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Pay for Performance (P4P) Primer

*Last Updated in 2006*

Questions and Answers Concerning Pay- for-Performance Policy and Medicare

What is Pay for Performance?

Pay-for-performance (or "P4P") programs offer financial rewards to clinicians who provide care that meets certain standards or "measures" intended to gauge quality and cost-effectiveness.

An estimated 30 million Americans are already enrolled in private health plans with P4P programs. Many P4P programs are in HMO networks, though some insurers have started introducing P4P programs into preferred provider organization (PPO) networks, as well. "Bridges to Excellence," a P4P program that offers physicians incentive bonuses of up to 10%, was created by a coalition including health plans, large employers and physicians.

Click here for the AGS Pay for Performance position statement

What kind of measures do P4P policies use to evaluate care?

P4P policies, and the measures they use to assess quality and cost-effectiveness, can vary considerably from program to program. Most programs use a variety of measures, including: clinical quality and effectiveness measures (e.g. measures to determine how often patients receive treatments shown to lead to the best possible outcomes); utilization and cost management measures; patient satisfaction measures; administrative measures (e.g, measures that consider the extent to which clinicians use such things as patient registry systems, evidence-based clinical decision support tools, and electronic medial records to enhance quality); and patient safety measures. (Some programs, including Bridges to Excellence, also reward providers who meet certain standards established by outside agencies, such as the non-profit National Committee for Quality Assurance (NCQA). The NCQA's Physician Practice Connections recognizes physician practices that use health information systems to improve patient care. )

Over time, P4P policies-also known as "value based purchasing" policies-and the quality measures they utilize can change. This may happen, for example, as new clinical data comes to light, and clinical practice guidelines change as a result. (For more on performance measures, see "Who will come up with Medicare's P4P quality measures?"

Why are we hearing so much about P4P these days?

Efforts to incorporate P4P policy into Medicare are gaining momentum. Policymakers, under growing pressure to contain Medicare costs, see P4P as a key tool for improving cost-effectiveness and quality.

Congress, the Centers for Medicare and Medicaid Services (CMS), the Medicare Payment Advisory Commission (MedPAC), and non-governmental groups such as the National Committee for Quality Assurance (NCQA), the National Quality Forum (NQF), and the American Medical Association Physician Consortium are all working on P4P initiatives.

Is the AGS involved?

The AGS began stepping up its efforts to shape P4P policy in 2004, when it became apparent that the movement to incorporate P4P into Medicare was rapidly gaining ground.

AGS leaders and staff started meeting regularly with key congressional and CMS staff and other stakeholder organizations to ensure that the concerns of geriatrics health care providers and their patients are considered as P4P policy is developed. At the same time, the Society drafted a proposal, the "American Geriatrics Society Pay for Performance Proposal," for CMS and other interested parties. Click here to access the AGS Pay for Performance Proposal.

"Based on the seriousness of the discussion, we felt strongly that it was in our best interest to try to participate in this process-to make it work the best way possible for geriatrics- rather than to fight it," explains AGS Board Chair Meghan Gerety, MD. "Many medical professionals feel that payment for quality or performance is a complex issue and more testing and evaluation of measures and their impact should be performed prior to implementation, but actions by the House and Senate and CMS suggested that P4P was moving rapidly. For those reasons, AGS decided to step up its involvement, and numerous other medical societies, including the American College of Physicians and the American Academy of Family Physicians, have also gotten involved."

What, exactly, is AGS' position on P4P?

The "American Geriatrics Society Pay for Performance Proposal" articulates the Society's support for tying payment to measures of healthcare quality. It emphasizes that these measures must assess the care of all beneficiaries, including the "old-old," those with multiple chronic illnesses, and the frail. These are the very groups for whom "high quality of care has a proven record of improving health, decreasing hospitalization rates and decreasing mortality," the proposal notes.

In the proposal, AGS also calls for quality measures that target not only care for specific diseases, but also care that addresses multiple, concurrent illnesses and has been tested among vulnerable older adults. The measures should also recognize the needs of end-of-life patients-even when meeting these needs conflicts with disease-specific performance indicators.

The AGS proposal advocates using RAND's Assessing the Care of the Vulnerable Elders (ACOVE) measures for falls, cognitive screening, medication review, functional assessment, end-of-life counseling, osteoporosis, urinary incontinence and other health problems affecting among older adults. Click here to access ACOVE measures. To capture the ACOVE measures, the proposal further recommends developing a select set of CPT Category II codes based on the measures. (Category II codes are a relatively new coding mechanism developed by the CPT Editorial Panel to allow for electronic reporting of quality measures by physicians.)

The Centers for Medicare and Medicaid Services (CMS) has already endorsed three of the measures - concerning falls, osteoporosis, and urinary incontinence. CMS added hearing screening to this list. The Society has submitted all of its proposed quality measures to the National Committee for Quality Assurance's (NCQA's) Geriatric Measures Advisory Panel (GMAP) and continues to work with GMAP, which has expressed interest in them. The Society also plans to submit the complete set of measures to the AMA Physician Consortium, and to the National Quality Forum (NQF), a congressionally recognized national medical standards-setting organization charged with approving P4P quality measures prior to their adoption. (For more, see, "Who will come up with Medicare's P4P quality measures?"

At its request, AGS and other medical societies have also been working with the Centers for Medicare and Medicaid Services (CMS) to identify P4P quality measures broken down by specialty categories.

If policymakers make P4P provisions part of Medicare policy, will they repeal the Sustainable Growth Rate (SGR) formula?

That is what the AGS is advocating. In numerous meetings with and phone calls and letters to congressional leaders and CMS officials, AGS has emphasized that P4P will be successful only if legislation first eliminates the SGR. Under the SGR formula, fees to Medicare providers are cut whenever the volume of services to Medicare beneficiaries exceeds a set level. The Society's position is that fees should be linked the cost - unless Congress intervenes to block the cuts. This is untenable.of practicing medicine, and that all clinicians should get positive annual updates based on inflation as measured by the Medicare Economic Index (MEI).

Instead of cutting payments, AGS and other medical societies suggest that Congress, CMS and the Medicare Payment Advisory Commission (MedPAC) work with medical providers to determine why volume is increasing, and come up with polices to address unnecessary increases.

Won't P4P end up hurting some healthcare providers?
Isn't it possible that payments to healthcare providers who don't meet approved standards will be reduced to cover the cost of bonuses to those who do? And what about practitioners who see the neediest patients, or have few resources? How are they supposed to prepare for P4P and cover the costs of health information technology and other tools for meeting quality measures?

There are concerns that Medicare P4P policy may be a "zero sum" or "budget neutral" proposition - that bonuses to providers who meet quality standards will be financed with cuts to those who don't. The AGS and other medical societies, including the American Medical Association, oppose this approach, and favor one in which bonuses will be in addition to guaranteed baseline payments for all.

To protect practitioners who see the neediest patients- including frail patients and patients with comorbid chronic conditions who need considerable evaluation and management- AGS is advocating quality measures that take into account such needs. (See "What, exactly, is AGS' position on P4P?" AGS and other medical organizations are also advocating a gradual phase-in of P4P to allow providers time to make changes in their practices to accommodate quality measurement and reporting requirements. (See next question.) AGS supports legislation to help offset the costs of health technology and other tools that would facilitate P4P, particularly for practitioners with few resources. (See "Is anyone proposing legislation to help providers purchase health information technology to make the transition to P4P easier?"

P4P sounds like a major shift. How are clinicians supposed to adjust?

To give physicians time to prepare, and CMS time to evaluate the results of P4P demonstration projects and proposals, AGS is advocating a gradual phase-in. In the summer of 2005, AGS and 70 other national medical societies, including the American College of Physicians, the American Academy of Family Physicians and the American Medical Association (AMA), sent congressional leaders a proposal that calls for a five-year phase in of P4P for physicians and other health care professionals participating in Medicare.

The five-year framework phases in P4P as follows:

  • 2006: Pay-for-performance pilot programs would begin and Congress would allocate funds to temporarily change the Sustainable Growth Rate (SGR) formula to ensure a fee schedule update equal to the increase in the Medicare Economic Index.
  • 2007: "Pay for reporting" would begin. Physicians would be paid for reporting that they have basic structural capabilities, such as health information technology, or that they use patient registries or other information technology that supports quality improvement. Congress would continue to allocate additional dollars to both temporarily change the SGR to provide a positive update, and fund pay for reporting.
  • 2008-2009: "Pay for participation" would begin. Medicare would start allocating additional payments-in addition to, and separate from, the Medicare fee schedule updates-to physicians who voluntarily participate in quality improvement programs that use evidence-based clinical measures. Payment would be based on participation, and physicians with only basic structural capabilities would get smaller bonus payments than those following multiple evidence-based guidelines to improve care. Physicians would get feedback on their performance for internal quality improvement purposes. Additional funding to temporarily amend the SGR to provide positive updates would continue.
  • 2010: Actual P4P would begin, contingent on permanent repeal of the SGR. A certain percentage of Medicare payments for all physicians would be made based on quality performance. The Department of Health and Human Services would work with medical societies to develop programs to provide graduated bonuses based on performance. Public reporting would begin after adequate safeguards were put in place to prevent deselection of high-risk and extremely ill patients.

What sort of P4P programs is CMS investigating?

In early 2005, the Centers for Medicare and Medicaid Services (CMS) launched its first Value-Based Purchasing (P4P) pilot or "demonstration" project- the three-year Medicare Physician Group Practice Demonstration. The project involves 10 large, multi-specialty physician practices caring for more than 200,000 Medicare fee-for-service beneficiaries. Participating practices will phase in quality standards for preventive care and the management of common chronic illnesses such as diabetes. Practices meeting these standards will be eligible for rewards from savings due to resulting improvements in patient management. AGS member, co-chair of the AGS Quality Ad Hoc Workgroup, and University of Michigan geriatrician Caroline Blaum, MD, is leading the project at the university's Faculty Group Practice, one of the 10 practices involved.

Later in the year, CMS announced plans for a nationwide voluntary demonstration project related to P4P that will begin in January 2006. Through the project-the Physician Voluntary Reporting Program-physicians will have the option of reporting information concerning the quality of care they provide to Medicare beneficiaries. Initially, participating physicians will provide CMS with this information through the use of a set of Healthcare Common Procedure Coding System (HCPCS) codes, called G-codes, which will supplement the claims data they currently submit to the agency. By the summer of 2006, CMS will give participating physicians feedback regarding their performance, based on the submitted data.

What sort of P4P initiatives is Congress proposing?

In 2005, the House and Senate both proposed legislation to link Medicare provider reimbursement to performance.

The "Medicare Value Purchasing Act of 2005," which Sens. Chuck Grassely (R-IA) and Max Baucus (D-MT) proposed in June 2005, calls for a two-year phase in of P4P. In its first year, the Grassley/Baucus proposal would reward physicians who report quality data with the full Medicare fee update under current law; while those not reporting would see their update cut 2%. The following year, 1 to 2% of all providers' Medicare payments would be set aside in a pool that would be redistributed to physicians meeting quality standards developed under the discretion of the federal Health and Human Services (HHS) Secretary.

Rep. Nancy Johnson's (R-CT) "Medicare Value-Based Purchasing for Physician Services Act of 2005" would first repeal the Sustainable Growth Rate (SGR) formula and replace it with annual fee updates based on the Medicare Economic Index (MEI), a measure of the cost of providing care. The bill would then phase in higher payments for quality reporting and improvement as measured by evidence-based performance standards. Under the bill, all physicians would receive a 1.5% payment update in 2006. The following two years, those who report quality measures would receive an update equal to the MEI, while those who do not report would receive an update equal to MEI minus 1%. Beginning in 2009, practitioners who meet quality standards or show improvement would receive a payment update equal to the MEI, while those who do neither would receive an update of MEI minus 1%.

Are the two P4P bills that Congress proposed in 2005 consistent with the AGS' positions?

AGS worked with Sens. Grassley and Baucus on several elements of their proposed legislation. The Society was instrumental, for example, in ensuring that the bill calls on the Health and Human Services (HHS) Secretary to include measures applicable to the frail elderly and those with multiple chronic diseases. And it advocated successfully for a provision stipulating that quality measures be validated thorough a multi-stakeholder process that involves members with geriatric expertise. But the AGS gave only conditional support to the bipartisan legislation, as worded, for two reasons. First, the proposal fails to call for revocation of the Sustainable Growth Rate (SGR). Second, the 1-2% set-aside the legislation proposes is a far smaller incentive than many groups, including MedPAC, recommend.

The AGS has endorsed Rep. Johnson's proposal, which would both repeal the SGR, and replace it with updates based on the Medicare Economic Index (MEI), before phasing in higher payments for quality reporting and improvement. The AGS worked closely with Rep. Johnson and her staff as they drafted the bill, which stipulates that practitioners would be directly involved in determining which measures would be used for evaluating their performance. Numerous other medical societies, including the American Medical Association, American Academy of Family Physicians, and the American Association of Family Physicians have also backed the proposed legislation.

Is anyone proposing legislation to help providers purchase health information technology to make the transition to P4P easier?

In late 2005, Congress was considering a number of bills, including the "National Health Information Incentive Act of 2005," that could help clinicians cover the cost of health information technology.

Designed to encourage providers to adopt interoperable health information technologies that improve quality and cost effectiveness, the act (HR 747) acknowledges that the cost such technologies may be prohibitively expensive for many clinicians, especially those in small and rural practices. The bill calls on the Department of Health and Human Services (HHS) to provide initial funding - through grants, tax credits or revolving loans - to help providers acquire interoperable electronic health records and electronic point of care systems. It also calls for incentives to physicians who use technology to improve patient care and a pilot program to develop and test national standards for health information technology.

Who will come up with Medicare's P4P quality measures?
What is AGS doing to make sure they're appropriate for geriatrics care providers?

During the summer of 2005, Centers for Medicare and Medicaid Services (CMS) Administrator Mark McClellan, MD, announced that CMS will choose P4P performance measures from among those developed by the AMA Physician Consortium on Performance Improvement, the National Committee on Quality Assurance, medical societies and other organizations. By law, CMS is required to either use evidence-based measures that have been endorsed by the National Quality Forum (NQF) - a congressionally recognized national medical standards-setting organization- or to publish a public notice explaining why it plans to use other measures.

CMS did, in fact, develop the 32 measures it will use in its Medicare Physician Group Practice Demonstration program in collaboration with medical societies and other stakeholders. The choice of the measures was based on work by a national consortium of physician associations known as the Ambulatory Care Quality Alliance; the NQF; the AMA Physician Consortium for Performance Improvement; the National Committee for Quality Assurance and RAND. And the measures had either completed or were close to completing the NQF review process.

A recent Institute of Medicine report, which calls for adoption of universally-recognized, comprehensive performance measures, recommends adopting a "starter set" of performance measures developed by the Ambulatory Care Quality Alliance that cover care in ambulatory, acute care, and long-term care and dialysis settings. The Alliance is a national consortium of organizations including the American College of Physicians (ACP) and other physician organizations; government agencies such as the Centers for Medicare and Medicaid Services (CMS) and the Agency for Healthcare Research and Quality (AHRQ); health insurance plans and other groups.

Currently, more attention is focused on measures concerning quality than cost-effectiveness, but the latter is an emerging issue.

AGS has repeatedly stressed that P4P measures must take into account the needs of older adults. (For more, see "What, exactly, is AGS' position on P4P?"

What is AGS doing to keep members apprised of what's happening with P4P?

AGS will continue to keep members informed of developments with P4P initiatives via its weekly member list servs, the monthly legislative updates posted on its Web site (www.americangeriatrics.org), and its quarterly Newsletter.