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"Pay-for-Performance" an Imperfect Cost-Control Tactic, Harvard Researcher Says

MAY 17, 2005 -- For all the excitement about "pay-for-performance" as the way to deliver better value in health care, the payment method in its current form isn't designed to deliver cost savings, a Harvard researcher testified Tuesday.

Congress should fund more research by the federal Agency for Healthcare Research and Quality to find approaches that increase the likely gains in savings and quality from pay-for-performance programs, Meredith B. Rosenthal, an economist at the Harvard School of Public Health, advised a House subcommittee.

Pay for performance pays a doctor or hospital more for higher scores on specific measures of performance, such as the percentage of heart attack patients who have been prescribed lifesaving beta-blocker drug therapy when they leave the hospital.

While Medicare appears to be heading full steam toward such a system, it is still new to health care and payers face a number of challenges implementing it, Rosenthal said in testimony before the Employer-Employee Relations Subcommittee of the House Committee on Education and the Workforce.

There is little solid research to guide payers and health plans in designing pay-for-performance systems, Rosenthal said, estimating that there are some 100 such programs nationwide. "Despite the hopes of some benefit purchasers, the current generation of pay-for-performance is not designed to reap cost savings, particularly since most of the quality measures it targets are measures of underuse."

Nearly all current measures aim to bring low levels of certain types of care, notably preventive treatment, up to a recommended level.

"Paying for performance almost always means rewarding physicians and hospitals for delivering more services, for which they may also be able to bill," Rosenthal said. She did not address the issue of cost savings potentially generated by higher levels of preventive care that might prevent hospitalizations.

"In my view, it would be desirable to enlist pay-for-performance in the service of enlightened cost control in order to preserve the availability of private insurance coverage," she said, adding there are signs, though, that payers are beginning to reorient their programs more toward cost savings through "increasingly robust" measures of the efficiency of care.

"Along these lines, payers could also greatly benefit from a public investment in the development of quality measures that capture the negative consequences of overuse" by doctors and hospitals of tests and procedures, she said.

Also needed to make pay-for-performance more effective is coordination among payers in using measures, Rosenthal said. "If only a few of the many payers that a provider contracts with are paying for performance, or if each payer focuses on a different measure set, the effects of pay for performance may be diluted."

The Centers for Medicare and Medicaid Services could go a long way toward solving this problem by leading the way in payment for performance, she said. That's because private payers often adopt key Medicare payment changes, she explained.

Rosenthal advised adopting pay-for-performance as just one element of a strategy to increase value in health care spending. Other tools she rated as promising included public reporting of cost and quality data associated with individual providers, benefit designs that use lower levels of out-of-pocket spending to steer patients to providers with lower costs and higher quality, and "shared risk" approaches in which group practices share in the profits or losses associated with delivering care.

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