Monday, November 19, 2007

Patient-Centered Life-Cycle (PCLC) Value Chain--Process Reform: Pay for Value

Continuing the series on the PCLC Value Chain strategy [click here for the first post in the series], this post focuses on a third process in need of reform: The transformation from "pay for performance" to a "pay for value" model that rewards providers who deliver high-value to patients/consumers. Being a complex and controversial issue, this post is lengthy, but hopefully insightful.

Defining Pay for Performance

Today's Pay-for-Performance (P4P) model uses "quality" measures (metrics)--devised by insurers, government and big healthcare institutions--to judge the performance of providers (hospitals and clinicians) and pay them based on their performance. In the P4P process, monetary rewards are given to providers who follow specific evidence-based guidelines for particular types of patients and, for some conditions, who achieve certain results in patient health and well-being. And recently, the Centers for Medicare and Medicaid Services (CMS) decided to add a "stick" to the P4P "carrot," by announcing that they will cease paying for care made necessary by "preventable complications;" that is, they won't pay for certain conditions caused by medical errors or improper care--conditions that could have reasonably been avoided.

Thus, reforming healthcare via P4P "…rests on the following three principles: payers [insurers and CMS] should pay more for the treatment of conditions that require more resources and that the provider could not reasonably have prevented; they should pay more when evidence-based or consensus-based best practices are followed; and they should pay less or not at all for low-quality care. Naturally, the last will be the most controversial."[1]

While such an incentive model may affect clinician behavior [2][3], and although the number of P4P programs is growing, critics say that they increase providers' administrative burden while giving no clear evidence money will be saved or quality will be improved.[3a] Furthermore, using compliance to evidence-based guidelines as the measure of performance can be problematic for numerous reasons.[4][5]
These issues and others pose significant challenges to any P4P program.

P4P Challenges

P4P programs must deal with the following challenges:
  • A provider's practice may be too small to permit valid analysis of the performance data.
  • Patient population differences--in terms of health status, insurance coverage, etc.--may mean that a specific practice guideline may work well for certain patients in certain situations, but not work for others.
  • Even though providers may adhere to practice guidelines tied to P4P, they may not comply with guidelines for which there is no performance assessment and financial incentive.
  • Many specialties lack evidence-based guidelines, and the guidelines that exist may not be valid.
  • Performance metrics must be adequately "risk-adjusted" for patients with difficult to treat problems. These risk-adjustments alter the criteria for determining "successful" care by accounting for differences in the severity of patients' conditions treated by different providers, thereby enabling fair comparisons. It can be very difficult, however, to establish valid are risk-adjustment equations.
  • When a guideline is not clinically appropriate for a particular patient, a provider should not be penalized for deviating from it with minimal, but appropriate, documentation.
  • P4P programs may end up costing the system more in the long run.
  • If providers chase different P4P criteria developed by different payers, it can lead to duplication of services and unnecessary testing.
  • Different insurer-based P4P programs often measure performance differently, which results in unnecessary administrative burdens, as well as failing to adjust for differences in patients' conditions, economics and demographics.[5a]
  • Since quality metrics are largely arbitrary, different healthcare plans tend to have different performance indicators for the same disease, which convolutes the process.
  • P4P could simply redirect money toward wealthier areas where patients are more likely to follow doctors' orders.
  • Patient satisfaction surveys can be unreliable.
  • When a patient is treated by multiple clinicians, it can be unclear who is responsible if a recommended guideline isn't followed.
  • A patient's ability and willingness to adhere to self-maintenance instructions often affect outcomes, thus impacts provider performance measures.
One way P4P programs attempt to deal with such challenges is by establishing useful performance measurement standards.

Performance Measurement Standards

At least three standards are related to measuring clinician and hospital performance:
  1. Process compliance standards
  2. Care outcome standards
  3. Care value standards.

Process Compliance Standards

Process compliance standards measure the "quality" of providers' performance based on whether they follow recommended guidelines reflecting preferred care processes. For example, typical P4P programs reward providers who perform certain predefined procedures (processes), such as doing a Hemoglobin A1c test a certain number of times each year for patients with diabetes. These standards measure the degree of compliance to such established procedures.

Some of the problems with P4P are exemplified by research showing that following recommended procedural guidelines for hospitalized patients with heart attacks--e.g., give patients aspirin and beta blockers at admission and discharge--doesn't mean better outcomes as measured by 30-day mortality rates.[6] So, after 30 days of an attack, the research shows that the health status of a patient with actuate myocardial infarction is influenced only slightly by whether or not his/her provider followed the guidelines. This is because outcomes research is still an infant science, which makes P4P premature, at best. In this case, and in many others, measures of performance are too crude (i.e., limited whether the patient died within 30 days, but ignores what happens after that time) and too narrow (i.e., aspirin, beta blockers and a few or recommended interventions are inadequate to address all of a patient's needs and problems). So, it appears that care quality is not necessarily related to guideline compliance.

Let's examine this issue a bit more deeply. Adhering to existing process guidelines are, no doubt, helpful for many patients. But numerous other things not appearing in a process guideline, and thus not used to measure the quality of care, may be as important (and possibly more important) to improving a patient's health and well-being.

For example, important processes lacking in today's P4P guidelines, and not being considered as quality metrics, include:
  • Educating a patient suffering from congestive heart failure about the pros and cons of a heart operation
  • Counseling and coaching the patient to make critical lifestyle changes (e.g., good eating and exercise) and to manage stress more effectively
  • Implementing cost-effective complementary and alternative interventions
  • Using computerized diagnostic aids, clinical pathways, continuity of care records, and electronic medical/health records.
Other important processes affecting care quality that P4P programs fail to measure include:
  • How well a patient's plan of care maps to his/her primary diagnosis and comorbidities (the presence of one or more disorders/diseases that co-exist with a patient's primary disorder/disease)
  • Whether a plan of care is based on a general guideline, or whether it is personalized, i.e., tailored to each patient's unique situation by taking into account patient-specific biomedical, psychological, genetic, cultural, and historical factors, as well as one's personal preferences
  • How well care is coordinated among a patient's providers after discharge from the hospital
  • The quality of care delivered in both inpatient and outpatient settings (e.g., whether there were errors, omissions, infections, etc.)
  • The patient's ability and willingness to comply with self-management care plans to prevent complications or worsening a condition
  • The appropriateness of the self-management care plans, as well as patient education and compliance counseling/coaching.

Care Outcomes Standards

Unlike process compliance standards, care outcomes standards do not focus on whether specific procedures were followed. Instead, they measure the effectiveness of whatever treatments were delivered, and whether clinical goals are achieved for patients with particular conditions. For example, a care outcome standard for diabetics is blood glucose control defined as a Hemoglobin A1c test target goal of less than 7.0%. This means care outcomes data should measure more than mortality rates (patient deaths); they should also measure a patient's physical and psychological signs and symptoms--including patient complaints, clinician observations, vital signs, lab test results, imaging studies, and quality of life (such as mental health, mobility, social functioning, role limitations, vitality, etc.).

Interpreting care outcomes data ought to take into account factors that may influence the care results, such as:
  • Comorbidities and their effect on the patient
  • Allergies and other things that can cause adverse reactions/side-effects
  • Environment conditions (at home, in the workplace, etc.)
  • Treatment history
  • Family history
  • Genetic markers
  • Patient's attitudes and preferences
  • Patient's emotional state
  • Patient's psychosocial situation (e.g., degree of family support).
Understanding how to use care outcomes to measure quality, therefore, is a complex process that requires a wealth of diverse health data. Unfortunately, existing P4P programs do not use comprehensive care outcomes to assess the quality of care. Instead of obtaining and analyzing detailed lots of clinical data (signs and symptoms), they typically rely on insurance claims (administrative) data.

Claims data provide some useful measures of quality, including mortality rates, complications; and claims data provide useful information about cost. These data, however, provide grossly inadequate metrics for improving care quality and efficiency. This is because claims data do not include information necessary to determine, for example, how much a patient's signs and symptoms improved after treatment, if errors were made, if lower cost treatments of equal or greater effectiveness could have been used, if the patient was educated adequately in self-care and complied with the prescribed plan of care, and if coexisting conditions affected results. Without such care outcomes data, it isn't possible to evaluate a provider's performance accurately nor gain the knowledge needed to improve healthcare effectiveness and efficiency. So, instead of using claims data alone to measure care outcomes, they should be augmented with detailed clinical data.
Measuring process compliance, and balancing clinical and claims outcomes data are essential to assessing care quality, but rewarding cost-effectiveness require care value standards.

Care Value Standards

In contrast to care process and outcomes standards, care value standards combine process and outcome quality metrics with economic metrics to measure cost-effectiveness, which defines the value of care.

If our healthcare system was rational and guided by wisdom, a top priority of healthcare professionals and patients/consumers would be to maximize care quality and efficiency (i.e., value) by:
  • Gaining valid knowledge about healthy living, the causes and diagnosis of physical and mental health problems, and the treatments delivering the best results most cost-effectively to each patient.
  • Understanding how to use this knowledge to maximize value to the patient/consumer by increasing care effectiveness and efficiency, as well as improving prevention and self-maintenance of chronic diseases.
  • Continuously evolving this knowledge and using it to improve care quality and lower costs continually.
For significant improvement in healthcare delivery, useful and reliable care value standards must be established for every health risk factor, illness/condition, and healthcare discipline/field; and these standards must be used to measure and reward high-value performance. Unfortunately, today's P4P programs fail to do this since, in part, measuring care quality is so difficult.

Pitfalls of Care Quality Measurement

Following are potential pitfalls of care quality measurement:
  • Today's diagnostic systems often fail to point to the highest quality treatment options, which means we often don't know the what care interventions are likely to produce the best results.[7]
  • Few guideline standards are specific enough to account for individual differences in patient with the same diagnosis. For example, a recent study found that a moderately high total cholesterol level is associated with higher survival in certain patients with heart failure.[8] Such specificity is needed for high quality personalized care.
  • Constantly evaluating and revising evidence-based guidelines based on new knowledge is very difficult. But if they do not continually evolve, the guidelines do not promote quality since they are just "a record of the past, and little more-they should have an expiration date."[9]
  • According to HHS Secretary Mike Leavitt, "Medical associations and others have begun the work of developing quality standards and cost measurement, but we have many years of work ahead of us to achieve the wide-ranging and meaningful quality standards we need."[10]
  • No mater what quality measures are used, there are complex issues to be resolved, such as:
    • At what point is there sufficient confidence in an evidence-based guideline that there is no longer any need to spend time or money on the continuous evaluation of its reliable and validity?
    • When is a definition of quality too narrow, e.g., by focusing on cost or symptom reduction, but not considering prevention, recurrence, coordination and continuity of care, or the patient-physician relationship?
    • How do you measure quality when resources are scarce and optimal care for the community may require less than "the best" care for its individual members (e.g., delegating office nurses to perform certain activities that physicians used to do)?
    • What is the best way to measure quality if outcomes are more strongly affected by patient compliance than by physician orders? This may occur, for example, if certain providers have personalities that trigger greater patient compliance, and visa versa.
    • Is it poor quality care if a provider follows the recommended practice guideline, but the patient is atypical and responds poorly? [11]
    • Use of claims (administrative) data to measure care quality is grossly inadequate for many reasons.[12]
  • As discussed earlier, assessing care quality using process data may not be valid since they do not necessarily reflect care outcomes.[13]
  • One thorny issue is how to avoid political and ideological biases when determining what evidence to use as the basis for establishing the guidelines, since quality care is unlikely to be achieved unless treatments are based on objective science.[14]
  • Many areas of healthcare lack care process standards and/or quality measures. That is, different healthcare disciplines and specialties require different types of data to evaluate quality. For example, it's foolish to measure the quality of mental healthcare services with data appropriate for evaluating cardiologists' performance; and the same is true for a podiatrist, dentist, chiropractor, etc.-each need different measures for determining quality, but they are often lacking.[15]
We must deal with these challenges and pitfalls before P4P incentives will lead to substantial care quality improvements. But even if P4P results in more effective diagnostic and treatment procedures, this increased higher quality care fails to address the problem of high costs due to inefficiency, which includes wasteful over-testing, over-treating, and delivery of more expensive care when less costly alternatives are just a effective, as well as inadequate focus on wellness/preventive care. Only the transformation to "Pay for Value" (P4V)--in which the most cost-effective (high-value) care is rewarded--will make healthcare more affordable and available.

Transformation to Pay for Value

Unlike P4P, P4V focuses on the relationship between diagnosis, treatment, clinical outcomes and cost to increase care value through incentives for improving care quality and efficiency, i.e., cost-effectiveness. The transformation to P4V requires that we:
If we did this, we would have patient-specific evidence-based guidelines defining the most cost-effective care tailored to each patient's particular needs. We could then reward providers for rendering such high-value care. This is the essence of P4V.

Unfortunately, our country has not been moving in the P4V direction because we fail to:
  • Focus on supporting the kinds of research and information systems necessary for generating and using the kind of evidence-based guidelines providers and patients need to improve outcomes and control costs through greater quality and efficiencies
  • Reduce waste and expense by selecting and implementing the most cost-effective care options and prevention strategies.
This means that today's P4P programs are built on flimsy knowledge. In essence, we are pretending that we know (a) what each patient needs to remain well through prevention; (b) when ill, what each patient needs to get well with least risk and complications; and (c) how to deliver such care with the greatest efficiently and least cost.

Let's Stop Deceiving Ourselves

Pretending we know what high-value (cost-effective) care is and how to deliver it--as we flounder in a knowledge gap dominated by ignorance and uncertainty and inadequate health information technologies--is a dangerous form of self-deception. We are deceiving ourselves into believing that rewarding providers via P4P for following current day best practice guidelines is going to increase the quality and reduce the cost of care when (a) research shows that today's guidelines are neither personalized nor focused on cost-effectiveness and (b) following the guidelines do not necessarily result in better outcomes, as discussed earlier.

So, instead of pretending, we should be obtaining and using the knowledge we need about care value by investing more in clinical research (in both lab and field) and advanced information systems that provide next-generation decision-support, collaboration, and continuity of care capabilities. This means we should be focusing on transforming our current healthcare system to a value-based system that:
  • Pays for the research, collaboration and information systems needed to establish, evolve, disseminate and use high-value, evidence-based guidelines that are tailored to each patient's particular needs.
  • Offers financial incentives to the providers who engage in this knowledge-building and utilization process to deliver high-value care, rather than simply rewarding those who follow today's inadequate guidelines.
Once we've established valid and reliable patient-specific best practice guidelines--which take into account both quality and cost--then we are ready to make the transformation to pay for value (P4V). In the mean time, we ought not postpone P4P initiatives, as long as:
  • Clinicians who chose not to follow standardized guidelines for particular patients will also receive the reward if they have a good reason for doing things differently
  • Ample clinical and financial outcomes data are collected to determine the effect of following general guidelines with particular patient types, so we are able to make them more personalized over time
  • Built into the P4P methodology is an increased focus on rewarding clinicians who get good results at a good price, and decreased focus on simply following general processes
  • Money spent in these early P4P initiatives do not restrict spending on research aimed at developing personalized guidelines and better decision tools
  • There is an explicit strategy to move toward giving P4V rewards to multidisciplinary teams of clinicians who are involved in treating the same patient, as opposed to each individual clinician, in order to promote better continuity of care.
In other words, the transformation from today's P4P initiatives to P4V should be based on a clear strategy to:
  • Improve/evolve current evidence-based guidelines to be ever more personalized
  • Make financial rewards increasingly based on clinical outcomes data reflecting high-value care delivery
  • Enhance collaborative efforts within teams of clinicians promoting better continuity of care.
In addition, P4V should include "shared decision making" augmented by patient decision aids for achieving informed patient choice. This strategy would promote "a new standard of practice for defining medical necessity for many discretionary treatments based on informed patient choice … [which is beneficial since] informed patients appear to demand less surgery than the amount now being performed … and the risk for serious medical error occasioned by providing an unwanted therapy is greatly diminished."[16]

Failure to do these things can do more harm than good by making us complacent in the belief that we are doing enough, whereas in reality, these early P4P models do relatively little when you realize what ought to be done in the long term to increase care value!

Bridges to Excellence

There are potentially useful P4P models being offered, which can foster the transformation to P4V. One such model, named Prometheus, is being proposed by the Bridges to Excellence organization, a non-profit group of employers, physicians, health plans and patients working to create significant leaps in the quality of healthcare. It focuses on a payment system that uses (a) "evidence-based case rates" that determine how much to pay providers based on the cost of the resources required to deliver care according to evidence-based practice guideline, and (b) a comprehensive scorecard of quality to pay more money to providers who consistently follow certain practice guideline processes, demonstrate good clinical outcomes, receive high patient satisfaction ratings, and operate cost-efficiently.[17]

In my next post in this series, I discuss the Whole-Person Integrated-Care solution.


[1] Rosenthal, M.B. (2007). Nonpayment for Performance? Medicare's New Reimbursement Rule. New England Journal of Medicine; 357(16):1573-5.
[2] Ibid.
[3] Rosenthal, M.B., et al. (October 2005) Early Experience with Pay-for-Performance: From Concept to Practice. Journal of the American Medical Association, 294 (14):1788-93.
[3a] Modern Physician Online (Sep 17, 2007). P4P programs' value questioned despite growth.

[4] Garber, A.M. (2005). Evidence-Based Guidelines As a Foundation For Performance Incentives. Health Affairs, 24, (1): 174-179 Available at
[5] Cannon, M.F. (2006). Pay-for-Performance: Is Medicare a Good Candidate? Cato Institute Working Paper. Available at
[5a] Minneapolis/St. Paul Business Journal (Nov 19, 2007).
[6] Bradley, E.H., et al. (2006). Hospital Quality for Acute Myocardial Infarction: Correlation Among Process Measures and Relationship With Short-term Mortality JAMA;296:72-78. Available at
[7] Current Diagnostic Codes are Inadequate - WellnessWiki
[8] Reuters (Sep 20, 2006). Elevated cholesterol may benefit failing hearts.
[9] Gawande, A (2004). The Bell Curve. The New Yorker.
[10] Bush's Value-Driven Health Care Plan Gains Steam as More Employers Step Up (May 10, 2007)
[11] Donabedian, A. (2005). Evaluating the Quality of Medical Care. The Milbank Quarterly 83, 691-729.
[12] Use of claims data is inadequate - WellnessWiki
[13] HealthDay (July 5, 2006). Hospital Ratings Don't Fully Reflect Patient Outcomes.
[14] Healy, B. (Sep. 2006).Who Says What's Best? U.S. News and World Report.
[15] Need for specialy measures - WellnessWiki
[16] Wennberg, J.E., et al. (2007). Extending the P4P Agenda, Part 1: How Medicare Can Improve Patient Decision Making and Reduce Unnecessary Care. Health Affairs; 26(6):1564-74.
[17] Bridges To Excellence (2006). Prometheus White Paper - Paying for Excellence. Available at

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