5
Implementation

CHAPTER SUMMARY

Chapters 3 and 4 reviewed several alternative methods for creating and distributing a funding pool to reward performance by health care providers who serve Medicare beneficiaries. This chapter addresses major implementation issues that must be considered when new payment schemes designed to create incentives for improved performance by multiple types of health care providers are introduced. This chapter also considers key goals and objectives that should influence the process and pace of implementation of new pay-for-performance programs within different health care environments.

This chapter highlights some procedural and technical issues that might be encountered if a Medicare pay-for-performance program were initially implemented in small steps (such as by care setting or by geographic region) and were subsequently made comprehensive and national in scope:

  • Steps in implementing pay for performance and their timing

  • The overall timing of implementation

  • The nature of participation in payment for performance

  • The unit of analysis and reporting

  • The role of health information technologies

  • Statistical issues

Some lessons can be learned about these issues from existing pay-for-performance efforts, even though many such efforts are still in their infancy. As experience is gained, additional lessons will be learned, and adjustments should be made in Medicare’s program accordingly.



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Rewarding Provider Performance: Aligning Incentives in Medicare 5 Implementation CHAPTER SUMMARY Chapters 3 and 4 reviewed several alternative methods for creating and distributing a funding pool to reward performance by health care providers who serve Medicare beneficiaries. This chapter addresses major implementation issues that must be considered when new payment schemes designed to create incentives for improved performance by multiple types of health care providers are introduced. This chapter also considers key goals and objectives that should influence the process and pace of implementation of new pay-for-performance programs within different health care environments. This chapter highlights some procedural and technical issues that might be encountered if a Medicare pay-for-performance program were initially implemented in small steps (such as by care setting or by geographic region) and were subsequently made comprehensive and national in scope: Steps in implementing pay for performance and their timing The overall timing of implementation The nature of participation in payment for performance The unit of analysis and reporting The role of health information technologies Statistical issues Some lessons can be learned about these issues from existing pay-for-performance efforts, even though many such efforts are still in their infancy. As experience is gained, additional lessons will be learned, and adjustments should be made in Medicare’s program accordingly.

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Rewarding Provider Performance: Aligning Incentives in Medicare STEPS INVOLVED IN IMPLEMENTING PAY FOR PERFORMANCE AND THEIR TIMING Because a pay-for-perormance program depends on many inputs and the creation of new capabilities, the time needed to implement such a system is an issue that requires careful consideration. Before performance-based rewards can be offered, measures must be developed and tested (as discussed in Chapter 4 and the Institute of Medicine [IOM] report Performance Measurement: Accelerating Improvement [IOM, 2006]). Next, data reflecting these measures must be collected and audited, and then distributed to providers for review and feedback. The performance data must then be publicly reported before the final step of paying providers for their performance can be implemented. Data Collection and Auditing and Provider Feedback Following the development and testing of performance measures (which as noted was discussed in detail in the Performance Measurement report), the next step toward pay for performance is data collection. Data reflecting how well each provider performs on a given metric can generally be gathered from administrative claims, surveys, or medical chart review (in order of the lowest to highest time and cost burden imposed on providers). As discussed in Chapter 4, trade-offs must be made because data relating to the most useful measures are often the most difficult to collect. After being collected, the data need to be audited by an independent body to ensure their validity before they are used to determine relative performance and payment. Data collection and audit may take 6 months even under an aggressive timetable. Once the data have been audited, the results should be shared with providers, each of whom should have the opportunity to provide feedback. Even on a tight timeline, feedback may initially take up to another 6 months to complete. On a less aggressive timetable, these essential steps could initially take up to 2 years. After the first cycle of reporting had been completed, however, the time required for feedback could be reduced to less than 1 month (see Figure 5-1). The entire timeline should be condensed wherever feasible without imposing an undue burden on providers; differences in ability by various provider types should be recognized. Public Reporting The committee strongly endorses transparency and accountability in health care to better inform all stakeholders, especially patients, about the performance of the care delivery system. To this end, the committee believes that information reflecting how well health care providers perform on spe-

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Rewarding Provider Performance: Aligning Incentives in Medicare FIGURE 5-1 Example of initial timeline from data collection to pay for performance. cific measures must be shared with the public and that such public reporting should be a requirement for performance-based payment. Many proponents of public reporting believe this strategy in itself can be a useful tool for improving all aspects of quality, regardless of its association with rewarding performance. To date, the limited evidence presented in the literature is mixed, but overall it does suggest that public reporting can have an impact on provider behaviors and improve quality (Marshall et al., 2000; Hibbard et al., 2005; Jha and Epstein, 2006; Robinowitz and Dudley, 2006). At the same time, public reporting could have unintended adverse consequences. For example, some providers might avoid sicker patient populations, and others might choose not to participate in Medicare if public reporting on performance became a condition for participation. Notwithstanding the literature that argues otherwise, some low-performing providers might fear that public disclosure of performance data would attract malpractice claims in which the data could be used against them (Werner and Asch, 2005; Kesselheim et al., 2006). Current Public Reporting Efforts in Medicare Through the development of the Compare websites by the Centers for Medicare and Medicaid Services (CMS),1 many providers are already publicly reporting performance data. In 1999, the Medicare Personal Plan 1 CMS has developed a series of websites for the public disclosure of performance data for a variety of providers. Currently available at medicare.gov are Nursing Home Compare, Home Health Compare, Dialysis Facility Compare, Hospital Compare, Medicare Personal Plan Finder (for health plans), and Medicare Prescription Drug Plan Finder.

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Rewarding Provider Performance: Aligning Incentives in Medicare Finder began comparing the performance of health plans participating in the Medicare+Choice (now Medicare Advantage) program. In 2003, CMS began collecting and reporting data for nursing homes, home health agencies, dialysis facilities, and hospitals. The Medicare Prescription Drug Plan Finder, which allows beneficiaries to compare the premiums and benefits of the various prescription drug plans, was made available in 2005. Beginning in 2006, CMS initiated voluntary reporting for physicians. Health plans, nursing homes, home health agencies,2 and dialysis facilities must all report on some services to CMS to receive payments. Reporting is voluntary for hospitals and physicians. In the case of hospitals, however, a small portion of payments—0.4 percent in 2005 and 2 percent in 2006—is withheld from those that do not report as delineated in the Deficit Reduction Act of 2005 (Public Law 109-171); the result has been more than 94 percent of hospitals reporting (CMS, 2006). It is reasonable to suggest that the pay-for-performance approach proposed in this report could be implemented more expeditiously in those settings for which CMS has already been collecting and publicly reporting performance-related data. Usability While a number of performance reports from both public and private programs are already available, they are often not particularly helpful to or used by consumers. In the future, not all measures that may be publicly reported to assist consumers will be relevant to pay for performance, and not all measures used in pay for performance will be meaningful to consumers. However, the committee believes that to enhance the integrity of the system, all measures of performance affecting payment should be publicly available. Data must be presented in a fashion that is easy to understand and has meaning for consumers (Hibbard et al., 2000, 2002; Vaiana and McGlynn, 2002). The growing evidence base that explores the types of information and formats the public finds most comprehensible should be consulted to inform public postings. Clearly, as recommended in the Performance Measurement report (IOM, 2006), more research is needed to identify the formats most informative for consumers, particularly as the movement toward web-based venues for the presentation of information continues. Multiple reports may need to be developed for different audiences. Pay for Public Reporting As noted in Chapter 4, a major area of concern is the magnitude of the burden that might be imposed by data collection, review, and report- 2 All home health agencies are affected, with the exception of hospital-based home health agencies.

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Rewarding Provider Performance: Aligning Incentives in Medicare ing. The costs associated with collecting and reporting data may be significant, especially for small providers such as independent physicians. A common suggestion for easing the burden of data collection and reporting is the use of health information technologies. As discussed later in this chapter, however, many barriers to the adoption of such technologies exist, including a lack of technical expertise, little agreement on software standards, and cost. Recommendation 6: Because public reporting of performance measures should be an integral component of a pay-for-performance program for Medicare, the Secretary of DHHS should offer incentives to providers for the submission of performance data, and ensure that information pertaining to provider performance is transparent and made public in ways that are both meaningful and understandable to consumers. There are two views on how the burden of reporting should be treated. Some argue that the costs associated with collecting and reporting data should be considered a portion of the investment providers must make to be eligible for rewards. Others believe that providers should not be forced to bear these costs until there is convincing evidence that pay for performance can enhance performance and that enhanced performance will lead to significant rewards. The committee proposes that, initially at least, providers receive payment for collecting, submitting, and reviewing the performance-related data that will be publicly reported and used in the pay-for-perormance program. Financial incentives for the initial submission of data would help defray providers’ costs for coding and collecting performance data that cannot be obtained from existing administrative or claims records. Such incentives might also reduce provider opposition to the new system. The committee believes the pool of funds supporting such incentives should be modest, comparable to those resources used to provide incentives for the voluntary reporting of performance measures by acute care hospitals, and that these payments should end when the collection and reporting of performance measures become routine. Because the committee envisions the continuous development of new and more complex metrics, focused on measures of efficiency and shared accountability, reporting incentives could correspondingly be redirected to new areas that are more complex and difficult to measure. This approach would ensure that providers are not paid merely for the submission of routine data, but are offered incentives that encourage and reward public reporting in areas that can serve as potential levers to improve overall quality. The rewards associated with public reporting should be a small fraction of those devoted to rewarding performance.

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Rewarding Provider Performance: Aligning Incentives in Medicare Pay for Performance Only after data have been publicly reported for a predetermined period of time should providers be rewarded based on their performance. This lag time would give providers a chance to become comfortable with the reporting system. Providers would also gain an understanding of how their rewards were derived because during this interim period, CMS would send them estimates of what those rewards would have been had the data affected their payments. Moreover, consumers would have the opportunity to respond to the data by switching providers. Under this timetable, pay for performance based on performance measures available for collection at the start of the program would take place during the second year of implementation (see Figure 5-1). It is important to note that this entire process—from data collection to pay for performance—would be a continuous one. While providers were being rewarded on the basis of old performance data, new data would be collected, distributed, and reported to begin the next cycle of pay for performance. Thus the data used to provide the initial rewards during year 2 would be reflecting performance from year 0 and would have been collected and audited during year 1; data for the next cycle of pay for performance would be reflective of care in year 1 (see Figure 5-1). While rewards initially would be based on data that were 2 years old, over time this lag could be shortened as CMS developed better data collection systems (see the discussion later in this chapter regarding health information technologies) and other strategies. OVERALL TIMING OF PAY-FOR-PERFORMANCE IMPLEMENTATION As described in Chapter 4, the committee recommends rewarding providers in three domains—clinical quality, patient-centeredness, and efficiency—as an overarching principle. The committee identified two overall timing options for implementing pay for performance across these three domains. An example of how these options could occur in the ambulatory setting is presented in Box 5-1. Option 1: Phased Implementation The first option would be phased implementation, in which pay for performance would begin in each domain as measures became available. Because measures are less developed in some domains than in others, however, there are problems with this approach. For example, the amount distributed from the reward pool would be limited if measures were lacking for one dimension, such as efficiency. Without distribution of the full reward pool, incentives might be inadequate to change provider behavior.

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Rewarding Provider Performance: Aligning Incentives in Medicare BOX 5-1 Example of Phased and Delayed Implementation in the Ambulatory Setting In the ambulatory setting, a phased implementation could follow the timeline presented below, based on the state of measures in each domain:   Clinical Quality (AQA measure set) Patient-Centeredness (Ambulatory CAHPS) Efficiency Year 1 (2008) Collect, audit, gather feedback Collect, audit, gather feedback Develop measures Year 2 (2009) Public reporting Public reporting Pilot test measures Year 3 (2010) Pay for performance Pay for performance Collect, audit, gather feedback Year 4 (2011) Pay for performance Pay for performance Public reporting In this example, pay for performance on clinical quality and patient-centeredness would begin in 2010. Pay for reporting (smaller amounts than the rewards for performance) would be implemented in 2008 to help defray the costs of data collection. The collection of these data has begun to some extent through CMS’s Physician Voluntary Reporting Program. Rewarding on measures of efficiency would not begin until 2012, with pay for reporting in 2010. However, one option for rewarding on resource use during the intervening period would be to give physicians meeting certain thresholds on both clinical quality and patient-centeredness measures an additional reward if they, by some crude measures, were within the most efficient third of providers. The most efficient Option 2: Delayed Implementation The second option would be to delay implementation of pay for performance until a robust set of performance measures had been developed for all three domains. Pay for reporting would begin as measures were developed in each domain and data collection began, but pay for performance would be delayed until after public reporting for all three domains had commenced. If the program’s funding mechanism started when performance

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Rewarding Provider Performance: Aligning Incentives in Medicare measures were being developed and the rewards for reporting were less than collected funds, a larger pool would accumulate for initial performance rewards. This delayed implementation approach would ensure that provider behavior did not overemphasize one domain over the others and that rewards would be distributed only for care that was of high clinical quality, patient-centered, and efficient. The disadvantage of this option is that pay for performance might not begin for many years, and the sense of urgency on this issue might be dissipated. third of providers could be calculated from standardized costs for Medicare Parts A and B. These costs could be derived from national prices, such as an average payout per unit on the resource-based relative value scale. This method of rewarding efficiency would be phased out upon the development of more sophisticated measures. In contrast, delayed implementation of pay for performance in the ambulatory setting might occur on the following timeline:   Clinical Quality (AQA measure set) Patient-Centeredness (Ambulatory CAHPS) Efficiency Year 1 (2008) Collect, audit, gather feedback Collect, audit, gather feedback Develop measures Year 2 (2009) Public reporting Public reporting Pilot test measures Year 3 (2010) Public reporting Public reporting Collect, audit, gather feedback Year 4 (2011) Public reporting Public reporting Public reporting Year 5 (2012) Pay for performance Pay for performance Pay for performance Under this option, physicians would receive payment for reporting on clinical quality and patient-centeredness measures beginning in 2008. Reporting on efficiency measures would not be rewarded until 2010. Rewards for all three domains on the basis of performance would begin in 2012. NOTE: AQA = Ambulatory care Quality Alliance; CAHPS = Consumer Assessment of Healthcare Providers and Systems.

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Rewarding Provider Performance: Aligning Incentives in Medicare Conclusion The committee concludes that phased implementation (option 1) is the preferred approach because it recognizes the urgent need to improve the health care system as quickly as possible. Efforts described in this report to make available a large number of measures of clinical quality and the movement toward better characterizing patient experiences are representative of the momentum in both the public and private sectors that argues for earlier onset of pay for performance. The committee believes this momentum should be captured. PARTICIPATION IN PAY FOR PERFORMANCE Two key topics related to participation in pay for performance deserve attention: (1) the nature and pace of the phasing in of payment for performance in different health care settings, and (2) the extent to which participation should be voluntary or mandatory. Phasing in Participation for Different Settings Initial Implementation The committee concurs with MedPAC’s rankings for initial participation in pay-for-performance programs: (1) Medicare Advantage plans, (2) dialysis facilities, (3) acute care hospitals, (4) home health agencies, and (5) physician practices (MedPAC, 2005a, 2006). Medicare Advantage plans, dialysis centers, and hospitals are positioned to implement pay for performance now because of the availability of performance measures, the reliability of data, and the fact that the necessary supporting infrastructure is in place. Home health agencies, followed by physicians, would be next to be expected to participate in pay for performance. For an implementation timeline, see Figure 5-2. Exclusion of Other Providers The committee believes that eventually, all providers should be included in Medicare’s pay-for-performance program. At this time, however, adequate performance measures do not exist for certain institutional providers, such as ambulatory surgical centers, clinical laboratories, rural health clinics, and rehabilitation hospitals, and for certain professionals, including nurse practitioners, occupational therapists, physician assistants, and pharmacists. Once adequate performance measures have been developed, the burden of collecting and reporting on these measures has been made man-

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Rewarding Provider Performance: Aligning Incentives in Medicare FIGURE 5-2 Implementation timeline for pay for performance. ageable, and the necessary infrastructure has been put in place, these providers should be brought into the system. Skilled nursing facilities, not among the institutional providers considered ready for pay for performance as listed in the previous section, deserve special mention. Medicare pays for a specific type of nursing home care provided by these facilities. This specialized care, which represents about one-quarter of all care provided in nursing homes (MedPAC, 2006), follows a medically necessary hospital stay of at least 3 days, is short-term, and is characterized by the use of skilled nursing or rehabilitation services in an inpatient setting. The committee had several reasons for concluding that it would not be appropriate to reward skilled nursing facilities for performance at this time. First, only 3 of the 15 measures found in the Minimum Data Set—the publicly reported set of measures used to assess nursing home performance— are relevant for short-term stays of the sort paid for by Medicare. Second,

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Rewarding Provider Performance: Aligning Incentives in Medicare these measures (delirium, pain, and pressure ulcers), while important, capture the experiences of only a small portion of beneficiaries covered by Medicare payments to skilled nursing facilities. Third, the data collected do not necessarily capture the quality of care delivered by the facility, as these measures do not accurately reflect the patient’s condition upon admission and may reflect care given during the hospital stay (MedPAC, 2005a, 2006). Therefore, the committee concludes that before pay for performance is implemented in skilled nursing facilities, more research is needed to permit better attribution of care. CMS is planning to launch a pay-for-performance demonstration in nursing homes by the end of 2006, which should provide valuable insights for the design of an appropriate pay-for-performance program for nursing homes (The Commonwealth Fund, 2006). Voluntary Versus Mandatory Participation Participation in pay for performance may be either voluntary or mandatory. “Participation” involves collecting and submitting to the payer the data needed to construct performance measures, which in turn makes providers eligible to receive financial rewards if they have performed well. With voluntary participation, the individual provider can decide whether to gather and submit performance data and be paid in part on the basis of performance. Under mandatory participation, all providers are required to take part in the system. Mandating participation could burden those providers who would have a difficult time mobilizing the resources required for data collection and reporting, particularly those not closely associated with institutions who may lack access to health information technologies that can ease the burden of those activities. The reliability and validity of data for small providers may also be difficult. Most private-sector pay-for-performance programs, which tend to focus on physicians, are voluntary. A recent survey of such programs found 91 percent to be voluntary (Baker and Carter, 2005). The propensity toward voluntary programs appears to be related to the heterogeneity of physician practices with respect to their size, specialty focus, location, and use of information technology. Some fear that making such a program mandatory could be too burdensome for certain types of providers, such as small group practices and practices that serve only a handful of a health plan’s members. Indeed, programs often differentiate among practices in their requirements for participation. For example, to ensure statistical accuracy, some programs require a minimum volume of patients or a specific ratio of patients treated per physician before a provider is allowed to participate; others permit only providers who have met quality or efficiency thresholds to enroll (Baker and Carter, 2005).

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Rewarding Provider Performance: Aligning Incentives in Medicare Recommendation 8: The Centers for Medicare and Medicaid Services (CMS) should design the Medicare pay-for-performance program to include components that promote, recognize, and reward improved coordination of care across providers and through entire episodes of illness. Thus, CMS should (1) encourage beneficiaries and providers to identify providers who would be considered their principal responsible source of care, and (2) pay for and reward successful care coordination that meets specified standards for providers who take on that role. BOX 5-3 Examples of Virtual Groups Example 1: Hospitalization-Related Virtual Group A virtual group could be defined as the hospital medical staff and physicians caring for all patients admitted for a particular condition. For example, all patients admitted to hospital A for acute myocardial infarction during a given year could be identified as the study population. All physicians who provided any care for 25 or more of these patients during the year following their index admission would be identified as part of the virtual group and eligible for inclusion in the incentive system. Quality would be assessed using the best currently available measures, including, presumably, risk-adjusted 1-year survival and adherence to the Hospital Quality Alliance and the Ambulatory care Quality Alliance technical quality measures. Resource use would be measured using price-standardized measures (e.g., relative value units, diagnosis-related groups, nursing home per diems) and would include all care received by these patients, regardless of where it was provided (including out of the area). Performance could be compared with that of similar groups or with the group’s own performance during the prior year. Rewards for improved quality and efficiency could be allocated within the virtual group based on the proportion of evaluation and management claims for services provided to the cohort. The group could also be expanded to include other cohorts (cancer, orthopedics) to increase the number of physicians involved in the reward system. Example 2: Horizontal Virtual Group Ten independent primary care physicians located in the same geographic area could agree to create a virtual group to foster a care management process for their patients with chronic conditions, which could

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Rewarding Provider Performance: Aligning Incentives in Medicare It must be recognized that not all providers treating Medicare beneficiaries would be willing or able to serve this coordinating function. The Secretary of DHHS should design the particulars of how providers would be rewarded for serving this function, in addition to being eligible for rewards based on performance. The funding for this purpose need not come from the pay-for-performance reward pools discussed in Chapter 3, but could be drawn from the basic payment systems within Medicare. Beneficiaries would have an important role in this process, in that they would work with their providers to identify a responsible source of care. improve quality and value while reducing overall costs. These physicians might jointly purchase an electronic health information system, as well as discuss guidelines and the evidence base for best care practices at a monthly meeting. In joining this virtual group, the ten physicians would agree to share the costs associated with purchase and implementation of the electronic system as well as training in its use. In addition, the virtual group might agree to share the costs and administration of enhanced clinical support, such as the following: Nurses who would serve as care managers for high-risk patients and visit patients living with targeted chronic conditions for all ten physicians. Bidirectional data provided by a common laboratory vendor to reduce data entry costs. “Service agreements” negotiated with an identified group of specialists who agreed to use methods approved by all the physicians and increase communication between primary and secondary care providers. Example 3: Virtual Groups Convened by Health Plans Health plans could play a convening role in the formation of virtual groups, for example, by providing a common information technology platform for gathering data across multiple solo or small group practices in return for a small fee. Practices would not have to be located in the same geographic area, as they would be linked by common financial and communication systems. As part of their services, plans could also track a minimum number of patients with chronic conditions and send out prompts and reminders for recommended preventive services. Reward sharing could occur through reaching of thresholds on selected performance measures (including clinical effectiveness and efficiency) for chronic conditions determined by CMS.

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Rewarding Provider Performance: Aligning Incentives in Medicare Incentives, such as reductions in Medicare Part B premiums, could be used to encourage beneficiaries to make this designation. The mechanisms for this involvement should be easy for beneficiaries to understand and apply. Moreover, all activities related to this process should protect patient confidentiality and be completed in compliance with the regulations of the Health Insurance Portability and Accountability Act. The committee recognizes the many technical difficulties associated with implementing such a process. Nonetheless, the committee believes enhancing care coordination is essential to improving the overall quality of care and should be promoted through the use of incentives to the extent possible. THE ROLE OF HEALTH INFORMATION TECHNOLOGIES Potential Benefits Information technologies might be used as a transformative tool in systems change to enhance health care delivery. For example, computerized provider order entry systems can help minimize errors in prescribing medications. Electronic health records can facilitate clinical documentation and potentially allow providers to have more complete and comprehensive information about their patients available at the point of care, and can enable improvements in the safety, effectiveness, and efficiency of treatment by making a patient’s medical records portable among multiple providers. With respect to pay for performance, health information technologies can assist providers in data collection and reporting activities. Although the evidence is limited, use of these technologies may reduce the burden on providers and their staffs associated with reviewing medical records for reporting purposes as the number of measures grows, improve the accuracy of the data reported, and expedite the implementation of pay for performance. The sooner data are received and validated, the sooner rewards can be determined and distributed to providers. It is also true that pay for performance can encourage adoption of information technologies. If information technologies are indeed found to greatly facilitate improvement, their adoption may increase significantly. The following discussion assesses the current state of adoption, current activities, and barriers to implementation of health information technologies. Current State of Adoption Despite the potential importance of health information technologies, their adoption has been slow in both inpatient and ambulatory settings,

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Rewarding Provider Performance: Aligning Incentives in Medicare with most efforts having been initiated in the private sector. Several surveys of physician practices have found that less than one-third of physicians (12– 27 percent) use electronic health records (Anderson et al., 2005; Heffler et al., 2005; Reed and Grossman, 2006; Safran et al., 2006). Moreover, only a small proportion of the electronic health records used by ambulatory care practices possess the capabilities, including basic decision support (e.g., drug interaction alerts, notification of abnormal test results) needed to improve efficiency and quality (Heffler et al., 2005; Reed and Grossman, 2006). The extent to which electronic health records are actually designed to facilitate public reporting, however, remains unclear. In larger, more complex health care settings, such as hospitals and health care systems, the most successful electronic health records tend to be the result of systems built in stages over many years (Chaudhry et al., 2006). Larger hospitals also tend to have higher information technology usage rates than smaller hospitals (Felt-Lisk, 2006). As of 2005, many hospitals (approximately 50 percent) had automated their major ancillary clinical systems (i.e., pharmacy, laboratory, radiology) and were incorporating those data into clinical data repositories that allow for physician access to review and retrieve results (Schoen et al., 2005). However, very few hospitals have implemented either sophisticated electronic systems capable of clinical documentation and decision support (approximately 8 percent) or computerized provider order entry that is available to any clinician (2–6 percent) (Berwick, 2002; Schoen et al., 2005). Moreover, the use of information technologies in hospitals has not yet significantly improved the quality of public reporting (Felt-Lisk, 2006). Electronic systems should not be the same for all providers, as different providers have different needs. For example, computerized provider order entry systems in hospitals include capabilities for laboratory, radiology, and consults; none of these services are necessary for a system designed to be used in a skilled nursing facility. Adoption rates also tend to differ by provider size. According to one study, smaller providers (i.e., home health agencies, skilled nursing facilities, and groups of fewer than five physicians) can be expected to have less well-developed electronic capabilities than larger groups (i.e., hospitals and groups of 20 or more physicians), probably because of limited financial and personnel resources (Kaushal et al., 2005). Current Activities The federal government has initiated activities to support the development of health information technologies, as will be underscored by an executive order from the Bush Administration to require all federally financed providers to adopt uniform information technology standards and quality measurement tools (Broder, 2006). Primary among these activities is devel-

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Rewarding Provider Performance: Aligning Incentives in Medicare opment of a National Health Information Network (NHIN) through several efforts, including the following: The Consolidated Health Informatics (CHI) initiative, which has endorsed a portfolio of existing health information interoperability standards (Bodenheimer, 2005). The Healthcare Information Technology Standards Panel, a cooperative partnership of public and private stakeholders, supported and funded by the DHHS Office of the National Coordinator for Health Information Technology with the purpose of achieving a widely accepted and useful set of standards that will enable and support widespread interoperability among health care software applications (ANSI, 2006). The American Health Information Community, a commission of public and private representatives that provides input and recommendations to DHHS on the development and adoption of architecture, standards, a certification process, and a method of governance for the ongoing implementation of health information technology (Thorpe, 2005). A set of 16 community health information technology grants totaling more than $22.3 million, awarded by the Agency for Healthcare Research and Quality (AHRQ), which are focused on data sharing and interoperability among providers, laboratories, pharmacies, and patients in several regions across the country (Cogan et al., 2005). Contracts totaling $18.6 million awarded by DHHS to four consortia of technology developers and health care providers to develop prototypes for an NHIN (Dowd, 2005); and Partial or full funding in support of more than 100 Regional Health Information Organizations (RHIOs)—regional collaborations throughout the country that facilitate the development, implementation, and application of secure health information systems across care settings (including those funded by AHRQ as noted above) (Ginsburg, 2005). In addition, in the private sector, Connecting for Health has begun a National Health Information Exchange initiative, which involves three very different local health information networks—in Boston, Massachusetts; Indianapolis, Indiana; and Mendocino, California—that will work together to facilitate their secure exchange of health information (Rosenthal et al., 2005). Several RHIOs are also under way that are fully supported by private industries and/or state legislation. The federal government and other public and private stakeholders need to continue to work aggressively on the development of these mechanisms for interoperability among health information technology systems, while also ensuring the confidentiality of individual patient information.

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Rewarding Provider Performance: Aligning Incentives in Medicare Barriers to Implementation The extent to which health information technologies can yield savings or better health outcomes is unclear. Gains have been proven only in large health systems and after long implementation processes. The current low level of adoption of health information technology is due to many challenges, not the least of which is cost. Electronic health record systems are an expensive and high-risk investment—one that involves not only initial acquisition and implementation costs, but also the more significant costs of short-term productivity loss, ongoing training, redesign of clinical and administrative processes, and the process of changing the way work is performed. The issue of cost was also complicated by the existence of certain federal laws (i.e., the physician self-referral law [“Stark Law”] and the anti-kickback statute) intended to prevent payments to clinicians that might encourage overutilization of health care services. These laws, however, also created barriers to the provision of financial and other assistance by larger to smaller health care providers. On August 1, 2006, the Secretary of DHHS issued two regulations addressing these laws, lifting some of these barriers. Whether the regulations will in fact help accelerate adoption of health information technologies remains to be seen (U.S. DHHS, 2006a,b). There is also a paucity of quantifiable data in the literature on financial returns on investment in electronic health record systems (Chaudhry et al., 2006). For ambulatory practices, the evidence is beginning to point to positive returns within 3 years, especially when the electronic health record system is integrated with a practice management system, as a result of the cost savings from reduced transcriptions and revenue gains from more appropriate coding (Lied and Sheingold, 2001; Trivedi et al., 2005; Vaccarino et al., 2005). However, electronic health record systems currently are limited in their ability to effectively recall, collate, and analyze data. Evidence regarding the possible benefits of interoperability—the ability to exchange data across providers, sites, and organizations—has been both limited and mixed. Some studies have shown significant cost savings (an annual net value of $113.9– 220.9 billion, assuming a 15-year adoption period) (Moran, 2005), while others have found none. In addition, while the federal government and others have made some progress in the promulgation of national standards for health care information exchange and interoperability—through the foundational work of the CHI initiative and the ongoing work of the Healthcare Information Technology Standards Panel, the American Health Information Community, and RHIOs—there is still a long way to go. Another challenge faced by physician practices and hospitals has been the lack of guidance for selecting and implementing electronic health record systems; it is difficult to know whether a given system will provide the

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Rewarding Provider Performance: Aligning Incentives in Medicare necessary functionality in both the short and long terms and whether the vendor will remain in business to provide upgrades and ongoing technical assistance. Several efforts have been initiated to address this issue. DHHS has commissioned the Certification Commission for Healthcare Information Technology, a private, nonprofit organization, to develop and evaluate the certification criteria and inspection process for electronic health record systems. In addition, many public- and private-sector stakeholders—including CMS (through its Doctor’s Office Quality-Information Technology program), Medicare (through its Quality Improvement Organizations), professional organizations, trade associations, and industry websites—are beginning to offer technical assistance to both hospitals and physicians. Finally, both clinicians and consumers have demonstrated resistance to the adoption of electronic health record systems to aid in systems changes. It is often thought that clinicians will need to adopt a fundamentally different way of making and documenting clinical decisions to incorporate electronic health records into their practices. The initial phase of implementation, in particular, will result in longer work hours for clinicians as they become familiar with the application and enter background information for each patient (Trivedi et al., 2005). In addition, decision supports are more useful if the input data are structured and coded, which requires that clinicians use structured input supports, such as checklists. Consumers are also resistant because of concerns about the privacy and confidentiality of their records, and physician practices and hospitals are sensitive to these concerns. Role of Health Information Technologies in Pay for Performance The adoption of health information technologies could facilitate data collection and reporting, and thereby expedite pay for performance. Although pay for performance might conversely accelerate adoption of information technologies, the committee does not suggest that pay for performance be contingent on providers adopting these technologies. The possession of advanced information systems can place some providers at greater advantage relative to other providers without these capabilities. The committee therefore supports all initiatives in both the public and private sectors to advance the state of health information technology, as well as all research aimed at determining whether and how significant savings associated with electronic systems can be achieved. Recommendation 9: Because electronic health information technology will increase the probability of a successful pay-for-performance program, the Secretary of DHHS should explore a variety of approaches for assisting providers in the implementation

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Rewarding Provider Performance: Aligning Incentives in Medicare of electronic data collection and reporting systems to strengthen the use of consistent performance measures. STATISTICAL ISSUES The validity and acceptability of a system for rewarding performance depends on the quality of the data used to construct the performance measures. To ensure high-quality data, statistical reliability and validity are essential. Implementation of pay for performance also depends on the comparability of data. Appropriate adjustments must be made to the raw data to correct for clear biases and confounding elements that may be beyond the control of the provider. It is important to recognize the major role of beneficiary behavior in overall health care outcomes. These behaviors must be adjusted for and taken into account when the care delivered is being attributed to the performance of individual physicians, especially with respect to outcomes. Deriving an accurate representation of a provider’s performance necessitates meeting minimum requirements for sample size. Sample size refers to the number of cases being used to calculate a measure. If there are not enough cases, poor or excellent outcomes may reflect sample variability rather than true performance. This issue is particularly important with respect to physicians. As noted earlier, many general practitioners may not see 25 patients—viewed as a minimum threshold for performance measures—afflicted with the same condition. For some measures, the data may be skewed by characteristics of the patient or the environment. For example, a provider’s performance measures may look mediocre not because his skills or processes are poor, but because the cases treated are more complex than average or his patients have many comorbidities. Risk adjustment is an attempt to correct for such confounding conditions. Similar adjustments may be necessary for social, cultural, and economic differences in providers’ patients. For example, some providers may serve disproportionate numbers of nonadherent patients, patients who are economically disadvantaged and lack supplemental insurance, or those who are unable to communicate effectively with the provider. A pay-for-performance program should not penalize providers who serve such beneficiaries or create incentives to avoid them, recognizing that programs to promote better behavior should be rewarded. Such unintended adverse consequences should be compensated for and should not be neglected. These statistical issues are inherent in performance measurement, but can be adjusted for to better characterize the care that is delivered. However, much research must be completed before an optimal system is available. Methods of better accounting for sample-size problems and car-

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Rewarding Provider Performance: Aligning Incentives in Medicare rying out risk adjustment must be formulated to ensure the integrity of a pay-for-performance program. SUMMARY Implementation of a pay-for-performance program is complicated. Providers are at different levels of readiness to participate in such a program because of variations in the availability of performance measures and supporting infrastructure. Public reporting is a necessary step in rewarding performance. To help ease the burden of data collection, CMS should pay providers for reporting. It is expected that eventually, all Medicare providers will be rewarded based on their performance. Adequate financial incentives and assistance should be provided to achieve this goal. While information technologies can be useful in accelerating implementation, they are not necessary for success. A pay-for-performance program should be a learning system and should therefore undergo regular comprehensive evaluation. The next chapter addresses monitoring, evaluation, and the research agenda that must be carried out to better understand the effects of pay for performance and optimal future directions. REFERENCES ACP (American College of Physicians). 2006. The Advanced Medical Home: A Patient-Centered, Physician-Guided Model of Health Care. Philadephia, PA: ACP. Anderson GF, Hussey PS, Frogner BK, Waters HR. 2005. Health spending in the United States and the rest of the industrialized world. Health Affairs 24(4):903–914. ANSI (American National Standards Institute). 2006. Healthcare Information Technology Standards Panel. [Online]. Available: http://www.htsip.org [accessed May 30, 2006]. Baker G, Carter B. 2005. Provider Pay-for-Performance Incentive Programs: 2004 National Study Results. San Francisco, CA: Med-Vantage, Inc. Berwick D. 2002. A user’s manual for the IOM’s “Quality Chasm” report. Health Affairs 21(3):80–90. Bodenheimer T. 2005. The political divide in health care: A liberal perspective. Health Affairs 24(6):1426–1435. Bodenheimer T, May JH, Berenson RA, Coughlan J. 2005. Can Money Buy Quality? Physician Response to Pay for Performance. Washington, DC: Center for Studying Health System Change. Broder D. 2006, August 6. Administration aims to set health-care standards. Washington Post. Chaudhry B, Wang J, Wu S, Maglione M, Mojica W, Roth E, Morton SC, Shekelle PG. 2006. Systematic review: Impact of health information technology on quality, efficiency, and costs of medical care. Annals of Internal Medicine 144(10):742–752. CMS (Centers for Medicare and Medicaid Services). 2006. Hospital Compare. [Online]. Available: http://www.hospitalcompare.hhs.gov [accessed May 15, 2006]. Cogan JF, Hubbard RG, Kessler DP. 2005. Making markets work: Five steps to a better health care system. Health Affairs 24(6):1447–1457.

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