Appendix 4

Materials for Kansas Leadership Workshop

I. Pay-for-Performance as a Strategy for Managed Care Purchasing

Why consider a pay-for-performance (P4P) approach?

• The Institute of Medicine Health Care Quality Initiative has heightened consumers’ and purchasers’
  awareness of the need for improvements in the health care system. In 1996, the Institute of Medicine
  (IOM) launched a concerted, ongoing effort focused on assessing and improving the Nation's quality
  of care, which is now in its third phase. In 1999, To Err is Human¹ delivered a “wake-up call” about
  patient safety and put quality issues squarely on the national agenda. In 2001, Crossing the Quality
  Chasm² called for fundamental change in the health system, including payment methods. “The goal
  of any payment method should be to reward high-quality care and to permit the development of more
  effective ways of delivering care to improve the value obtained for the resources expended.”³ In 2002,
  Leadership by Example: Coordinating Government Roles in Improving Health Care Quality⁴⁵
  recommended that all health-related programs of government, including Medicare and Medicaid,
  begin paying performance bonuses.⁶
  
• The reasons given in the typical business case for P4P is driven by these basic points:
  1. Current provider reimbursement strategies do not reward quality or performance. Neither fee-forservice
     nor capitated payments have effective incentives for quality improvement.
  2. Report cards on performance – prepared by regulators, accrediting bodies, and/or consumer
     advocates – typically focus at the plan, not individual provider level.
  3. When individual managed care organizations (MCOs) or integrated health systems issue their
     own report cards on their physician groups, the public is faced with “dueling scorecards” and
     non-comparable (or incomprehensible) data.
  4. In most States, MCOs contract with many of the same physician groups. Thus, no one MCO has
     an incentive to invest in quality improvement of a physician group because it will benefit the
     competitors.
  5. While different initiatives focus on different methods, the general motives for adopting P4P
     approaches are to: reduce medical errors, improve patient outcomes, reduce acute
     treatment/urgent care, minimize clinical practice variations, link dollars to improvement, collect
     and publish quality data, and advance information technologies.⁷

What are the main approaches to performance incentives?

The National Health Care Purchasing Institute⁸ has identified 11 current and potential heath care provider
incentive models, using both financial and non-financial incentives. The models that use financial
incentives are: bonuses, compensation at risk, performance fee schedules, quality grants (typically, direct
and competitive), reimbursement for care planning, and adjusted cost sharing for patients. The nonfinancial
incentives are: performance profiling, publicizing performance, technical assistance for quality
improvement, contract sanctions (threats for loss of a contract), and reduced administrative requirements.
The fundamental principles of P4P are:

1. Develop a collaborative approach, based on input from MCOs, physicians, researchers, and
   consumer advocates;
2. Use a common set of measures (metrics) based on consensus across areas of performance;
3. Commit significant financial payments based on performance;
4. Share the facts about performance; and
5. Leverage the “power of multiples” by making improvements across a larger number of physician
   practices and groups.

What are the key decisions in adopting P4P?

• What is the target? Will rewards go to those who can reach a standard benchmark, those who
  improve, and/or those who are top ranked?
• What is the unit of measure? For what unit will data be reported? Is the performance to be
  measured that of an individual physician, a provider group, or an MCO?
• How will measures be weighted? Most projects weigh performance in different areas. For
  example, Rhode Island assigns administration 20 percent, access 30 percent, and clinical care 50
  percent. In the Statewide initiative in California, clinical measures are weighted at 50 percent of the
  overall score, with patient satisfaction at 40 percent and the information technology at 10 percent.
• How to distribute payments? Will funds be distributed annually or monthly? Will payments be
  lump sum, per member, or per service? Will it be quality bonuses (in which an annual payment is
  made to those who meet performance targets), adjusted fee schedules, and/or withholds for
  “reimbursement at risk” (in which the funds are held back and paid if/when minimum performance
  standards are met)?
• Where will the money come from? Will the State reduce payments (in other words withhold) some
  Medicaid managed care dollars at the beginning or commit new dollars? Will MCOs create
  incentive pools? Early efforts suggest that MCOs need to offer an amount equal to 10 percent of a
  physician’s earning potential in order to change practice behavior (and, hopefully, in turn get desired
  results).

II. Lessons Learned by Other States and Special Projects

• A report from the National Academy of State Health Policy (NASHP)⁹ found that, of the 28 States
  studied, 27 used penalties and 8 had begun to use financial incentives. Based on State reporting,
  NASHP said that successful efforts have:
  1. Experience in performance measurement and goal-setting, which helps States build baseline data
     and holds plans accountable;
  2. Extensive efforts to solicit public input, identify priorities and objectives, and develop public and
     legislative support; and
  3. A collaborative relationship with plans, to reach fair targets and ensure that the State will work
     with them to resolve problems.
     
• In 2001, the Integrated Healthcare Association (IHA), a collaborative leadership group in California,
  launched a Statewide P4P initiative.¹⁰ This year, after three years of planning and development, the
  IHA will begin to make performance-related payments. Patient satisfaction, clinical, and information
  technology scores are being used. Patient satisfaction measures address four areas: communication
  with the doctor, specialty care, timely care and service, and an overall rating of care. The six clinical
  measures cover mammograms, pap smears, and childhood immunizations, plus a measure for asthma,
  diabetes, and coronary artery disease. The clinical measures are weighted at 50 percent of the overall
  score, with patient satisfaction at 40 percent and the IT measure at 10 percent. Each participating
  health plan makes its own decisions about the source and amount of performance-based payments to
  its physicians. Funds may come from: (1) set-asides from future premium increases received from
  purchasers; (2) funds already budgeted for quality incentives; (3) the total amount budgeted for
  capitation payments.
  
• Rhode Island has concentrated on improving Medicaid managed care quality through use of
  performance contracting, by setting up clear expectations and rewarding those that reach preset goals.
  The State adopted an incentives-based, P4P approach in 1998. The State's Medicaid managed care
  program, RIte Care, developed 22 goals in the areas of administration, access, and clinical care, with
  the areas weighted 20, 30, and 50 percent, respectively. At the end of the first full year, RIte Care
  paid $713,000 in bonuses to the plans -- about half of what was available. In the first year after the
  RIte Care program started in Rhode Island, both hospital days and emergency room use decreased by
  one-third. The State also has achieved success in improving rates of early prenatal care, childhood
  immunization, and lead screening. For example, Rhode Island offers bonus payments to MCOs in
  which most physicians test for lead. The most recent figures show that 79 percent of Rhode Island
  physicians do lead screening — four times higher than the national average. ¹¹
  
• Rewarding Results is a joint initiative of the Robert Wood Johnson Foundation and the California
  HealthCare Foundation with grantees in Michigan and California. Data are collected on six
  indicators: childhood immunization, cervical cancer screening, breast cancer screening, appropriate
  use of medication for people with asthma, LDL-cholesterol screening following cardiovascular
  events, and diabetes testing.
  
• Beginning in 2003, a coalition of large employers and health plans began to pay cash bonuses to
  physician networks in Boston, Cincinnati, and Louisville. The program, Bridges to Excellence, is a
  quality bonus model incentive plan and is funded by the Robert Wood Johnson Foundation and
  supported by the Federal Center for Medicare and Medicaid Services. The program is concentrating
  on diabetes care, cardiovascular care, and patient care management. Physicians qualify for an annual
  per-patient bonus (up to 10 percent of annual income) when they achieve targets. For example, a
  physician receives $100 per patient if he or she becomes a member of the American Diabetes
  Association’s Provider Recognition Program. Employers in this coalition include General Electric,
  Verizon Communications, Ford Motor Co., Procter & Gamble, and United Parcel Service.¹²
  
• Arkansas and Maine each have aimed to use information as incentives in their Medicaid primary
  care case management programs. Arkansas releases a “physician report card” so doctors can compare
  referrals, hospitalizations and emergency room use in their own practices to those of other primary
  care physicians. Maine’s incentive program measures rates such as well-child visits and
  immunizations and provides bonuses to doctors who demonstrate high performance.¹³
  
• Wisconsin has long been using performance measurement to guide purchasing and provide incentives
  for quality in child health. Perhaps as a result, four of the MCOs under Medicaid contract are among
  the top 15 performers nationwide, according to the National Committee for Quality Assurance. Note
  that Wisconsin withholds a portion of a health plan’s compensation if it does not meet screening
  standards for lead exposure, developmental problems or vision difficulties.¹⁴

III. Quality Standards to Monitor Child Health Services and Outcomes

An editorial in American Medical Association News in January 2003 commented that: “On the surface…
pay for performance has the potential, depending on the bonus structure, to align physician and payer
interests in providing the best care for the least cost. However, when it comes to pay for performance, the
question is: Who is defining quality?” At the same time, the Institute of Medicine has found that a lack of
consistency in measurement requirements, absence of standardized performance measures, and lack of a
conceptual framework to guide the selection of performance measures are key barriers to closing the
quality gap.

Sample Categories for Performance Measures/Goals

Post-workshop Summary

September 27, 2004

MEMORANDUM

This memo provides a summary of the key consensus points emerging from the workshop on pay-forperformance
in managed care purchasing as well as a series of “next steps” and possible strategies
identified by the participants. This workshop was conducted with support from the Health Resources and
Services Administration’s Maternal and Child Health Bureau and facilitated by Kay Johnson and Jeffrey
Levi under contract with HRSA.

Perhaps the most important consensus points were:

• A belief that pay-for-performance is achievable in managed care purchasing in Kansas,
  particularly for child and family health services.
• A belief that a pay-for-performance approach should provide incentives, rather than be punitive.
• A belief that key players in health care purchasing and delivery, both within the Medicaid system
  and beyond, need to be part of a continuing dialogue as discussions become more specific about
  implementation and to assure consistency in approach to pay-for-performance for all Kansans
  receiving third-party paid health care.

1. A pay-for-performance initiative should maximize the State’s purchasing power and take advantage of
   other related policy initiatives.

• While the focus of the discussion was on Medicaid and HealthWave managed care purchasing, it
  was recognized that the State purchases health services through a variety of mechanisms
  (managed care, primary care case management, and fee-for-service), through Medicaid and
  HealthWave as well as through other insurance programs, such as the State employee health
  insurance programs. It was agreed that to the degree possible, measures that established a single
  standard of care, regardless of purchasing mechanism, should be sought. Given the overlapping
  networks of providers among the various public and private insurance approaches, this could be
  achieved through targeted application of pay-for-performance approaches.
• There was general consensus among participants that initial efforts at introducing pay-forperformance
  in Medicaid and HealthWave might build on other initiatives that have received
  broad support in the State, such as the recommendations of the Blue Ribbon Immunization Task
  Force and independent efforts regarding disease management for conditions such as asthma.

2. Pay-for-performance should focus on providing incentives for providers, not punishing them.

• There was a unanimous belief among participants that a pay-for-performance approach will be
  most successful if it provides incentives to providers (e.g., enhanced payments or bonuses if
  certain performance targets or outcomes are achieved), rather than punishing providers who do
  not meet a certain standard.
• There was also support for a progressive approach to pay-for-performance – rewarding both good
  performance (i.e., achieving a particular standard) and rewarding improvement from a baseline
  for a provider.
• Participants also believed it was important to focus on provider performance both because the
  State uses only one managed care organization for children in Medicaid and HealthWave and
  because many providers see children on a fee-for-service (FFS) or primary care case management
  (PCCM) basis.

3. Introduction of pay-for-performance will need to be gradual to demonstrate its value to purchasers,
   providers, and consumers and to permit the building of an infrastructure (i.e., electronic medical record
   systems) necessary for effective pay-for-performance approaches.

• A short-term implementation step would be required participation by managed care pediatric
  providers in a State childhood immunization registry (consistent with the Blue Ribbon Task
  Force’s recommendations). This would serve an important quality objective (increasing
  immunization rates and coordination of immunization activities among multiple funders and
  providers) while also demonstrating to all parties the value of better data collection in assuring
  quality outcomes and more efficiently targeting various funding streams.
• One mid-term objective would be the development of consensus on measures related to child
  health performance. To develop consensus, key stakeholders (including more pediatric leaders)
  should be engaged in an ongoing process. Further examination of current performance on Health
  Employee Data and Information System (HEDIS), EPSDT, and external quality review
  organization (EQRO) data related to child health would be the basis for identifying measures. The
  group agreed on the importance of balancing preventive and high-impact acute care measures.
  They also identified mental health and prenatal care as areas likely to be challenging under a payfor-
  performance approach.
• Another mid-term objective would be the adoption of electronic medical records systems by
  providers participating in Medicaid and HealthWave. An electronic medical records system is
  critical to effective quality monitoring and improvement. It was suggested that using standards
  for well-child care could be used as the prototype. Funding to build this infrastructure among
  providers was identified as a critical issue; creative use of funding might be needed (e.g.,
  bioterrorism preparedness funds could be used since electronic medical records could enhance
  surveillance of new pathogens).
• The long-term objective would be to use electronic medical records to assure the “virtual”
  integration of various funding streams, so that providers could know where an individual patient
  or client is receiving services, regardless of payer, and so those services could be better
  coordinated and not duplicated.

4. More players need to be part of the discussion of pay-for-performance. It was generally agreed that
   for this approach to be successful, additional parties needed to be part of the discussion. Those mentioned
   include, but are not limited to (in no order of priority):

• Office of Health Planning and Finance
• Governor’s Office, Lt. Governor’s Office
• Kansas Medical Society
• American Academy of Pediatrics
• American Academy of Family Physicians
• State medical managers association
• Kansas Hospital Association
• State employee health plan
• Key legislative players
• Children’s health advocates
• Immunization program
• Blue Ribbon Task Force leadership

5. As the discussion of pay-for-performance for children in managed care moves forward, a number of
   strategic issues need to be addressed. These include:

• A broader discussion of the State’s expectations regarding quality is needed. What is the State
  willing to commit to in terms of new or redirected resources to assure greater quality and optimal
  performance is achieved?
• If women and children are the focus of initial quality efforts, a strong case needs to be made for
  the value of this targeting, given that greater costs to the State occur in providing for the disabled
  and long-term care.
• Why focus on preventive health issues rather than chronic diseases? Should the commitment be
  to linking pay-for-performance to both types of services?
• What data is now available that could be the basis for pay-for-performance?
• How do funding streams now meld at the provider and client level?
• One-pagers are needed for policy makers on the rationale for quality and pay-for-performance
  and why certain measures or populations are being targeted.
• More information is needed on what other States are doing in this area.

¹ Institute of Medicine. To Err Is Human: Building a Safer Health System. L. T. Kohn, J. M. Corrigan, and M. S.
Donaldson, eds. Washington, D.C: National Academy Press, 1999.
² Institute of Medicine. Crossing the Quality Chasm: A new Health System for the 21st Century, Washington, D.C:
National Academy Press, 2001.
³ Crossing the Quality Chasm, p. 193
⁴ Institute of Medicine. Leadership by Example: Coordinating Government Roles in Improving Health Care
Quality, Washington, D.C.: National Academy Press, 2002.
⁵ Webcast of Public Briefing: Leadership by Example: Coordinating Government Roles in Improving Health Care Quality.
⁶ Institute of Medicine. Priority Areas for National Action: Transforming Health Care Quality. K. Adams and J. M. Corrigan, eds. Washington, D.C.: National Academy Press, 2003.
⁷Deverich M. Pay for Performance. Washington, DC: PriceWaterhouseCoopers.
⁸National Health Care Purchasing Institute. Provider Incentive Models for Improving Quality of Care.
⁹Kaye N and Bailit M. Innovations in Payment Strategies to Improve Plan Performance. Portland, ME: National
Academy of State Health Policy 2000.
¹⁰Questions regarding the initiative should be directed to Ann Bowers of the Integrated Healthcare Association, email abowers@iha.org. Also see: IHA "Pay For Performance" Initiative History.
¹¹Griffin JF, Hogan JW, Buechner JS, and Leddy TM. The Effect of Medicaid Managed Care Program on the
Adequacy of Prenatal Care Utilization in Rhode Island. Am J Pub Health 1999; 89:497-501; Carrol-Silow S.
Building Quality into Rite Care: How Rhode Island is Improving Health Care for its Low-Income Populations. New
York: The Commonwealth Fund, 2003; Broussea, DC, Dansereau LM, Linakis JG, Leddy T, and Vivier PM.
Pediatric Emergency Department Utilization within a Statewide Medicaid Managed Care System Academic
Emergency Medicine 2002; 9:296-299.
¹² Endsley S, Kirkegard M, Baker G, and Murckko AC. Getting Rewards for Your Results: Pay for Performance Programs. American Academy of Family Physicians. 2004.
¹³ Governing, City & State 2000.
¹⁴Dyer MB, Bailit M, and Kokenyesi C. Are Incentives Effective in Improving the Performance of Managed Care
Plans? Princeton, NJ: Center for Health Care Strategies, 2002.