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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