1. Nelson, Roxanne BSN, RN


A new report recommends 'rewarding' Medicare providers, but at what cost?


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A report to be published next year by the Institute of Medicine (IOM) recommends changing Medicare's fee-for-service program to a pay-for-performance system that would reimburse providers according to the quality of the care they provide and the outcomes of the patients they treat.


The IOM report, Rewarding Provider Performance: Aligning Incentives in Medicare, proposes rewarding care that is "of high clinical quality, patient-centered, and efficient." Bonuses would be allotted to hospitals and providers according to their performance in certain clinical domains. The report does not specify monetary amounts or describe exactly how the program should be implemented. Instead, it calls on the Department of Health and Human Services (DHHS) to design and implement the program, recommending "a phased approach" so that early experience can guide its development. (The report is the third in the IOM's Pathways to Quality Health Care series; the prepublication version is available online at


"It's a mechanism that has promise but really hasn't been field-tested to see how effective it actually is," says Steven A. Schroeder, MD, chairperson of the IOM committee that steered the new recommendations. "Our committee weighed the evidence and we decided to go with it," says Schroeder, although results of most studies have been mixed, and some programs have shown no significant impact on care or outcomes.


Pay for performance is not a new idea. According to the IOM report, more than 100 "reward and incentive payment programs" have been launched in the private sector; similar "demonstration" programs have been tested in Medicare by the Centers for Medicare and Medicaid Services. Yet fewer than 20 studies have evaluated the effects of such programs on care quality and patient outcomes.


Funding is a major concern. Most health advocacy groups look favorably on pay for performance, but some disagree on how this initiative should be funded. The IOM report recommends that Congress support it initially "from existing funds." Specifically, funding for the first three to five years would come from a reduction in Medicare's base payments to providers. "We're in a climate now where Congress and the public are not willing to generate new dollars," explains Schroeder. "The diverted amount would be small, and we're not sure it would even be perceptible."


But this move would come at a time when a 5.1% cut in physician reimbursements is scheduled to take effect on January 1, 2007. "Under the current Medicare physician payment system, physician reimbursement will be cut about 40% over the next nine years, while practice costs [are expected to] increase about 20% [within that] time," says Cecil Wilson, MD, chairperson of the board of trustees of the American Medical Association (AMA), in a statement recently released to the media. "For a pay-for-performance program to be truly successful, Congress must provide the Medicare program with additional funding so that Medicare patients' current access to quality care is not jeopardized by cuts that force physicians to make difficult practice decisions."

Figure. Lillian Grac... - Click to enlarge in new windowFigure. Lillian Grace Avery, the nation's first Medicare beneficiary, signs Medicare forms at Edward Hospital in Naperville, Illinois, on July 1, 1966. A recent proposal would change how Medicare services will be reimbursed.

According to an AMA press release, a recent AMA survey showed that 45% of the responding physicians said that the upcoming 2007 cut would force them to accept either fewer new Medicare patients or none at all; this figure rose to 67% when respondents were asked about the impact of the full reimbursement cuts projected by 2015. The American Geriatrics Society, while recognizing that pay-for-performance programs could improve the care of older Americans, has taken a stand against funding incentive payments by cutting providers' fees.


The concern that cutting physician reimbursement could result in reduced patient access to care is a reasonable one, says IOM committee member Elliott S. Fisher, MD, MPH, professor of medicine and of community and family medicine at Dartmouth Medical School. Noting that "the report calls for moving forward with pay for performance as a means to learn how best to reform the payment system," Fisher adds that it also calls for careful evaluation and monitoring to make sure that the plan's implementation doesn't lead to unintended harms such as decreased access to care.


Gail Wilensky, PhD, a senior fellow at Project HOPE and an IOM committee member, believes that the projected 37% decrease in reimbursement is unlikely to occur. Moreover, on a national level, Wilensky says, there has been little indication that physicians are leaving Medicare: "While some physicians may not be taking on new Medicare patients, there isn't evidence that this is widespread."


Wilensky also points out that provider rewards would have to be large enough to create incentive and that the report states that other sources of funding may eventually be necessary. The need for additional funding sources will be evaluated as the process moves forward.


"We have problems with quality and patient safety, with patients receiving inappropriate care, and ample evidence that the current system isn't working," she says. "The idea right now is to begin moving in a measured way, while using relatively small amounts of the base funding for rewards. We can't wait until it is all perfected, because if we don't start moving now, it's not going to happen."


The committee acknowledged that implementing pay for performance may be more difficult in some settings, such as private physician practices. Therefore, the IOM report recommends that "for many institutional providers, participation in public reporting and pay for performance can and should begin immediately," while keeping it voluntary for physicians in private practice. After an initial phase-in period of three to five years, the DHHS could then reassess the situation and decide if all Medicare providers should be required to participate.


But will it improve outcomes? E. Carol Polifroni, EdD, RN, CNAA, BC, the interim dean of the University of Connecticut School of Nursing, doesn't think that pay for performance is going to change the care of the elderly, who are the majority of Medicare beneficiaries. "It is a piecemeal approach to a multifaceted problem," she says. "The elderly are in need of coordination of care from a multitude of providers and service entities, some preventive services, and strong nursing care." What are really needed are education and prevention, which currently are not reimbursed, she points out. "The payment system needs to be revised to include education, coordination, and prevention. If this is done, quality will increase without needing to change to a trendy pay-for-performance process."


But Mathy Mezey, EdD, RN, FAAN, director of the John A. Hartford Foundation Institute for Geriatric Nursing at the New York University College of Nursing, sees potential in pay for performance. "Much of the performance and outcomes that are going to be reviewed are very nurse centered," she says, adding that there are many ways facilities can strengthen performance. These include providing adequate staffing, hiring staff who are knowledgeable about the care of older adults and can train others on the health care team, and using assessment methods that are applicable to this population.


Roxanne Nelson, BSN, RN