Paying Physicians for High-Quality Care

The

new england journal

of

medicine

n engl j med

350;4

www.nejm.org january

22, 2004

406

sounding board

Paying Physicians for High-Quality Care

Arnold M. Epstein, M.D., Thomas H. Lee, M.D., and Mary Beth Hamel, M.D.

The recent call from the Institute of Medicine forgovernment payers to increase payments to healthcare providers who deliver high-quality care is oneof several signs that practicing doctors can expectsome fundamental changes in the way they are com-pensated.

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Health care insurers and purchasers inthe private sector have begun moving along a simi-larly ambitious path.

Many physicians are already familiar with qualityincentives from their experience with managed care;such incentives began as small payments for higherratings of patient satisfaction or for the use of pre-ventive services such as mammography.

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These in-centives have become so prevalent that physiciansare more likely to receive financial incentives forimproving the quality of care or patient satisfactionthan for controlling the use of services.

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Anecdotalinformation also suggests that the amount of moneybeing used as an incentive is growing substantially.Perhaps the real harbinger is the National HealthSystem in the United Kingdom, which has recentlyadopted a payment-for-performance initiative ofunprecedented size and scope. Nearly a third of ageneral practitioner’s income will depend on thepractitioner’s performance as defined by 130 qual-ity indicators.

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In this article, we discuss pay-ment-for-performance initiatives — their originsand goals, the challenges they present, and the strat-egies that payers might use to overcome the chal-lenges most effectively.

Several factors account for the increased interestin financial rewards to physicians for providing careof high quality. Quality measurements and moni-toring have become more sophisticated. Indicatorsare now available to assess the treatment of a broadarray of chronic diseases (e.g., asthma and conges-tive heart failure) and the appropriate provision ofpreventive care. The most prominent quality reportcard, the Health Plan Employer Data and Informa-tion Set (HEDIS), published annually by the Na-

tional Committee for Quality Assurance, reflects thequality of care patients are receiving in health plansthat cover 75 percent of Americans enrolled in man-aged care.

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These national efforts to monitor the quality ofcare,

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as well as individual studies,

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have illu-minated serious shortfalls in the quality of clinicalcare in many areas. At the same time, longitudinaldata on HEDIS scores

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and other measures of qual-ity nationally

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indicate that these measures canspur meaningful improvements through the intro-duction of systems that enhance the reliability ofdelivery of key interventions. Nonetheless, priormodels of health care delivery and physicians’ pay-ment failed to prevent gaps in the quality of care, asdescribed in two reports from the Institute of Med-icine

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At this point, no one argues that past pay-ment models are ideal.

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Improving the quality of care ultimately requireschanges in the behavior of individual physicians,even if systems to improve the quality of care playan important role. Health plans, and to some extentpurchasers, are therefore moving to payment mod-els that focus on physicians’ behavior. Because theassessment of performance is more accurate, andinvestment in systems less expensive, for largergroups of doctors, most of these efforts focus onlarge physician groups within managed-care plans,rather than on small group practices or individualphysicians.

The underlying goal of incorporating financial in-centives for quality into physicians’ payments is notsimply to reward “good” physicians or punish “bad”ones. The goal is to change the status quo by stim-ulating both immediate and long-term improve-ments in performance. Existing models reflect abroad spectrum in terms of the size of incentives,performance targets, and their potential for creat-ing structural change in the delivery system. Manyprograms are merely updated models of early man-

origins goals and rationale

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aged-care efforts that tied better performance on afew discrete measures to higher payment. Indeed,for some plans and purchasers, such programs aresimply a way to demonstrate concern about mattersbesides the cost of care. Today, however, the mostaggressive programs are incorporating quality mea-sures that will lead to redesigned systems (such asthe use of disease registries) and large investmentsin information technology (such as electronic med-ical records).

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Complex goals characterize models that use fi-nancial incentives to provoke a redesign of systemsand investments in information technology. Recog-nizing that few physician groups have made suchchanges,

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proponents of quality incentives see phy-sician practices as trapped by rising costs and stag-nant or even declining fees. Substantial financialincentives, for example, are required to justify the$10,000 to $20,000 per physician per year that isrequired to implement an electronic medical-recordsystem.

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Thus, a core goal of the movement to re-ward quality is to create financial incentives that arelarge enough to motivate structural change. The im-pact of incentives on individual physician practices,of course, reflects both their size and the percentageof the patient population on the basis of which theyare paid.

A related concept, and one that is highly contro-versial, is that the same system changes needed toachieve error reduction and improve other aspectsof quality will reduce the cost and improve the effi-ciency of care. Interventions such as reminder sys-tems, coupled with computerized decision support,will not only improve safety (by reducing medica-tion errors and other mistakes) and the quality ofcare (by increasing the use of tests and treatmentsknown to improve patient outcomes) but also savemoney by reducing the use of inappropriate drugsand tests and allow for the provision of care withfewer hospitalizations.

Another core concept is “population manage-ment.” Proponents of incentive payments as ameans of changing the infrastructure aim to stopfrontline doctors from regarding their only job ascaring for the sick patient before them. Proponentsof population management hope that the financialrewards will be substantial enough to encouragephysicians, or at least groups of physicians, to in-vest in tracking systems and also to direct staff re-sources toward issues flagged by these systems,thus broadening their delivery of care to the patientbeyond the office visit.

Finally, some proponents of newer models hopethat aligning incentives throughout the delivery sys-tem will put greater direct responsibility on physi-cian practices to “get it right the first time.” Current-ly, for example, insurers and carve-out companiesanalyze medical claims to determine which patientswith diabetes have not had a glycosylated hemo-globin test. In the future, proponents hope thatphysicians’ offices will have systems ensuring thatall patients who need this test will have it, withoutthe costs, delays, or errors introduced by analyzingclaims data.

The systems now being developed vary widely. Thethree programs described below illustrate the broadrange of approaches currently in use or in devel-opment.

bridges to excellence

General Electric has been collaborating with Part-ners HealthCare, Tufts Health Plan, the Lahey Clin-ic, and other employers in Massachusetts to devel-op a quality program (Bridges to Excellence) thatrewards physicians’ offices with a bonus of up to$55 per patient per year if they have certain systemsfor improving care, such as registries, electronicmedical records, care-coordination systems, anddecision support. An additional reward of up to$100 per patient with diabetes will be paid to physi-cians who qualify for American Diabetes Associa-tion Provider Recognition. This program requiresphysicians to review 35 consecutive charts of pa-tients with diabetes and meet standards regard-ing low-density lipoprotein levels, blood pressure,and control of levels of glycosylated hemoglobin.The program has been implemented by the Nation-al Committee for Quality Assurance, which audits5 percent of the applications for accuracy.

the integrated healthcare association’s physician payment program

The Integrated Healthcare Association (IHA) is acollaboration of six health plans in California thattogether provide care for 8 million enrollees. Underthe IHA’s Physician Payment Program, physiciangroups contracting with the six plans receive a con-solidated performance scorecard covering three ar-eas: clinical measures, patient ratings, and use of in-formation technology. Clinical measures accountfor 50 percent of the total score and reflect perfor-

prototypical systems



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mance on preventive care (mammograms, Papanic-olaou smears, and childhood immunizations) andthe quality of treatment for three chronic conditions(asthma, diabetes, and coronary artery disease). Pa-tient-satisfaction ratings for patient–doctor commu-nication, specialty care, timeliness of service, andoverall satisfaction account for 40 percent of thescore. Use of information technology accounts forthe remaining 10 percent, with performance basedon the group’s ability to integrate data at the grouplevel or provide individual doctors with data at thepoint of care.

Developing a coordinated plan has required ex-tensive negotiation. The first incentive payments areplanned for 2004. All six plans will use the same per-formance scorecards either as a single index or inconcert with other quality indicators. Overall, it isestimated that up to $100 million will be availableto the medical groups, but the specific incentive for-mulas have not yet been defined.

anthem blue cross and blue shield plan

Anthem Blue Cross and Blue Shield in New Hamp-shire launched its incentive program to improvequality in 1999. This plan does not include direct in-centives for establishing a new practice infrastruc-ture, but instead rewards physicians who providecertain preventive health care services linked withHEDIS measures, including breast-cancer screen-ing, cervical-cancer screening, childhood immuni-zations, well-child examinations, and, for patientswith diabetes, retinal examinations and lipid andglycosylated hemoglobin testing.

Physician practices that qualify for the award arepaid an exact dollar amount for each patient receiv-ing the targeted service in a given year. Physiciansranked in the top 25 percent of the network for aspecific quality measure received $20 per year foreach patient who received the service, and physi-cians in the third quartile received $10 per patient.In 2002, physician practices (with varying numbersof physicians) received up to $12,062 (for care givenin 2001), with an average of $195 per practice. Thus,in most instances, the incentives for individual doc-tors were very small.

However desirable it may be to align financial incen-tives with quality, various impediments complicatecurrent strategies and pose new challenges for pur-

chasers, insurers, and physicians. First, efforts tomotivate doctors will have minimal effect unless thepurchasers or insurers promoting incentive pro-grams represent a substantial proportion of a phy-sician’s practice or unless different purchasers andinsurers in the same geographic area coordinateprograms. Under the program sponsored by Gen-eral Electric, Bridges to Excellence, for example, ifan internist has a panel, or patient base, of 2300 andthis incentive program covers only 1 percent of thepatients, then the physician would be eligible foronly $1,265 in bonuses annually ($55¬23). Thesefunds would not be sufficient to support the systemrequired to meet the bonus criteria. Larger grouppractices may be motivated by smaller paymentsbecause they can spread expenses among a largernumber of physicians, but physicians are unlikelyto respond to an incentive program that applies toless than 15 to 20 percent of their patient panel.Convincing consortiums of health plans and privateand public purchasers to participate is thus critical,although difficult, since most insurers seek a com-petitive advantage by differentiating programs. Thehuge amount of effort expended in bringing the sixcollaborating health plans together under the IHAbanner in California underscores both the magni-tude of the task and its feasibility with a concertedeffort.

Another challenge in designing and implement-ing these programs is getting the right mix of crite-ria for quality. Incentives based on a handful of mea-sures of quality may encourage physicians to focustheir efforts on improving quality in the areas target-ed by the programs, neglecting other important as-pects of care. In contrast, incentives based on toomany measures may overwhelm physician practices.

Another consideration is that physicians mayresist efforts to implement payment incentives forfinancial reasons. Medicare cut physicians’ pay-ments by nearly 5.4 percent in 2002 and held the in-crease in 2003 to 1.6 percent. With competition inthe marketplace, the overall pool of money going tophysicians from the private sector is also unlikelyto increase substantially. Thus, bonus payments forphysicians who achieve quality goals are likely totranslate into lower base payments for those whodo not achieve these goals.

Furthermore, payment-for-performance systemsmay unfairly penalize physicians caring for patientswho are at a socioeconomic disadvantage and maymotivate the physicians to reduce the number of pa-tients for whom they provide care. Delivering high-

the challenges ahead for purchasers and physicians



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quality care to patients in low socioeconomic brack-ets can be relatively difficult,

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and the physicianswho serve them often receive less reimbursementand have less capital available for investment in newsystems than do physicians providing care for pa-tients in higher socioeconomic brackets. Rewardsfor quality could therefore help make the rich richerand the poor poorer. Although previous studies ofaccess to care for severely ill patients have not re-vealed increased problems of access to services as aresult of public measurement of health outcomes,diminished access remains an important concern.

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We know much less about risk-adjustment methodsfor the quality of care than we do about such meth-ods for the cost of care.

Finally, financial incentives for performance mayalso threaten the sense of professionalism, autono-my, and job satisfaction among physicians, especial-ly when purchasers make the rules and decisionsthat affect priorities in providing care. Previously,patients believed that their doctors would providehigh-quality care as a matter of course. Will patientsnow worry when their doctors do not receive finan-cial incentives for better quality? Some physiciansare concerned that the very existence of new finan-cial incentives based on performance may under-score the inadequacy of professionalism as a meansof self-regulation and quality assurance.

New financial incentives for improvements in thequality of care represent a range of goals and am-bition for the insurers and employers developingthem. These efforts face important impedimentsand challenges; however, well-crafted payment-for-performance initiatives are worth pursuing andmay lead to substantial improvements in the qual-ity of care.

First and foremost, we need to expand efforts,substantially increase the size of incentives, and staythe course.

17,18

Physicians are likely to respond tofinancial incentives if the dollar figures are largeenough. This is a time when broad-scale experimen-tation would serve us well, although it must be cou-pled with evaluation and rapid dissemination ofmodels that are effective.

Second, the impact of financial incentives de-pends critically on the efforts of large purchasers,such as the Center for Medicare and Medicaid Ser-vices, or collaborative efforts by health plans or pur-chasers, such as those in the IHA program. Individ-

ual purchasers or health plans with small marketshares that implement their own programs maygain a marketing advantage, but they are unlikely tohave a substantial effect on the quality of care ifthey act alone. Such efforts should not be confusedwith serious efforts to improve quality.

Third, directing financial incentives at a smallnumber of individual indicators of clinical qualityis unlikely to yield broad-scale improvement in thequality of care. Rotating measures and expandingover time the battery of performance indicators thatare tied to financial payments will probably be moresuccessful as strategies.

Fourth, the current systems for measuring qual-ity are technically imperfect.

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Continued invest-ment in systems for measuring and tracking qualityin an affordable way remains important. Unfortu-nately, quality-incentive programs alone are unlike-ly to provide sufficient impetus for attaining thehighest achievable quality of care. Programs to payphysicians for high quality should be combined withan array of other efforts to foster high-quality care,such as educational programs, computerized deci-sion aids, and incentives for patients.

Finally, the most pragmatic hope for improvingthe quality of care lies in efforts that implicitly orexplicitly call for investment in information infra-structure and the fundamental redesign of officepractice. Realistically, this restructuring will be eas-iest to achieve in large physician practices with econ-omies of scale and a natural grouping of physicianson which to measure performance. Additional strat-egies to improve the quality of care will be particu-larly important to pursue in solo and small-grouppractices.

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Paying Physicians for High-Quality Care