Pay-For-Performance Experiment Shows Reduced Costs

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An experiment to gauge the efficacy of a pay-for-performance systemshowed that coordinating care and reducing hospitalizations can lowerMedicare costs, CMS officials said on Wednesday, the New York Timesreports. The study, which began in April 2005 and will run throughApril 2008, is an attempt by CMS to re-examine how Medicare reimbursesphysicians for care with a focus on quality, rather than the number oftests and procedures performed.

For the experiment, CMSanalyzed hospital and physicians' bills for 224,000 patients beingtreated by 10 selected physician groups and compared them with billsfrom other doctors and patients in the same geographic areas. Doctorsinvolved in the experiment were required to meet certain qualitycriteria, such as adhering to 10 clinical measures for diabetes care.For the second year, clinical measures for heart disease care will beadded; in the third year, measures for hypertension and basicpreventive care for all patients will be assessed.

Results ofthe experiment showed that all 10 physician groups participating in theprogram improved patient care during the first year. However, only twogroups -- the University of Michigan Faculty Practice and the Marshfield Clinicin Wisconsin -- met the threshold to qualify for bonus payments. Thetwo groups were paid a total of $7.3 million, in addition to standardMedicare payments for services, for saving the program $9.5 million.

CMShas not yet calculated the overall savings of the experiment, butphysician groups say that the experiment likely saved Medicare acombined $21 million. Herb Kuhn, acting deputy administrator for CMS,said, "We want to reward providers for the right care at the righttime." He added that he was "very, very pleased with the first-yearresults."

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Implications

The Timesnotes that all 10 of the physician groups are part of "large,sophisticated organizations" that have "substantial experience inelectronic health records or other systems known to improve patientcare." The "fact that eight of them did not meet the bonus thresholdindicates how difficult it may be for Medicare to develop a paymentsystem giving most doctors, many in small, less-modern practices, atrue financial incentive to improve care," according to the Times.

CarolineBlaum, the physician who led the pay-for-performance effort at theUniversity of Michigan, said the experiment has "filled a huge gap incare" but added that the "financial model for this program may not beviable." She added that doctors at the hospital were unsure aboutexactly what they had done to reduce costs.

However, manyphysician groups said changes in how they care for patients, such asfollowing up emergency department discharges with a nurse's call orproviding more patient education, were useful even if they did notincrease revenue. Questions also "remain about how to motivateindividual physicians because the experiment rewards organizations, notthe individual doctors who must actually ensure that the patient gets aflu shot or goes to the right specialist," the Times reports.

KarlUlrich, president and CEO of the Marshfield Clinic, said, "The realdriving force of change needs to occur in a physician office" (Abelson,New York Times, 7/12).

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