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California's new bonus programs: good news for doctors?

Will health plans truly reward physicians for quality or simply shift existing reimbursement to bonus pools?

From the March ACP-ASIM Observer, copyright © 2003 by the American College of Physicians-American Society of Internal Medicine.

By Phyllis Maguire

While California health plans have a long history of evaluating, measuring and profiling physicians, two new quality incentive programs have some doctors concerned.

The pay-for-performance initiatives slated to begin this year are far from the nation's first, but they are certainly the largest. They stand to affect tens of thousands of physicians as well as tens of millions of dollars.

Many physicians in the state say they support the idea of being paid for the quality—not just the quantity—of time they spend with patients. But some are concerned about the new incentives and how their practices will be affected.

They want to know, for example, what kinds of data will be used to measure performance, and whether those data will truly reflect what physicians do. Even more importantly, many wonder whether bonuses will come from "new" money, or if insurers will simply subtract funds from their already low rates and make doctors earn those dollars back as "bonuses."

The programs

One of the new initiatives comes from Blue Cross of California. The plan will begin paying quality bonuses to internists, cardiologists, pulmonologists and gastroenterologists in its preferred provider organization (PPO) network, which has 4 million members.

This year, 5,000 physicians in the San Francisco Bay area will take part in a pilot performance measurement program, with Blue Cross paying out the first bonuses sometime next year. Physicians will be measured on more than a dozen clinical indicators—how consistently they use lipid-lowering drugs, for instance, and how they manage major depression—and on preventive measures such as screening for breast, cervical and colorectal cancer.

The PPO plan will also consider factors like physicians' board certification status, their use of generic drugs and electronic billing, and the number of Blue Cross products they participate in.

Over the next three years, the insurer plans to roll out the program statewide to 15,000 physicians in its PPO network. Health plan officials say they plan to spend $1.1 million on awards in the next three years and pay bonuses of up to $5,000 a year to individual physicians.

Six of the state's health plans whose HMOs cover a combined 8 million members announced an even more ambitious initiative. The HMOs intend to pay bonuses to the 275 medical groups and independent provider associations (IPAs) in the state that have risk contracts with the HMOs. (The participating plans are Aetna U.S. Health Care, Blue Cross, Blue Shield, Cigna Healthcare of California, Health Net and PacifiCare Health Systems.)

The program will measure how well physician groups and IPAs care for diseases like asthma, diabetes and coronary artery disease; how they use preventive measures like mammograms and Pap smears; and how patients rank them on satisfaction surveys. The program will also reserve 10% of each groups' bonus score to reward them for purchasing electronic medical record software and other information technology. (More about the bonus awards is online.)

While the HMO initiative will begin measuring physician groups this year, the first bonuses will be paid in the middle of 2004. The collective pot will contain up to $100 million in the first year.

"The idea behind the initiative was to have enough scale to get medical groups' attention," said Beau Carter, executive director of the Integrated Healthcare Association (IHA), a nonprofit consortium of California health plans, health systems and large medical groups that crafted the HMO initiative. "For many of these IPAs, these six HMOs represent 100% of their capitated revenue."

'New' money?

Many of the large medical groups that helped design the HMO initiative say they feel confident they will be able to earn substantial bonus awards. But other physicians wonder whether health plans can make these incentives work and how insurers will fund the bonus programs. Will insurers devote "new" money to bonuses or simply withhold some money they already pay physicians, making doctors work harder to earn what used to be part of their base pay?

San Francisco general internist Toni J. Brayer, FACP, will be eligible for the HMO incentives because she belongs to a large IPA that contracts with the participating HMOs. She said she hopes the insurers will use the new HMO bonus program to share the wealth they've received from huge premium hikes.

But "if they're just dividing up the same old pie, it's not going to work," she said. "I can't afford to lose the money I need to pay my receptionist just because a patient decided not to take an ACE inhibitor."

Blue Cross officials say that the $1.1 million it plans to spend on its initial PPO program will not come from basic payments that physicians would have to "earn back." But physicians counter that the Blue Cross PPO program is one of the lowest-paying products in the state. Dr. Brayer, for instance, has already dropped out of the Blue Cross PPO network "because reimbursement is too low," she said. She now sees Blue Cross PPO patients—for more money—as an out-of-network physician.

The HMO initiative's $100 million, however, is not all new money, said IHA's Mr. Carter. While groups that do well with the awards will make out better financially than under their former strict capitation model, he said that the program aims to redesign the way insurers pay physicians.

Five years from now, he said, he envisions physician groups in the state receiving a base rate for patient services and a bonus that, until now, has been part of their base pay. "The difference will be that medical groups will have to earn it," Mr. Carter said. "It won't be a guaranteed payment anymore."

That new payment structure could be disastrous for some groups, warned Martin L. Serota, ACP-ASIM Member, president of Alliance Medical Group in Pinole, Calif. He said that putting 10% of a group's basic pay at risk as a bonus may "sink" many practices, particularly when some insurers already pay 30% under market. Making groups wait for an extended period to receive bonuses, he added, will only make their bad financial situation worse.

"I'm not confident these programs will increase overall revenue to practices," Dr. Serota said. "And with bonus funds having an 18-month float, I think you'll see more California groups go under."

Getting it right

Other physicians worry about the kind of data the programs will use to rank—and pay for—physician performance. Some are concerned, for instance, that both programs will use only administrative data from claims databases to measure physician performance instead of pulling patient charts.

According to James. L. Naughton, ACP-ASIM Member, Alliance's medical director, bonus programs that use only administrative claims and encounter data can miss a great deal of detail. In capitated systems, he pointed out, radiologists routinely save money by not submitting mammogram claims, since they've already been paid for them, while pathologists similarly don't submit claims for Pap smears. As a result, "claims databases tend to grossly underestimate [groups'] mammography and Pap smear rates," Dr. Naughton said.

Those are instances where using chart data would be more accurate, but in other cases, he pointed out, the claims database might provide a more complete picture.

Ophthalmologists, for example, submit claims for diabetic retinopathy screening, but they can be lax about sending back referral letters. If the patient chart is pulled and that referral letter is missing, he said, the referring physician wouldn't get credit for the procedure. To truly judge physicians' performance, Dr. Naughton said, health plans need to comb data from both charts and claims.

Risk adjustment is another big concern, particularly for internists. The HMO incentive program will not adjust its clinical measurements to take into account how sick patients are, according to Mr. Carter from the IHA. In the future, however, the program will address severity, he said, and it will not rank heart disease care for groups that have less than 35,000 commercial HMO enrollees. "That would be too small a sample," he said.

Because the Blue Cross PPO program will focus on individual physicians instead of groups, risk adjustment and sample size could be even more crucial. While most employers are eager to track the outcomes of individual physicians, researchers say that data from individual practitioners are often unreliable.

A study on individual physician profiling published in the June 9, 1999, Journal of the American Medical Association, for example, found that most primary care physicians see fewer than the 100 diabetics needed to reveal reliable differences in diabetic care. The article also pointed out that individual doctors could easily manipulate the profiling system if they stopped seeing their one to three patients "with the highest hemoglobin A1c levels." (The article is online.)

A moving target

William Chin, MD, executive director of Healthcare Partners in Los Angeles, the state's second largest medical group after Kaiser Permanente California, said his group will probably participate in both incentive programs.

He added that the proposed quality indicators have some flaws, but they are headed in the right direction. "We need to pay more for performance, not just for a transaction," he said.

In response to the HMO incentive program, Dr. Chin said that small groups are for the first time talking about investing in electronic medical record software to improve their scores. "The incentives are changing our investment philosophy," he said. "That's a good thing."

Alliance Medical may take part in the Blue Cross PPO pilot program, depending on the program's final details. While the group is no stranger to quality indicators—it has profiled its own physicians for five years and pegs some of their yearly income to quality performance—its physicians remain wary of incentive programs run by health plans.

Many of the programs are "a moving target," Dr. Serota said, recalling the utilization incentives insurers dangled in front of medical groups in the 1990s, sending them scrambling to compete for utilization withholds. "We invested in hospitalists and utilization nurses to give health plans what they wanted," he said. While that infrastructure remains valuable to his practice, he added, some health plans no longer provide financial incentives to maintain it.

Dr. Naughton raised another concern: If the average patient changes health plans every two and a half years—a typical timeframe for California patients, he said—how reliable are performance data from any one plan anyway?

With that kind of turnover, Dr. Naughton claimed that employers should look to medical groups, not health plans, for long-term data. "We keep on treating the same patients even when they cycle through insurers," Dr. Naughton pointed out. "To me, it makes more sense to have the leadership on quality incentives reside with medical groups rather than with health plans."

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Why is California leading in pay for performance?

While health plans all across the country have launched pay-for-performance plans, California's two new initiatives eclipse those efforts in terms of the number of physicians, patients and dollars involved. Experts point to several reasons why the potentially far-reaching initiatives are coming out of the Golden State.

For one, the state has more large, well-run medical groups than any other state, said Lawrence P. Casalino, MD, an assistant professor in the health studies department of the University of Chicago who has researched financial incentives. "These groups have the size and potential to collaborate on a new initiative," he said—and they're large enough to make the kind of infrastructure investment needed to get bonus awards.

California also has one of the nation's most progressive—and powerful—employer health care coalitions. For more than 10 years, the Pacific Business Group on Health (PBGH), which represents more than 40 purchasers who together spend $3 billion on health care a year, has used its muscle to push for performance measurement and reporting. PBGH and PacifiCare Health Systems, a large health plan, were two of the first entities in the country to compile and post medical group report cards.

David S. Hopkins, PhD, PBGH's director of quality measurement and improvement, said that employers used to think that practice report cards would reward groups. The groups with the best scores, the thinking went, would attract more patients, thereby boosting their revenue and profit.

Lately, though, that thinking has changed. "More patients isn't the whole answer," he said. "Groups that perform well deserve and need to be paid more."

An even more basic motive led six of the state's largest HMO plans, with input from large medical groups in the state, to band together to create a pay-for-performance incentive plan: competition.

Kaiser Permanente California, which has more than 6 million members in the state, has rebounded from heavy financial losses, boosted enrollment, invested more than $1 billion in information technology and generally wowed employers with disease management and preventive screening figures.

The whole idea driving the HMOs to cooperate was "to strengthen the non-Kaiser model," said Steve McDermott, chief executive officer of Hill Physicians Medical Group Inc., a large independent provider association based in San Ramon and a member of the consortium that helped design the HMO initiative. "Otherwise, Kaiser was just going to keep pulling farther ahead."

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