IOM report: Medicare should switch to P4P

A recent Institute of Medicine (IOM) report recommends that Medicare gradually replace its current fee-for-service payment system with a new pay-for-performance system for its 42 million beneficiaries.

However, since pay-for-performance doesn't yet have an established track record, the committee recommended that it be phased in to avoid unintended consequences.

Here are other recommendations from the IOM report:

  • For an initial period of three to five years, Congress should reduce base Medicare payments across the board and use the money to fund rewards for strong performance.
  • Large organizations that already have the capacity to begin participating in the pay-for-performance system should be required to do so as soon as it is launched.
  • A reduction in base payments should be used to fund bonuses initially, while exploring long-term solutions such as savings generated by improved efficiency and cost-reducing reforms.
  • To increase the likelihood of participation by as many health care providers as possible, give significant rewards to those who improve their performance, as well as those who meet or exceed designated thresholds of excellence.
  • Offer incentives to encourage providers to submit data, since obtaining technology and skills needed to collect and submit performance data could impose a burden.
  • Make data publicly available to patients and stakeholders.

The IOM report represents a significant development for the future of pay-for-performance, says Steven A. Schroeder, MD, chair of the IOM committee and distinguished professor of health and health care at the University of California, San Francisco. "The report presents a snapshot of where we are at the present time," he says. "The fact that it was commissioned by Congress indicates how serious Congress is about pay for performance."

Very little hard data on the effects of pay-for-performance systems are available — over 100 incentive programs have been launched in the private sector in the past few years, but few studies have assessed the impact on quality of care, say the researchers.

However, pay for performance has demonstrated enough promise based on early experience, to justify its being pursued in a way that allows for adjustment as needed, says Schroeder. "Pay for performance is just one part of the solution. Other interventions will be needed to achieve the level of quality that Medicare patients deserve," he adds.

Medicare will likely go forward with a pay-for-performance program, possibly along the lines suggested by the IOM report, says Schroeder. "How quickly it will proceed will depend on the new CMS director, the seriousness with which Secretary Leavitt views this issue, the pressure it receives from Congress, and the pace of parallel developments in the private sector," he adds.

The report is one more piece of evidence of growing interest among federal officials about ways to improve quality, says Schroeder. Hospital-based professionals should read the report carefully, understand what will be measured currently and what is likely to come online in the near future, he recommends.

Quality professionals should get a sense of the implementation issues they will face, share these with senior leaders at their institutions, assess how well positioned they are to implement pay for performance, and be ready to discuss its merits and challenges with clinician colleagues, says Schroeder. "They should also monitor the performance of their institution, because public reporting will become increasingly important," says Schroeder.