IOM favors P4P plan for Medicare

The Institute of Medicine came down firmly on the side of using a pay-for-performance methodology for Medicare, suggesting that the government act quickly and decisively to revamp the payment system.

The institute issued its report late last month, suggesting that the national program paying for the care of 42 million beneficiaries phase in a pay-for-performance approach, initially funding bonus payments for "strong performance" by cutting Medicare base payments across the board.

The suggestion drew protest from provider groups, particularly physician groups, which are expecting scheduled reimbursement cuts of 40 percent over the next nine years.

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The move is essential to shift the paradigm of reimbursement from a volume-based system to one based on ever-improving quality, said members of the panel that developed the report.

"Beneficiaries are not getting the highest possible quality of care because the program's payment system encourages volume rather than efficiency and quality," said Steven A. Schroeder, professor of health and healthcare at the University of California and the committee's chair.

"The urgency of the situation demands that steps be taken now to encourage healthcare institutions to improve their quality," he said. "Pay-for-performance has demonstrated sufficient promise, based on early experience, that it should be pursued."

The committee noted that little hard data exists on the effects of pay-for-performance initiatives. While it estimated that 100 programs have been launched, fewer than 20 have quantified results.

It suggested that Medicare base payments be cut over the next three to five years to fund rewards for high quality, while studies concurrently determine how to fund bonus payments beyond the initial implementation period.

Groups such as the American Medical Association and American Hospital Association weighed in immediately with negative responses.

The plan coincides with increasing interest in pay-for-performance programs, said Tip Ghosh, CEO of the Bloomsbury Consulting Group of Las Vegas. Ghosh, who also teaches at the University of Nevada at Las Vegas, said those charting Medicare's course want to recast it in a pay-for-performance mold.

He believes the program could swing sharply into a pay-for-performance mode by 2009.

Many providers don't think they'll see any increase in payments for good performance, saying such an approach will only result in funds being shifted around and ever-increasing demands for high quality levels with no commensurate increase in payments, said Lyle Berkowitz of the Northwestern Memorial Physicians Group of Chicago.

The report suggested rewarding both providers who maintain high quality levels and those who increase their performance significantly.

While the IOM report suggested increasing the amount of performance data providers would submit, it said HHS should offer incentives to encourage providers to submit data. The data should be made publicly available to better inform patients and other stakeholders.

However, consumers often don't use existing data that's available on quality, said Thomas Malone, MD, executive vice president and chief medical officer at the Detroit Medical Center.