1. Restuccia, Joseph D. DrPH
  2. Shwartz, Michael PhD

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IN this month's Journal of Ambulatory Care article, "Moving Toward Paying for Outcomes in Medicaid," Millwee, Quinn, and Goldfield make an argument for Medicaid to move toward payment for outcomes (P4O) over the next 3 to 5 years and propose 5 principles to achieve success in doing so: availability of clinically meaningful and transparent results, focus on population rates rather than individual incidents, careful risk adjustment, appropriate incentive structure, and collaborative phased implementation. We wholeheartedly agree with the authors for the reasons they give in their article and propose an additional 6 principles for success:


1. Medicaid should join with other payers to standardize payment system incentives. A major barrier to changing provider behavior is the mixed financial signals a health care provider or plan receives from different payers. Providers and plans are then forced to prioritize their response based on the strength of the signal (ie, the amount of revenue at stake). In most hospitals and with most medical conditions, Medicaid as well as Medicare (each on average accounting for roughly one-fourth of a provider's revenue) has enough market share to get a provider's attention with financial incentives but not enough to ensure the provider will take the necessary action to change behavior in pursuit of the incentives. Thus, collaborating with other payers to send a consistent signal will increase Medicaid's leverage and the probability of changing provider behavior in pursuit of quality outcomes.


2. Medicaid should reduce fee-for-service (FFS) payment below marginal cost and gradually move to reduce it as much as possible. Another major barrier to changing provider behavior is mixed signals from the same payer, in particular paying both on an FFS and a bundled or global payment. The latter is preferable given that FFS favors quantity over quality of care. Thus, Medicaid should strengthen disincentives for FFS payment.


3. Risk-based payment should be large enough so a provider organization will make the changes needed to get the attention of individual providers and to build the support infrastructure to facilitate delivery of better quality. A third barrier is that provider organizations buffer individual providers from risk by negotiating contracts for them, thus removing much of the incentive physicians and other individual providers have to respond to payment incentives. However, if the amount of payment at risk is large enough, the organization will make an effort to pass some of the risk down to the medical staff and invest in the support staff, training, technology, and approaches to quality improvement such as Lean, Six Sigma, and Baldrige to achieve a high level of quality of care.


4. Invest in provider organizations with large proportions of Medicaid patients. The viability of these organizations is critical to Medicaid patients' access and quality of care and ultimately to the success of the Medicaid program itself. However, in part because of low Medicaid payment rates, such organizations are likely to lack the resources to make the requisite investments in infrastructure to substantially improve quality. Medicaid programs could address this barrier by advancing payment in anticipation that quality outcomes will be achieved with the stipulation that the organization must use the incremental payment for infrastructure investment and that it is at risk for lower payment rates in the future if it fails to achieve the anticipated level of quality.


5. Pay for improvement in quality outcomes as well as absolute or comp-arative quality in outcomes. Recognizing improvement over time ensures that payment does not just reward those providers already with high quality and gives more incentive for low-performing providers than would be the case with quality performance thresholds that are out of reach in the near term.


6. Monitor success in achieving quality outcomes and change specific measures as higher levels of performance are achieved. This recognizes that as higher levels of performance are achieved the marginal cost of further improvements in specific outcomes may increase as well as the room for further improvement decreases. It would be useful to have a set of new performance measures ready for implementation, as goals for existing measures are met.


With P4O guided by the principles proposed by Millwee et al. and ourselves, we believe that Medicaid can move relatively quickly toward giving providers and plans incentives and support in delivering health care to the Medicaid population at a much higher level of quality than heretofore achieved.