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Pay-For-Performance May Not Be As Promising As Once Thought

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A key provision of the federal health care reform law will be enacted in about six months imposing financial incentives upon hospitals that provide quality care and high performance — and penalties for those that lag behind.

Two new articles by Weill Cornell Medical College researcher Dr. Andrew Ryan and published in the New England Journal of Medicine and Health Affairs that examine pay-for-performance programs cast doubt that such incentive program will have any significant effect in advancing patient quality and care.

Dr. Andrew Ryan, the Walsh McDermott Scholar in Public Health and an assistant professor of public health at Weill Cornell Medical College

"As a policy researcher, you hope you can make a contribution to our national discussion about what works and what kinds of policies you can put into place that affect the health of our system," said Dr. Ryan, the Walsh McDermott Scholar in Public Health and an assistant professor of public health at Weill Cornell. "The intent is in the right place, but it's very important to understand empirically if something that looks like a good idea, is in practice a good idea."

At issue is the Centers for Medicare and Medicaid Services' Value-Based Purchasing Program, a pay-for-performance program included in the reform law that upon implementation in October will reward and penalize hospitals based on their quality performance and quality improvement.

Hospital pay-for-performance has evolved over the last decade, with the Centers of Medicare and Medicaid Services implementing a major hospital pilot program in two phases. The first phase, beginning in 2003, rewarded only high performers and showed promising results, while the second phase, beginning in 2006, increased incentive payments by 50 percent and included the three tiers of incentives that are similar to the incentives in Value-Based Purchasing.

In a study published in the April issue of Health Affairs, Dr. Ryan and Weill Cornell co-investigators Dr. Jan Blustein and Dr. Lawrence P. Casalino delved into the two phases of the pilot program and used publicly reported data on quality measures related to heart attack, heart failure and pneumonia from Medicare's Hospital Compare to determine how hospitals' quality improvement changed in the second phase of the pilot program after the financial incentives had changed. Specifically, Dr. Ryan, Dr. Blustein, professor of health policy and medicine at the NYU Wagner Graduate School of Public Service an adjunct associate professor of public health at Weill Cornell, and Dr. Casalino, chief of the Division of Outcomes and Effectiveness Research and the Livingston Farrand Associate Professor of Public Health, wanted to know if the restructured financial incentives in the second iteration resulted in greater quality improvement and if they stimulated quality improvement among low performers.

They observed that the overall rates for improvement in the second pilot flat-lined compared to hospitals not in the program and compared to the first program, and in some cases even decreased. Moreover, the lower performing hospitals did not respond any differently to the incentives established to directly target quality improvement in the second iteration.

"This research leads us to question whether hospitals are likely to respond in a meaningful way to similar incentives in the Value Based Purchasing program," Dr. Ryan said. "Can we expect these programs to really have an impact on quality of care if they are structured in a way that is similar to that of the pilots?"

Dr. Ryan and Dr. Blustein built upon these findings in a "Perspective" article published this week in the New England Journal of Medicine. They argue that while pay-for-performance was started as a good idea, the evidence suggests that there isn't a direct response to the financial incentives.

"I'm frankly not very optimistic that, as it is currently structured, hospital pay-for-performance is going to make much of an impact," Dr. Ryan said. "I don't see it having a substantial impact on quality of care."

Dr. Ryan and his colleagues recognize that pay-for-performance is not going away anytime soon, making it even more essential to make the program as good as it can be. Pay-for-performance may not be successful on its own, but it could be part of the solution if there is a wholesale revision of the health care delivery and payment systems that moves away from fee-for-service and embraces bundling.

"Pay-for-performance can be part of the answer if designed properly within the larger issues of health reform," Dr. Ryan said. "If we can move away from fee-for-service and towards bundling, I think that's good. It puts the incentive in the right place and pay-for-performance will be something that keeps an eye on quality."

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