AAOS Bulletin - October, 2006

Who should be pushing the P4P initiative?

Physicians need to drive the process to ensure quality care

By Robert H. Haralson III, MD, MBA

By now, every physician has heard of “pay for performance” (P4P). But what does it mean and who is pushing for its implementation?

Figure 1: Medicare spending and quality of care by state, 2001

(Reproduced with permission from Jencks SF, Huff ED, Cuerdon T: Change in the quality of care delivered to Medicare beneficiaries, 1998-1999 to 2000-2001. JAMA 2003; 289:305-312.)

In simple terms, P4P programs link physician payments to the achievement of certain quality levels. Virtually all major payers, including Medicare, are piloting P4P programs and will soon be measuring physician performance and offering financial incentives to those who meet quality targets. In fact, the recent report by the Institute of Medicine (IOM) recommended that the Centers for Medicare and Medicaid Services (CMS) gradually replace its current fee-for-service payment system with a P4P system over the next three to five years.

Physicians must participate in this initiative to ensure it controls costs without decreasing quality. And wouldn’t it be wonderful if the P4P system that is finally adopted actually increases quality?

The problems behind P4P
Two problems have led to the P4P initiative: cost and quality. Automakers now pay more per car for medical insurance than for the steel needed to build it. For Ford Motor Company, that equates to $1,100 per vehicle.1 Someone making the minimum wage cannot afford personal or family medical insurance coverage because it costs more than their annual salary.

But problems paying for health care are not limited to low-income families. A recent survey found that one in three families with incomes of $50,000 to $75,000 admit having difficulty paying for health care. Health care costs have doubled in the last six years and are now 16 percent of the U.S. gross national product. Continued growth at this rate is unsustainable.

As for quality, a recent study published in the New England Journal of Medicine suggested that U.S. citizens receive only 54.9 percent of recommended acute, chronic and preventive care.2 The use of prophylactic antibiotic and prophylactic thromboembolic medications in fractured hips was among the measures studied. Patients received both of these prophylactic measures in only 22 percent of these cases. Another study suggested that physicians who have been in practice for many years may be at greater risk for providing low-quality care.3

In examining the connection between quality and cost, researchers have found an inverse relationship4 (Figure 1). When Medicare spending per beneficiary and quality of care are measured by state, the quality goes down as the cost increases.

Cost and quality

Health care purchasers, insurance companies, government and medicine are all responding to these problems. Currently, purchasers provide the driving force behind P4P initiatives. Self-insured companies have indicated that they will award their health plan management contracts to insurance companies that have instituted effective cost-containing measures without decreasing quality. This has encouraged insurance companies to explore and establish such initiatives. Actually, “pay for performance” has been implemented in California and Hawaii for more than 10 years, so this is not a new initiative.

In response to increasing Medicare costs, the federal government has announced the Physician’s Voluntary Reporting Program (PVRP). Under this program, physicians are asked to report several of 23 quality measures. Orthopaedic measures include the use of prophylactic antibiotic and thromboembolic medications in treating fractured hips, in total hip and total knee arthroplasty, and assessment for falls. While the PVRP is voluntary and has no reimbursement implications, in the near future, CMS plans to link payments to achieving certain thresholds of adherence to these performance measures.

The medical community has urged the government and other third-party payers to “get it right.” Physicians want to ensure that the parameters being measured are true indicators of increased quality and not just processes.

Measuring quality

It is very difficult to measure quality or to define it. P4P programs typically rely on some mix of four types of quality measures: clinical outcomes, processes, structural factors and patient satisfaction.

In some cases, processes serve as surrogates for outcomes. For instance, one of the processes frequently measured is length of stay. The link between length of stay and quality is that if the length of stay is minimal, the chance of complications is also minimal.

Until recently, there was very little evidence that P4P actually improved quality or decreased costs. However, data from the Premier Project suggest that, indeed, P4P is successful in both areas.5 The Premier Project, funded by CMS and carried out by Premier, Inc., a health care alliance, involved 260 hospitals in 38 states. Each hospital was asked to implement and measure up to 27 outcomes and process measures in five clinical areas—pneumonia, coronary artery bypass graft, acute myocardial infarction, hip and knee replacement procedures, and heart failure.

Early data analysis indicates that the more metrics the facility tracked, the greater the improvement noted in complication, mortality, and readmission rates, as well as in cost of care. Orthopaedic data are less dramatic because only two parameters were measured (use of prophylactic antibiotic and thromboembolic medications) and because one of the outcomes measured was mortality, which is very low for total joint replacements and often occurs after the specified time period for these measurements.

In addition, the 100,000 Lives Campaign, carried out by the Institute for Healthcare Improvement (IHI) with the cooperation of more than 300 hospitals, demonstrated that adherence to strict treatment protocols for patients who had experienced heart attacks or were on ventilators significantly reduced mortality rates.

Thus, what does seem to improve quality and reduce costs is implementation of systems or guidelines. According to IHI’s Donald M. Berwick, MD, “Without measurement there is no improvement. To improve, however, the measurement has to be taken consistently over time. Physicians are trained to observe, measure and record symptoms or test results. To accelerate the adoption of quality principles, professional societies have to engage the membership in targeted quality efforts.”

The quality feedback loop

Payers have developed P4P initiatives because purchasers require them to implement cost-containing tactics. In addition, payers are providing financial incentives to consumers who use providers with high quality and good efficiency scores. The theory is that as patients gravitate to these providers, lower scoring providers will be forced to improve their performance.

Efficiency scores are calculated by determining the cost per provider per episode of care. That is, how much does a provider cost society when caring for a broken hip—from the time the physician sees the patient in the emergency room to the time of discharge? Such a calculation would include the physician’s reimbursement, the hospital bill, and payments for physical therapy and medication.

Soon, both quality and efficiency scores will be available to the general public, as they already are in some areas.

Figure 2 indicates how these scores might be displayed.5 The vertical axis indicates the cost of each episode of care; the horizontal axis shows the quality scores. Providers who achieve high quality care at low cost—the so-called tier 1 providers—are shown in the upper right section. As this information becomes available, consumers will be given financial incentives to seek out these top performing physicians.

Figure 2. Depicting quality and efficiency scores.

Until recently, payers, including CMS, have talked only about rewarding physicians for performance above a certain level of quality and “efficiency.” Efficiency is defined as quality divided by costs. What was conspicuously absent, and what most physicians know is coming, are discussions about where the money will come from and what reimbursement will be made to physicians who did not meet the thresholds. These issues were raised in the IOM report, which recommended across-the-board reductions in the base pay for physician services to create a pool of monies to recognize high performers.

The problem for physicians

The simplicity of this scenario troubles many physicians. Physicians, while they support improving quality and containing costs, want “to get it right.” Physicians want to make sure that P4P uses realistic measures, looks at outcomes as processes and applies the same performance measures for all payers. In addition, surgeons believe that there currently are no good surgical measures because there are few ways to make risk adjustments.

The AAOS is heavily involved in guideline development and the P4P arena. The AAOS has an Evidence-Based Practice Committee and recently formed a Guidelines Oversight Committee, which will develop practice guidelines and performance measures.

In addition, the AAOS is involved in the American Medical Association’s Physician’s Consortium for Performance Improvement (PCPI), the entity that is developing performance measures from evidence-based guidelines. AAOS performance measures will be forwarded to the PCPI for their approval and distribution to CMS, the National Quality Forum, and the Ambulatory Quality Alliance, the entities responsible for validating and implementing performance measures on a national basis.

It is clear that P4P, in some form or other, not only will happen but will be here to stay. The increasing numbers of institutions and organizations behind this initiative will not let it fall by the wayside as other cost-saving efforts, like managed care, have.

P4P needs to be physician-driven, particularly now that the government plans to attach it to reimbursement levels. The AAOS is—and will remain—in the forefront of efforts to ensure that any government program is based on realistic outcome measurements and evidence-based guidelines.

Robert H. Haralson III, MD, MBA is AAOS Medical Director. He can be reached at haralson@aaos.org


1. Azar H. “The Need for Value Based Purchasing.” Presentation at the Leapfrog/National Business Coalition on Health Symposium, April 2006, Chicago.

2. McGlynn EA, Asch SM, Adams J, et al. The quality of healthcare delivered to adults in the United States. N Engl J Med 2003;348:2635-2645.

3. Choudhry NK, Fletcher RH, Soumerai SB. Systematic review: The relationship between clinical experience and quality of health care. Ann Intern Med 2005 Feb 15;142(4):260-73

4. Baicker K, Chandra A. Medicare spending, the physician workforce, and beneficiaries’ quality of care. Health Affairs Online 2004; Suppl Web Exclusive:W184-197.

5. Norling R. “The Market at Work; Rewards.” Presentation at the Leapfrog/National Business Coalition on Health Symposium, April 2006, Chicago.

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