Pay for Performance in Healthcare Gets an “Incomplete” Report Card Says PricewaterhouseCoopers Report

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Universal Measures, Greater Financial Incentives for Doctors Needed to Improve Quality

We’re hearing from both payers and providers that they consider P4P imperfect, but a step in the right direction

Pay for Performance, which rewards doctors and hospitals for improvements in the care they provide, is considered key to healthcare payment reform, but so far it’s been only a Band-Aid on a fundamentally broken payment system, according to a report on Pay for Performance (P4P) programs among the nation’s largest commercial health insurers released today by PricewaterhouseCoopers. P4P would get an “incomplete” report card right now, says PwC's Health Research Institute (HRI) (http://www.pwc.com/hri) which found a lack of agreement about the definition of quality or cooperation on standards, resulting in a ballooning number of diverse measures, and insufficient financial incentives to change physician behavior.

To succeed, PwC says the industry must agree on a universal set of quality measures and take an all-payer approach, wherein all hospitals and physicians strive for the same set of quality goals and receive equal incentives to care for all patients, regardless of whether a patient has health insurance or not.

“We’re hearing from both payers and providers that they consider P4P imperfect, but a step in the right direction,” said Paul Veronneau, a principal in PricewaterhouseCoopers Health Industries practice and leader of the U.S. Payer Practice. “Indeed, the current healthcare payment system in the U.S. is laden with perverse incentives based on incomplete information and is in urgent need of reform. But nearly everyone agrees that providers should be rewarded for quality improvements, and pay for performance is a necessary component of a quality-driven healthcare system. The industry needs to work harder to get this right.”

P4P is a radical departure from traditional payment methods in which doctors and hospitals are paid for the services they provide regardless of whether the patient received quality care. The federal government has promised doctors and physicians that their future pay will be linked to clinical performance improvements, leading most in the industry to accept that P4P is the eventual inevitability for Medicare and Medicaid reimbursement. However, P4P has been slower to take hold among commercial health insurers, and programs across the country are a mixed bag, finds PwC.

The PwC report, entitled “Keeping Score,” compares pay for performance programs among commercial health insurers across the United States and includes insight from in-depth interviews with top executives from 10 of the nation’s largest commercial payers. Collectively, they provide health insurance for approximately 39 million individuals. On average, hospitals receive approximately 40 percent of their revenue from commercial payers.

Key findings of the interviews with the nation’s largest health insurance plans include:

  •     There is tremendous variation among commercial plan’s pay for performance programs. For example, nearly 60 different indicators of physician performance are being used among the ten plans surveyed by PwC’s Health Research Institute. Of those indicators, not a single indicator was used by all 10 plans. No two plans reward providers for performance in the same way. And all of the plans administer their programs in widely different ways.
  •     Eight of the 10 plans surveyed intend to expand their P4P programs even though they see P4P as an approach that is incremental at best and insufficient to overcome fundamental flaws in the existing payment system.
  •     There is a cornucopia of quality metrics being used because health plans believe they have to tailor their scorecards to address specific needs, which places undue administrative burden on providers. Payers recognize the need for greater standardization in metrics and quality data across the industry and the administrative toll that the lack of convergence is creating among providers. Still, payers in most markets are not yet collaborating enough to agree on which quality metrics to use.
  •     While the federal government’s P4P system started with hospitals and is evolving toward physicians, private P4P has moved in the opposite direction, starting with physicians whose P4P programs are more fully evolved than hospital programs.
  •     Transparency of physician performance is still in its infancy because health plans are uneasy about the consequences of publishing the names of physicians with poor quality performance. Of the 10 plans surveyed, only four publicly report quality data on physician performance.
  •     Commercial payers felt that physicians would need a reward equal to 10 percent of their total reimbursement to change their behavior. Among the 10 plans surveyed by PwC, payment levels ranged from 1 percent to 8 percent of total base physician reimbursement, and the consensus is that these P4P payments are too low.
  •     Results from P4P are spotty and few plans have set up tracking methods. Only one of the plans surveyed had established a process for evaluating results in a statistically valid manner. Seven of the plans surveyed said they had seen some quality improvements, but evidence of this is anecdotal at best.

In its report, PricewaterhouseCoopers outlines steps that health plans can begin to take to improve their P4P programs and achieve the results these programs are intended to have, starting with participating on a regional basis to define, shape and share clinical information. PwC also recommends that health plans begin to systematically evaluate P4P results and evolve outcomes-based performance measures. Ultimately, to enhance the impact of P4P, including the revenue amount received for quality performance, physician and hospital incentives need to be aligned.

A full copy of the report is available at http://www.pwc.com/hri.

About the PricewaterhouseCoopers Health Research Institute
PricewaterhouseCoopers Health Research Institute (http://www.pwc.com/hri) provides new intelligence, perspective and analysis on trends affecting all health-related industries, including health care providers, pharmaceuticals, health and life sciences and payers. The Institute is part of PricewaterhouseCoopers’ larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum.

About PricewaterhouseCoopers
PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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Lisa Stearns

Todd Hall
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