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Better quality care, bigger paycheck


That's the promise of a new scheme by California HMOs. Doctors are interested but wary.


Better quality care, bigger paycheck

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Choose article section...Report cards haven't had a big impact so far Blue Cross' vaunted quality push No new money: a major worry No business case for quality?

That's the promise of a new report card by California HMOs. Doctors are interested but wary.

By Ken Terry
Senior Editor

California HMOs and employers have been publishing performance reports on medical groups and IPAs for several years. Now six of the state's biggest plans—Aetna, Blue Cross of California, Blue Shield of California, Cigna, Health Net, and PacifiCare—have raised the ante by agreeing to put out a single report card as part of a new program called Pay for Performance.

Developed by the Integrated Healthcare Association, a statewide consortium of payers and providers, Pay for Performance will require medical groups to supply extensive clinical data. To get the groups' attention, the plans have promised them bonuses of up to 10 percent of their capitation rate if they get excellent grades. IHA estimates that the total bonus pool could exceed $100 million a year, starting in 2004.

West Coast physician organizations are skeptical, for several reasons. First, groups haven't seen much business impact from the report cards that are already in place. Second, they're afraid that the plans will deduct the bonuses from utilization incentives or future increases in capitation payments. And third, some groups wonder whether they'll be able to afford the information systems needed to provide encounter and lab data on a wide range of indicators, including cancer screenings, immunizations, steroid inhaler prescriptions, LDL levels, and HbA1c levels.

"To date, our contracts have been sufficiently anemic that creating the right kind of information management will be tough," says internist Eugene S. Ogrod of the Sutter Medical Group in Sacramento.

FP Leroy L. Ounanian, medical director of the Beaver Medical Group in Redlands, CA, has nothing against report cards; in fact, he says they help the group identify potential areas of improvement. But he fears that if Pay for Performance incentives come out of future capitation increases, compensation will be reduced for groups that can't afford to gather performance data. "It's going to exacerbate the problems for those groups, because they won't have the resources to provide the care."

But health plans and employers are determined to measure clinical performance, even if some groups find it difficult to keep up. "Investing in information systems is the cost of doing business," says FP Sam Ho, senior vice president and chief medical officer of PacifiCare.

Arnold Milstein, medical director of the Pacific Business Group on Health and a consultant for Mercer Human Resources Consulting, says Pay for Performance is designed to give groups the money to "re-engineer" their practices. "We've decided to reinforce performance excellence, rather than to ensure that every medical group survives," he says. "To the customer, the first is a lot more important than the second."

It's easy to dismiss this as one more California fad that won't have much impact on the rest of the country. But as employers try to cope with huge health-cost increases, this latest effort to influence physician practice patterns may resonate elsewhere. If so, pressure to follow managed care guidelines will increase along with the size of quality bonuses.

Report cards haven't had a big impact so far

Two other West Coast report cards underlie the current Pay for Performance program. The first one, from the Pacific Business Group on Health, was called the Physician Value Check Survey. It asked patients about the care they'd received for high blood pressure and high cholesterol, whether they'd received an array of preventive services, and what their experience with the health care process had been. That survey was discontinued a few years ago, because neither plans nor medical groups wanted to invest in collecting the data, says Milstein. But PBGH still publishes comparative reports on groups, using a standard patient satisfaction survey.

PacifiCare's Quality Index, the other precursor of the new initiative, includes patient satisfaction measures, affordability gauges (e.g., prescribing generic drugs), and clinical measures derived from claims and encounter data. Among the latter are breast and cervical cancer screening, eye exams for diabetics, use of preferred antibiotics, and hospital readmissions.

Since 1998, when the index was unveiled, the average performance of medical groups has improved on 70 percent of the measures, says PacifiCare's Sam Ho. While some of that stems from better data collection, he says that groups that had good data from the start have also raised their scores. He views this as proof of the power of market competition.

"Members actually do use the information," says Ho. He claims that in the past four years, 30,000 PacifiCare enrollees have moved to the higher-scoring groups or have joined them as new plan members.

But Robert Margolis, CEO of HealthCare Partners, a highly rated group practice and IPA in Los Angeles, says that the group's enrollment gains over the past few years have come mainly from the collapse of other physician organizations. "The sense in the provider community is that the industry has paid a lot of attention to scorecards, performance, and public reporting," says Margolis. "But consumers have picked up very little of that."

Blue Cross' vaunted quality push

Whether consumers are interested in quality data or not, Blue Cross of California is going full speed ahead with its much-publicized plan to drop utilization bonuses in favor of quality incentives for physician groups. Blue Cross' yardstick combines patient satisfaction with a few clinical criteria such as breast and cervical cancer screening and smoking cessation advice. The insurer promises bonuses of up to 10 percent of capitation that will be phased in as current HMO contracts come up for renewal.

The catch is that these bonuses are being substituted for the hospital risk pool surpluses that the groups currently share with the plan if they keep down inpatient utilization. So, rather than being paid "new money," complain group leaders, physicians who meet quality goals will get the same amount of money they receive now. If they don't meet the criteria, they'll receive less.

"First Blue Cross created a quality award without telling us how much we're going to get," says internist Andrew P. Siskind, president of the Bristol Park Medical Group in Costa Mesa, CA. "Then they told us that our hospital risk pool, which was very rich for us, would be reduced by two-thirds. It's a great marketing ploy for them. They get more patients and pay us less money."

Nevertheless, Siskind supports measurement and public reporting. Bristol Park has hired a full-time employee to collect data and has spent $250,000 on disease management software that addresses the measures the plans are interested in.

Why do this if patients aren't paying attention to the scorecards? "We firmly believe that if we keep our patients healthy, we'll make more money," says Siskind. "And if the plans really do start paying us on quality, that will be a huge incentive. Finally, there's pride: We like to see ourselves do well on those things."

No new money: a major worry

Physician group leaders doubt that any of the plans will fork over bonuses exceeding what they would have otherwise added to the groups' capitation payments. "If the plans want to shift money from bonuses for utilization control to quality bonuses, fine," says internist Brian C. Roach, president of the Mills-Peninsula Medical Group, a 350-doctor IPA. "But it's just part of the revenue that I negotiate with plans. Whether I call it capitation or Pay for Performance, I just lump it into revenue."

While capitation rates are slowly rising in California, they're still far below the national average, and physician groups are still financially strapped. "We've had such a drought for so long that any new money is getting sucked into funding the basic operations," Roach notes. This means paying out most of it to physicians.

According to Steve McDermott, CEO of the Hill Physicians IPA in San Ramon, CA, each group will decide how to distribute the bonuses. "We've avoided telling companies what to do with their money," says McDermott, who chaired the Integrated Healthcare Association when it designed Pay for Performance. "If one company wants to put all their bonus into information systems, that's fine. If another wants to spend it all on their doctors, that's their business. If they spend it correctly, they win; if they don't, next time around they won't earn a good bonus."

No business case for quality?

McDermott regards a 10 percent bonus as the minimum that would get physicians to change what they do. He'd like to see the bonus level grow to 20 or 30 percent over time. In return, he says, high-performing groups could significantly improve public health.

Organizations that already have good information systems see Pay for Performance as a major step forward. To begin with, notes McDermott, it will be much simpler to track data for one report card than for several. "Doing a common report card will also make it a bigger deal," he adds, so most groups will want to participate. "Plus, we create a business case for good performance."

This alone could change how groups perceive the quality issue, notes Margolis. "There's no business case for quality today. This new initiative aims to offer enough money to make people think about changing their behavior or developing processes to measure and monitor things that have an award or incentive."

But even with Pay for Performance, Margolis says, his group may not see a return on its investment in quality. "We're not doing it for the bonus money," he says. "To be successful in the long term, we've got to provide quality care and service. Pay for Performance just gives us a bit of a tailwind. We're betting that ultimately there will be a consumer movement that says the winners are those that provide better care and service in a measurable way."


Ken Terry. Better quality care, bigger paycheck. Medical Economics 2002;17:99.

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