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Click here to subscribe to HRET Resources RSS feed Practical Issues in the Design and Implementation of Pay-for-Quality Programs

Gary J. Young, PhD, Department of Veterans Affairs and Boston University; Douglas A. Conrad, PhD, University of Washington - October 13, 2010

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A recent wave of pay-for-performance programs focus—in some cases exclusively—on quality of care.  Factors underlying this renewed interest in the “pay-for-quality” (P4Q) concept include growing concern about the quality of health care in the United States, evidence that medical errors are occurring more frequently than many experts predicted, and steadily rising health care expenditures.  Payers are also hoping that P4Q will support the business case for quality healthier—in other words, that healthier patients will translate into long-term cost savings.

Although the motivation for P4Q programs is clear, the best strategies for designing and implementing programs are not.  Using the results of their on-going research, Drs. Young and Conrad identify and discuss some practical issues that should addressed when developing and conducting P4Q programs.

Quality Measures

Research indicates that, when selecting quality measures, payers struggle with three key decisions.  The first is the type of clinical conditions on which to focus.  Most programs focus on preventive care and primary care of chronic conditions, reflecting the high health payoffs of preventive care and the high concentration of expenditures among persons with chronic conditions.  Thus, an optimal quality incentive program would be based on a broad range of measures that capture a representative set of the preventive, diagnostic, and treatment processes typically managed by the physician.

Another key decision is whether to focus on clinical processes or outcomes.  Although outcome measures have an obvious “bottom-line” appeal, process measures are more feasible for most P4Q programs because, from a provider standpoint, they are the most controllable aspects of quality.

A third decision is whether to select quality measures based on national standards or those derived from local priorities and customs.  Most P4Q programs appear to draw predominantly on peer-reviewed national standards of care, which avoids re-inventing the wheel and enhances the credibility of the measures.  Local adjustments to national standards might occasionally prove advantageous if they secure the commitment of providers to a program.

Unit(s) of Accountability

Because the production of quality is an exercise in team production, many programs direct incentives to medical groups and other physician organizations.  Such incentives play an important role in reinforcing the individual physician-level reward structure.  However, physician organizations do not necessarily distribute incentive money to individual physicians or distribute it in ways that maximize the incentive’s impact.

Financial Incentives

The size of the incentive payment is a central consideration in the design of pay-for-quality programs.  Most P4Q programs offer incentives that are relatively modest in size and may be very appropriate during the initial phases of a P4Q program.

Data and Measurement Systems

Practical differences in the information capacities of payers and providers raise data issues for P4Q programs.  For instance, physician organizations are more likely to have complete lab data, while health plans generally will have better access to pharmacy data.  Other, similar issues with data and measurement suggest that incentive measurement systems should blend claims data with abstracted medical records data.

Payout Formulas

Although most P4Q programs reward absolute performance based on whether a provider achieves a threshold value for one or more quality measures, there are also benefits to rewarding relative performance.  If their status quo is sufficient to obtain the bonus, “above-target” providers may have little motivation for further improvement.  Conversely, the all-or-nothing proposition of a bonus-type incentive may discourage “below-target” providers from trying to attain the target.

Payer Collaborations

The researchers’ interviews with leaders of provider organizations revealed that concern about antitrust laws made payers are cautious about forming P4Q-related collaborations.  However, even in the presence of such legal constraints, payers have opportunities to collaborate for purposes of selecting quality measures.  Such collaborations can increase the power of the incentives while reducing administrative re-work.

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