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California association plans to reward physicians for good patient care

Modern Healthcare

A collaboration of California health plans, medical groups and employers is expected this week to unveil a statewide healthcare initiative that uses money from insurance premium increases to reward physicians for improving the quality of patient care.

Under its ”Pay For Performance” initiative, the Integrated Healthcare Association, a managed-care policy development group based in Walnut Creek, Calif., plans to create a statewide pool of funds that would be used to pay bonuses to doctor groups that do well on a standardized set of performance measures.

The pool would be set up by health plans, which would chip in roughly 2% of premium increases associated with capitation payments annually for the next three years.

The concept of rewarding physicians for providing quality care-rather than for holding down costs-has gained momentum in recent years, partly because several Institute of Medicine reports have documented shocking defects in the way the nation’s healthcare is delivered. But until now, most efforts have come from individual health plans, each with their own performance measures and incentive scales.

Participation in the pool is voluntary. But if all health plans in the state were to contribute, the IHA said, a current 2% pool would equal $100 million to $150 million. And in addition to the additive nature of the pool over three years, the value of the 2% set-aside would grow as premiums rise.

”(Premium increases) will remain in the high single digits or more for at least another three years,” the IHA said on its Web site. ”There is, therefore, a window of opportunity in the next 12 to 18 months to build a ‘pay for performance’ system that can be funded out of those coming increases.”

The initiative is being spearheaded by six health plans: Aetna, Blue Cross of California, Blue Shield of California, Cigna, Health Net and PacifiCare Health Systems.

The IHA declined to discuss the initiative before its official announcement last week. But in a press release, it touted the collaboration as a model for other states in tackling ”the dual problem of escalating healthcare costs and alarming lapses in quality.”

At least one consumer watchdog group, however, questioned whether the initiative would prove much more than a publicity stunt.

”I wouldn’t underestimate the timing of the announcement,” said Jamie Court, executive director of the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights. ”With the patients’ bill of rights looming, HMOs know they have to create the perception of change.”

According to its Web site, the IHA formed a committee in July 2000 to design a list of medical-care standards including ”a balanced set of patient satisfaction, prevention and chronic care-management measures.” As part of the initiative, an independent organization would be hired to evaluate how physician groups perform on these measures using laboratory, pharmacy, administrative and patient-survey data.

The medical groups with the highest scores would receive large bonuses from the pool. Those with average scores would receive less, and those with poor scores would receive nothing. Over time, this tiered reward system could improve quality industrywide by separating the provider wheat from the chaff, the IHA said.

”By design, this process will widen the gap between the best-performing and worst-performing groups, with the expectation that this in turn will accelerate the consolidation or exit from the market of the worst-performing groups,” according to the IHA Web site.

Blue Cross of California garnered a great deal of media attention last July when it announced it would eliminate cost-containment bonuses and put all that money toward medical-quality incentives. Blue Shield of California also began phasing in bonuses for quality care last year. And PacifiCare encourages doctors by making public information about how well each of its medical groups takes care of patients.

But the California initiative is unprecedented, the IHA said, because it marks the first time that several health plans will work together under a joint incentive system.

A study released last week by the National Health Care Purchasing Institute found that rewarding physicians financially for high-quality clinical performance can indeed improve healthcare.

”Incentives are powerful, proven motivators in virtually every human endeavor but are still rare in healthcare,” Kevin Piper, director of the Washington-based institute, said in a written statement. ”Incentives focus the mind, empower change and provide valuable resources for quality improvement.”

But consumer advocate Court said the initiative could prove largely ”cosmetic” because it does nothing to alter the flat per-patient fees, or capitation, that HMOs pay medical groups.

”Even a 10% bonus (for improving quality) is marginal when 100% of your salary is still tied to minimizing treatment costs,” Court said. ”The real change would be if doctors started getting paid on a risk-adjusted basis for treating sick patients.”

Consumer Watchdog
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