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Examining Pay-for-Performance Measures and Other Trends in Employer-Sponsored Health Care

House Subcommittee on Employer-Employee Relations Hearing on Examining Pay-for-Performance Measures and Other Trends in Employer-Sponsored Health Care

Executive Summary
Pay-for-performance has significant positive potential in the health care sector, where reimbursement has traditionally been based only on utilization of services and patients are often not in a position to discern high quality from low. In this environment, incentives to deliver high-value health care are often absent or even negative (e.g., preventing a hospital admission will generally reduce the net revenues of a health system that includes a hospital). Pay-for-performance is still new to health care, however, and payers face a number of challenges in implementing these programs.

First, there is little guidance in the literature for purchasers and health plans to reference when they set out to design their pay-for-performance programs. An analysis of the features of the first generation of programs indicates that there are opportunities to improve the cost-effectiveness of pay-for-performance and increase the likely gains in quality and value. To help them design more effective pay-for-performance programs, purchasers and health plans need timely evaluations of a broad range of programs and targeted decision support. Congress could facilitate progress towards this end by enhancing the capacity of the Agency for Healthcare Research and Quality (AHRQ), which has played a critical role in this area.

Second, coordination among payers on the clinical domains and specific quality measures to target is desirable. 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. Some private sector employers have already begun aligning their efforts through health care quality improvement coalitions such as the Leapfrog Group, Bridges to Excellence, and others, which offer standardized programs of performance measurement, reporting, and reward.

The leadership role of the Centers for Medicare and Medicaid Services (CMS) is central to furthering this goal, as private payers have historically emulated many of Medicare's more significant payment reforms, such as the Prospective Payment System. CMS could also support pay-for-performance efforts by contributing "de-identified" data to an all-payer data set from which more reliable performance evaluation could be conducted (because of larger denominators).

Finally, 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. 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. There is some indication that pay-for-performance is being reoriented towards cost savings with the incorporation of increasingly robust cost-efficiency metrics, which are being refined by a number of researchers. 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.

Pay-for-performance should be viewed as one element of the set of strategies that employers, health plans, and government programs are undertaking to improve the value of health care spending and make insurance coverage more affordable. Other promising tools that are taking hold alongside pay-for-performance include: public reporting of quality and cost information; tiered benefit designs that give consumers incentives to choose higher-quality and lower-cost providers and treatments; shared-risk payment models, such as the one being evaluated under the CMS Provider Group Practice demonstration; and disease management.

The most recent estimates suggest that there are more than 100 individual pay-for-performance efforts under way in the U.S. health care sector. These programs vary along a number of dimensions, including the type of sponsor, the size of the bonus, the formula for determining the bonus allocation, and the clinical areas targeted. Noteworthy examples include: seven health plans in California that are coordinating pay-for-performance programs under the auspices of the Integrated HealthCare Association (IHA); Anthem's New Hampshire Blue Cross/Blue Shield plan, which pays bonuses to physicians who provide recommended preventive health care; Bridges to Excellence, a growing collaborative effort started by several large employers, including General Electric and Verizon Communications; and CMS, which uses performance measures for both process and outcome.

Publication Details



Examining Pay-for-Performance Measures and Other Trends in Employer-Sponsored Health Care, Meredith B. Rosenthal, Ph.D., The Commonwealth Fund, May 2005