American College of Physicians: Internal Medicine — Doctors for Adults ®

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Pay-for-performance takes off in California

First bonus checks are slim, but physicians intend to stay the course to improve quality

From the January-February ACP Observer, copyright 2005 by the American College of Physicians.

By Janet Colwell

Pay-for-performance programs are medicine's biggest emerging trend, one that physicians nationwide are watching with an anxious eye. While scattered programs are popping up across the country, nowhere has the concept been more fully embraced—or backed with more money—than in California.

The state's most ambitious pay-for-performance initiative has been organized by the Integrated Healthcare Association (IHA), a nonprofit consortium of California medical groups, health plans and health systems. The IHA just finished crunching data from the first reporting year of its pay-for-performance initiative—which includes six of the state's largest plans—and sent out its first bonus checks to medical groups, based on those results. The plans distributed a total of $50 million in bonuses.


Despite some growing pains, pay-for-performance programs provide necessary incentives, says Fiona C. Wilson, ACP Member.




Alliance Medical Group in Pinole, Calif., is affiliated with Affinity Medical Group, an independent practice association (IPA) based in San Francisco's East Bay. Affinity was initially pleased to receive almost $300,000 in IHA-related bonuses to distribute to its 150 primary care physicians, said James L. Naughton, ACP Member, a general internist with Alliance.

But then the IPA decided to tally its initiative-related expenses. It hired a consultant for $40,000 to sift through claims data and produce mid-year reports. It figured that staff time spent on the project—pulling charts and contacting patients to fill in missing data—was worth $150,000. When all the numbers were in, the IPA calculated a net loss of $25,000 to $30,000 for participating.

"The way we can best analyze it now, the primary care physicians lost money doing this," said Dr. Naughton. The IPA had about $125,000 to distribute in primary care bonuses and little left for the IPA's 500 specialists—not enough, he said, to motivate anyone.

Still, Dr. Naughton and his colleagues plan to participate again next year. Like other groups across the state, they are willing to give the IHA initiative (now in its second reporting year) time to mature. And while many physicians may not yet realize a big financial payoff, most say that pay-for-performance is the wave of the future and see the IHA program—a test case that is being watched closely across the nation—as the best hope for achieving standardized measurements.

California physicians say the impact of the IHA initiative, as well as of other incentive programs mounted by the IPAs, transcends financial considerations. They claim that pay-for-performance programs are an effective way to mobilize physicians to improve quality and adapt to the needs of a more consumer-driven marketplace.

"The money's how you keep score, but there's a whole lot more at stake," said Barton R. Wald, MD, chief executive officer of Physician Associates, an IPA with 800 physicians in the San Gabriel Valley, east of Los Angeles. "It's created a rallying point to get physicians to understand what's going on in the health care market and realize that they're going to have to develop their IPA's infrastructure and move their own office forward."

The IHA initiative

For its inaugural 2003 measurement year, the IHA enlisted California's six major health plans: Aetna, Blue Cross of California, Blue Shield of California, CIGNA, Health Net and PacifiCare. (A seventh plan, Western Health Advantage, joined for 2004.) The initiative, which focuses exclusively on commercial HMO plans, covered a total of nearly 7 million enrollees and 215 physician groups with 45,000 doctors. Many of those groups are organized in IPAs, a dominant business model in California and in Texas.

The IHA completed its data collection process last August, providing groups with information on their scores in clinical performance, patient satisfaction and investment in technology, as well as on how they performed compared to other participants. (See "What counts in California's pay-for-performance initiative.")

In October, the six health plans sent out combined incentive payments estimated at up to $50 million in bonuses tied to groups' IHA scores. (The plans also distributed another $50 million in bonuses for other performance metrics, including those related to preferred provider organizations, Medicare HMOs and other programs not covered by the IHA initiative.)

Tom Williams, the IHA's executive director, said the program met its three initial goals: to publicly report results (they are posted on the state's Office of the Patient Advocate Web site) to achieve a significant level of payments and adopt a uniform measure set. In addition, participating plans have said they may put more money toward future bonuses, now that they've seen the first-year data.

"We know that many medical groups feel payouts need to go up for them to be truly committed to the program, and several plans have stated they're willing to increase them," said Mr. Williams, who declined to put a dollar amount on future increases. "There's a certain quid pro quo: The plans wanted to see if the groups would step up to the plate—which they did—and now the groups want to see plans increase their reimbursement."

For large, top-scoring groups, payouts were indeed big enough to affect the bottom line. For instance, Hill Physicians Medical Group in San Ramon, Calif., California's largest IPA with 2,100 physicians, received $5.5 million in IHA-related bonuses, a big chunk of the $12 million it paid out in physician bonuses in 2004. (The other $6.5 million came from the IPA's own pay-for-performance incentive programs.)

About 85% of the IPA's primary care physicians received bonuses for 2003, with an average of about $9,500 per physician, said Thomas F. Long, MD, a pediatrician with Hill-affiliated San Ramon Valley Medical Group, an internal medicine-pediatric practice. According to Dr. Long, who chairs Hill Physicians' quality improvement committee, individual practices in the IPA can decide whether to divvy up the money for bonuses or use it for other expenses.

"The dollars are pretty substantial, and in my own practice, we used some money internally to give bonuses to our employees, improve our software, and pay for remodeling and construction," Dr. Long said. "It's really a trickle-down kind of success story."

Working out the wrinkles

But while the IHA met its goals of paying incentives and developing standard measures, problems remain on both counts. In many cases, bonuses were too small to be meaningful, and some health plans either didn't participate in all the measures or used some of their own, in addition to the IHA's.

The six health plans agreed on criteria on which to base 2003 bonuses: 50% for clinical quality, 40% for patient satisfaction and 10% for technology adoption. (Those ratios changed to 40%-40%-20%, respectively, for 2004). However, each plan had a separate program budget, different award thresholds and—for some plans, including PacifiCare and Blue Cross—additional and separate incentive programs.

And plans varied widely on how much they paid out. Blue Cross, for example, with its own incentive program, paid out $48 million to physician groups this year, with $16 million paid out in bonuses tied to the IHA initiative. Aetna, which does not have a separate program, paid $2 million to 54 IPAs participating in the IHA initiative. The different payment approaches created some confusion among physicians.

At Greater Newport Physicians near Irvine, Calif., with 136 primary care physicians, bonus payments from participating IHA-initiative plans ranged from 28 cents to $2.10 per member per month—an almost 10-fold difference among plans, said Douglas Allen, MD, chief medical officer.

"The plans are aligned with the pay-for-performance, but they can decide how to weight the various measures when calculating payment," said Dr. Allen, a board member of the California Association of Physician Groups, which helped develop the IHA initiative. "They are completely independent on how, and how much, they pay out."

The IHA's Mr. Williams agreed that everyone wants to see more standardization, but said antitrust laws prohibit the group from reaching a collective agreement on payments. He said the group may ask the Federal Trade Commission for an antitrust law exception to allow it to develop payment methodologies within the context of the pay-for-performance program.

At the same time, plans found it hard to set performance thresholds in advance for bonuses, especially in the program's first few years, said Jerry Bishop, MD, senior medical director for Aetna's West Region.

If Aetna had announced in advance, for instance, that bonuses would go to any group with an 85% or higher success rate on screening mammograms, but the average turned out to be closer to 65%, no one would get paid, he said.

To avoid that scenario, Aetna waited until all data were in, and then awarded bonuses to those groups scoring in the top 25%. Medical groups in that quartile each got an equal share of Aetna's $2 million payout, based on membership volume.

Dr. Bishop said he expects plans eventually to set thresholds and benchmarks as the IHA initiative matures. Currently, the IHA program uses only claims and encounter data, whereas Health Plan Employer Data and Information Set (HEDIS) scores—which many physicians in California are familiar with—add in chart data. Using administrative data alone tend to drive group scores lower than chart data, which don't depend solely on billing codes.

"We know administrative [claims data] results are much lower than final HEDIS rates, so if you set the bar too high, very few groups will reach it," Dr. Bishop said. "As we start to see the benchmark using administrative data alone-and everyone understands why that is lower than the historical rate-then we'll know where to set the benchmark going forward with pay-for-performance."

Better data access

Organizers also hope to improve medical groups' access to measurement data. Physicians waited almost nine months to find out how they did in 2003-too late to make substantial changes to improve their 2004 reporting and payout.

The same thing happened in the 2004 reporting year, noted Fiona C. Wilson, ACP Member, vice president of quality initiatives for Brown & Toland in San Francisco, a large IPA with 1,500 primary care physicians and specialists.

"You need to tell physicians straight up at the beginning of the year what the measurements and goals are," she said, "not turn it into a kind of pop quiz by dropping a new measurement on them halfway through the year."

For instance, the IHA has been considering adding antidepressant medication management as a new measure this year. "We're trying to develop a tool to follow this, but [as of late November] we still don't know whether it will be included," she said.

And Dr. Wilson would like to see more consistency among the various plans so physicians know they will be rewarded equally for meeting goals—no matter what insurance coverage a patient has. "The clearer the message is from the plans," she said, "the more traction they will get with physicians."

What about quality?

Despite such growing pains and doctors' concerns about payments, many physicians are enthusiastic about the program's increased focus on quality. The IHA initiative, they say, has provided a forum and structure for quality improvement efforts already happening in many practices.

For Brown & Toland, the IHA bonuses are one more reason to keep investing in technology, said Dr. Wilson. "It's a drop in the bucket for what information technology costs, but you have to do it anyway, and there will probably be other incentives down the road."

Doing well with the bonus program can require a hefty investment, noted Dr. Allen of Greater Newport Physicians. Practices that score well also have disease registries, patient reminder systems and action lists, which are lists of patients who are missing required tests. According to Dr. Allen, his IPA has invested $150,000 in a clinical data warehouse to track lab results, prescriptions and claims, an invaluable tool for reporting data to the IHA and for accurately measuring its own physicians' performances.

In addition, the IHA's emphasis on patient satisfaction—which makes up 40% of a practice's score—has promoted a new mindset for both physicians and staff.

"Once our physicians saw their scores and realized how important that is," said Dr. Wald of Physician Associates, "many of them started doing their own in-office surveys to drill down and find out what issues are driving their scores."

For many practices, he pointed out, it was the first time they'd made an effort to get significant input from patients. Physicians often reasoned that a busy office meant happy patients, but the IHA measures forced them to separate those factors that drive volume from ones that affect patient satisfaction.

"In the past, it was hard to get doctors to invest more in improving access, decreasing wait times, improving follow-up and phone systems," said Dr. Wald. Now, patient satisfaction surveys conducted in individual practices are picked up by IPA office staff, then analyzed and converted into action plans based on patient feedback.

For instance, some primary care physicians, after attending IPA training courses to improve their scheduling, reduced wait times for routine visits from more than 50 days to less than two, he said. The IPA now also pays staff members to attend workshops where they review phone and customer service techniques and strategies for dealing with difficult patients.

The IPA's participation has also produced clinical improvements, he said. Overall, practices boosted in their clinical-measure scores from 10% to 20%, putting the IPA in the top quartile of all physician groups in the state.

For Dr. Naughton in Pinole, the program's first year held some important lessons. Because the initiative cost money on the primary care end, physicians in his IPA are meeting with participating plans to explain their results and perhaps negotiate higher 2004 payments, he said. They also anticipate declining expenses associated with pay-for-performance as practices move toward adopting electronic medical records.

"We'll continue to participate," said Dr. Naughton, "but we've learned that it must be done with careful cost accounting."

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ACP's Massachusetts chapter helps launch statewide EHR effort

Investing in technology is a major component of the Integrated Healthcare Association's pay-for-performance initiative in California, making up 20% of participants' scores in the 2004 measurement year. With many physicians saying the high price of information technology prevents them from investing in electronic health records (EHRs), College leaders in Massachusetts decided to explore a statewide effort.

The ACP Massachusetts Chapter convened an information technology summit in March 2004 attended by the state's key health care leaders, said Allan H. Goroll, FACP, Governor for the Massachusetts Chapter. Out of that summit grew the Massachusetts eHealth Collaborative, a stand-alone, nonprofit coalition of 34 different organizations made up of physicians, nurses, insurers, hospitals, patient advocacy groups, state government and businesses.

The collaborative seeks to create a statewide interoperable EHR system with decision-support that links physician practices, hospitals, laboratories, and other health care institutions and providers, said Dr. Goroll, who chairs the nonprofit's board of directors. The collaborative's efforts are backed by a $50 million grant from Blue Cross Blue Shield (BCBS) of Massachusetts to conduct pilot demonstration and implementation projects in three communities.

"Developing and implementing a state-wide electronic health record infrastructure is far beyond the capacity of any group or organization," said Dr. Goroll, who is professor of medicine at Harvard Medical School and physician of the medical service at Boston's Massachusetts General Hospital. "By coming together, we saw an opportunity to move from very piecemeal adoption in our state—a percent or two a year in physicians' practices—to widespread implementation in a fraction of the time."

Providing technical and policy assistance on the project is the Massachusetts Health Data Consortium, a nonprofit whose executive director, Eliot Stone, also sits on the eHealth Collaborative's board. One of the Health Data Consortium's projects, MedsInfo-ED, is a medication-history lookup being installed in three major hospitals across the state.

The system delivers real-time patient prescription information from major health plans to hospital emergency departments, providing a way for physicians to view prescriptions that other providers write. The consortium plans to connect those hospitals and physicians in the eHealth Collaborative's EHR pilot communities to MedsInfo-ED.

"This is an opportunity for physicians to transition from the visit business to the care management business," said Mr. Stone. "They'll have a better handle on who their patients are and all the different interactions that go on between their patients and others providers in the health care system."

The eHealth Collaborative is seeking and reviewing proposals from communities vying to participate, and will use results from the demonstration projects to inform more widespread rollout of the EHR infrastructure. According to Dr. Goroll, the ultimate price tag for the statewide project could run into the hundreds of millions of dollars, an investment expected to eventually pay off in reductions in waste, duplication and errors. One positive sign for state involvement is the strong project endorsement from Gov. Milt Romney, who held a news conference last month at Mass General, voicing his support for the collaborative's community demonstration projects.

"We are fortunate to have garnered the support of all key stakeholders, the interest of very talented people and the necessary political will," said Dr. Goroll, who proudly noted that the initiative was launched and continues to be championed by the ACP Massachusetts chapter. "It's now time to get to work."

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