group is below the annual target. Performance payments will be allocated between efficiency and quality, with an increasing emphasis placed on quality during the demonstration."

Developed with the American Medical Association and the National Committee on Quality Assurance, the pilot will rely on 32 different measures of quality and of levels of preventive care provided. Examples include monitoring lipids in patients with coronary artery disease, monitoring the weight of patients with congestive heart failure, and screening and controlling blood pressure.

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