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Reimbursement and Pay for Performance
According to the American Society of Health System Pharmacists the American healthcare system is at a critical juncture. While the proportion of the total GDP spent on healthcare is extraordinarily high the quality of actual care provided is relatively low (2010). In order, to decrease the gap between money spent and quality of care provided, insurance companies and employers in the United States and Europe have adopted a health care provider reimbursement method known as pay for performance.
Traditional reimbursement methods have involved “fee for service,” “capitation” and “salary” and these have proven to be insufficient in improving the quality of healthcare provided to patients (Mayes, 2006). Under these systems there is no mechanism through which increased reimbursements will result in proportionally increased quality (Mayes, 2006). According to Miller (2007), these reimbursement methods actually serve to act as a disincentives in terms of provision of quality healthcare due to a higher emphasis on quantity and technology used and do not sufficiently cover the expenses of preventive care. Fee for service systems also do not allot the required amount of time for physicians to make an accurate diagnosis and providers often tend to experience greater profitability from more severe health conditions (Miller, 2007). Salary and capitation methods of reimbursement are fixed and do not vary according the quality or quantity of service provided and give physicians no incentive to provide either (Rosenthal, 2006). Therefore the pay for performance system essentially seeks to reward healthcare providers that meet certain quality standards with greater reimbursements than those who do not (Mayes, 2006). According to Mayes the basic rationale for this reimbursement method lies in the desire to not only improve quality provided but also affect a “behavioral change” among doctors and health management organizations that will lead to greater efficiency (2006).
The impetus for the pay for performance approach was truly created after the Institute of Medicine published landmark paper entitled “Crossing the Quality Chasm” in which the inherent inefficiency of the American healthcare system was exposed. According to the American Society of Health Pharmacists, Pay for Performance emphasizes aspects such as quality, cost control and the satisfaction of the patient when evaluating healthcare providers for allotment of reimbursements. Diamond and Kaul (2009) state that pay for performance systems are designed to reward physicians at regular intervals for meeting predefined criteria that is often loosely defined. According to Rosenthal (2006) this system has been adopted by both public and private insurance providers, the Center for Medicare and Medicaid Services (CMS) also intends to implement pay for performance systems in all major healthcare providers that it deals with (Rosenthal, 2006).
Affect on Reimbursements
Pay for Performance schemes are usually implemented by public or private insurance providers and are indicated in individual health plans provided by employers or initiatives by federal medical aid providers such as CMS (Pope, 2011). Health care providers that are evaluated for the awarding of these incentives include private practices, group practices and hospitals (Pope, 2011). According to Rosenthal (2006) pay for performance does not and cannot replace the existing reimbursement mechanisms such as fee for service, capitation and salaries but seeks to supplement them in a bid to reduce the disparity between financial expenditure and quality received by providing an incentive for physicians and health care providers to offer quality of service.
The basis for provider higher reimbursements or rewards lies in the level performance. According, to Pope (2011) the levels of performance need to be strictly quantifiable and performance indicators include the following:
- Clinical outcomes which include mortality rates, life expectancy rates, quality of life and the prevention incurable diseases.
- The quality of clinical processes such as eye exams, mammograms and other detection activities.
- Levels of patient safety and the reduction of preventable errors.
- The degree of availability and ease of access that a provider affords patients.
- Service quality, which involves patient waiting time and other factors such as accessibility.
- Patient feedback which includes the level of satisfaction that the patient attained from the care that they received.
- Cost efficiency, which is the total amount of care received for the price paid.
- Selection of the most cost-effective method of treatment.
- Conformity to scientifically verified medical practice, rather than offering treatments based on instinct or emotional considerations.
A particular pay for performance plan may choose to assign equal weightage to each of the above mentioned performance indicators or it may choose to concentrate on one or two of these (Pope, 2011)
System Cost Reductions
In the year, 2000 the United States witnessed an exorbitant rise in healthcare costs,
with healthcare spending rising to $1.3 trillion (Stanton, 2002). Average health insurance premiums rose by 333.3% in the same year (Stanton, 2002). Furthermore, according to Stanton satisfaction levels have not risen in accordance with price levels, in fact the opposite has occurred. According to a survey mentioned by Stanton, the majority of patients, health care providers, physicians and other individuals affiliated with the healthcare industry stated that the state of the system was dire and that it required immediate and wholesale changes (2002).Stanton attributes the rise in costs to several factors including the usage of new and expensive healthcare technologies, general cost push inflation, inflation of healthcare provision costs and the ageing of the population (2002). Another major factor influencing the rise in healthcare spending is the organization of healthcare services (Stanton, 2002). Therefore, it can be reasoned that a reduction of healthcare system costs may not have an adverse impact on the efficiency and quality of healthcare provision and may instead increase efficiency and quality.
Research by Stanton (2002) found that strategies designed to reduce costs did not necessarily have to involve the reduction of services and or limiting access. The most effective of the cost reduction plans involved the reorganization of employer issued healthcare plans, the restructuring of health services provided by HMO’s and the implementation of carefully managed mental healthcare plans (Stanton, 2002).
The implementation of a pay for performance system also has the potential to reduce aggregate healthcare costs by compelling physicians and healthcare providers to focus on treatment methods that are cost effective and suitable for the ailment that is being treated. As mentioned earlier, fee for service reimbursement systems have shifted the emphasis onto the quantity of treatment and technology involved as more expensive treatment results in greater profitability for the healthcare provider, this results in a situation where healthcare providers and specialists encourage patients to undergo expensive treatment procedures for ailments that can possibly be treated at a lower cost. A stated goal of pay for performance is to improve the efficiency of healthcare providers by encouraging them to employ cost effective methods through a system of rewards and penalties, and a system such as this should provide sufficient disincentive for healthcare providers from engaging in similar activities
Effects of Pay for Performance on Healthcare Providers
And Customers
Pay for Performance reimbursements are designed to achieve the goals of quality and efficiency through mechanisms that reward providers for quality of performance and adherence to quality benchmarks while placing penalties on those that perform in an unsatisfactory manner. These mechanisms undoubtedly have a significant impact on the activities of healthcare providers and physicians. Providers will attempt to follow and achieve performance based benchmarks rather than attempting to convince patients to undergo expensive treatment procedures that may not be the most suitable but will generate the highest level of profits for the provider. The pay-for-performance system will curb inefficient practices such as these using the reward and penalty mechanism. Healthcare providers will be forced to seek out cost effective practices that ensure patient satisfaction and meticulous methods for the prevention of preventable medical errors will also have to be implemented.
The customers of healthcare providers, otherwise known as their patients will be given more prominence than they have previously under this system, since there are rewards offered for patient satisfaction and penalties for dissatisfaction. Healthcare providers will be forced to take patient feedback seriously and will be compelled to take actions based on this feedback. This will renew the faith of the patients in the healthcare system and a possible consequence of this may be fewer law suits seeking damages from healthcare providers.
Pay for Performance:
Future of Healthcare
While pay for performance reimbursement systems are considered to be a step in the right direction, Rosenthal (2006) states that there is little to no scientifically verifiable evidence suggesting that it can achieve its stated goals of achieving quality and efficiency while reducing market distortions. However, research conducted by Beckman et al. (2006) assessing the return on investment compared to the cost of implementing a pay for performance initiative in terms of the cost savings experienced during the provision of diabetes care in selected HMO’s found that there were substantial costs savings to be gained from such initiatives. However, the researchers acknowledge that this research was the first actual instance of a positive return on investment being recorded against the cost of implementing a pay for performance reimbursement program (Beckman et al., 2006).
While it can be argued that the immediate financial benefits of pay for performance are debatable, the scope of change that the implementation of such a system can bring goes beyond finances, it has the possibility of causing a radical transformation of the organizational culture healthcare providers by increasing accountability for performance beyond the existing accountability offered by statutes. Healthcare providers will also be forced into adopting a patient centric view whereby, quality will have to be maintained not only during procedural operations but also in terms of improving accessibility, reducing waiting times and improving the quality of interactions. There is also the potential to improve the quality of care offered to traditionally underserved demographic segments that mauy have not been able to afford quality healthcare in the past.
Therefore, while the pay for performance reimbursement as it exists today may not exist in its current form in the coming years and decades, it is possible to use this method as a blueprint for future reimbursement mechanisms that can further reorganize the healthcare system of the United States and the rest of the world into one which provides quality and ensures patient satisfaction.
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References
American Society of Health-system Pharmacists (2010). Pay For Performance. [report].
Beckman, H. et al. (2006). Return on investment in pay for performance: a diabetes case study. Journal of Healthcare Management / American College of Healthcare Executives , 51 (6), pp.365-74.
Diamond, G., and Kaul, S. (2009). Evidence-Based Financial Incentives for Healthcare Reform Putting It Together. Circulation: Cardiovascular Quality and Outcomes, 2 (1), pp.134-140.
Mayes, R. (2006). The Origins of and Economic Momentum Behind “Pay for Performance” Reimbursement. Health Law Review, 15 (6).
Miller, H. (2007). CREATING PAYMENT SYSTEMS TO ACCELERATE VALUE-DRIVEN HEALTH CARE: ISSUES AND OPTIONS FOR POLICY REFORM . Pittsburgh Regional Health Initiative. [report] Pittsburgh: Commonwealth Fund.
Rosenthal, M. (2006). How Will Paying for Performance Affect Patient Care?. American Medical Association journal of Ethics, 8 (3), pp.162-165.
Stanton, M. (2002). Learning From What Has Been. Research In Action, (9).
