Growth Strategies: Paying to Play

July 15, 2006

Medicare and many private insurers have been marketing their pay-for-performance programs as “free money” for good doctors. But beware hidden costs.


When A. O’tayo Lalude’s name appeared in U.S. News & World Report and Business Week touting his part in a high-profile pay-for-performance program last year, his phone started ringing.

Yes, this is a great idea. Yes, the measures are achievable. Yes, I was paid extra, the Louisville, Ky., primary-care physician would say to his colleagues. Potential patients, particularly those with diabetes, also phoned Lalude, raising his practice’s patient volume.

Lalude did well with the initiative, earning $100 per diabetic patient enrolled. But what wasn’t clear from the buzz and hoopla was that he had to pay almost $400 to the National Committee for Quality Assurance (NCQA) just to participate in its Diabetes Physician Recognition Program.

Also somewhat obscured was the fact that only seven of his patients were in the program, which is funded by a nonprofit business group called Bridges to Excellence (BTE).

BTE is the nation’s largest employer-funded pay-for-performance program - or P4P, as it is often called; it has been embraced by Humana, Aetna, Cigna, United HealthCare, and a number of BlueCross/BlueShield plans. The program rewards physicians who meet NCQA criteria for diabetic and cardiac patients as well as those who implement information technology through an initiative called Physician Office Link.

A solo practitioner, Lalude uses paper charts, which makes it difficult to extract the data necessary to demonstrate that required clinical benchmarks are indeed being met. In his case, however, he says the data for his seven patients were compiled by a nurse from the program who personally came to his office, pulled the charts, and reviewed them.

That has all changed. Now that he has moved into the second phase of the program and his two-person staff is compiling the data, Lalude estimates he has spent about $10,000 revamping his check-in procedures, changing coding processes, altering forms, and implementing a call-back system that enables him to track whether patients see him regularly and keep their appointments with specialists.

Lalude bristles a bit as he notes that P4P programs often put a financial microscope on docs like him rather than on more well-heeled specialists.

“I still find it difficult to buy gas on occasion,” Lalude says. “And the cardiovascular surgeon I work with is buying a new Mercedes.”

Lalude is on the front lines in the brave new world of P4P. As employers, healthcare coalitions, and government payers continue to refine P4P programs and hunt for new models, the experiences of physicians such as Lalude are instructive.

While large groups can more easily comply with these programs’ requirements, it’s small physician practices such as Lalude’s that represent the bulk of care delivered to Americans today. Whether these programs are actually financially worth it for docs like Lalude is open to debate.

“The truth is, there is no foolproof, everyone-is-going-to-be-happy [P4P] methodology that is easy to implement, always accurate, and doesn’t cost us anything,” says Michele Johnson, senior government affairs representative for the Medical Group Management Association (MGMA).

For physicians, much of the expense associated with P4P comes from staff time and expertise, which may be incalculable - making return-on-investment (ROI) analyses challenging. The fact that there are so many different P4P models only makes it more difficult for physicians to determine whether the programs are worth joining.

Health plans and employers, however, have a much easier calculation, as we shall see.

Changing requirements adds stress


P4P programs are becoming more popular by the day, as Congress, private payers, Medicare, employers, health plans, and others promote the trend.

Med-Vantage Inc., a San Francisco-based health informatics company specializing in P4P, last year identified 107 programs nationwide, covering some 50 million Americans, up 25 percent from 2004 and more than triple the 2003 number.

But as the number of P4P programs has grown, so too has their variety, leading physicians to complain that complying with more than one program is difficult and costly.

“The biggest concern is that people don’t know what they are getting into” with a P4P program, Johnson says.

That also reflects the shifting nature of the programs themselves. P4P sponsors are struggling with which physicians to measure. According to Med-Vantage, half the P4P programs in 2003 were limited to primary-care physicians. In 2004, more specialists were included - 68 percent measured both specialists and primary-care physicians. But that figure dropped to 55 percent last year.

Most programs judge physicians based on HEDIS data (87 percent), but they don’t stop there. Nearly half also use clinical and administrative measures they dream up on their own, and 32 percent use patient surveys. A quarter have also thrown in measures that come from the BTE program (which incorporates NCQA measures), as well as a variety of other sources, including the American Medical Association, specialty societies, and other national quality groups.

What is measured is also changing, so perhaps by the time your patients are happy, for example, your health plan or employer group will no longer be paying attention - or will be focused on something different.

In 2003, 79 percent of plans measured patient satisfaction, but that fell to 56 percent in 2004 and dropped again to 37 percent last year. Twelve percent measured patient safety in 2005; none did in 2003 or 2004.

The use of “efficiency grouping software,” Johnson says, is a newer and more obscure method of assessing physicians. The software creates an “episode” of care for each diagnosis, adjusted for stage and severity, and then estimates an expected average cost for treatment. Johnson says the rub is whether the severity is correct and the sample size is large enough to calculate an accurate cost.

The result can be a financial penalty for physicians and patients. The plan would use various methods to “steer” patients to physicians with high ratings - helping grow their practices. In contrast, “it will cost the patient more” to see those with less than favorable scores, Johnson says.

Tinker, tinker

Primary-care doctors that contract with CareFirst BlueCross/BlueShield, based in Owings Mills, Md., are being measured this way. HMO physicians are paid 90 percent of the fee schedule and can earn up to an additional $4.50 per member per month depending on their score on a 100-point, 11-measure P4P program.

Ten of the 11 measures are easy to achieve. For example, taking new patients gets you five points. So does having extended hours and submitting claims electronically. But those 10 measures together account for only 60 percent of possible earned points. The final measure is worth 40 percent.

The 11th measure rates physicians based on a “resource use scale,” which is “weighted by … specialty episodes of care,” according to the plan.

But, indicative of the blowing winds in P4P, CareFirst is likely to abandon this program in exchange for something patterned after BTE.


CareFirst is in its second year of a $3.6 million, three-year BTE pilot program that includes 22 of its primary-care practices. In the first year, individual physicians were eligible for $20,000, while practices could earn a maximum of $100,000.

The program started with 30 practices that CareFirst carefully selected. Eight of those were unable to reach the program’s goals for the first year, says Ann Doyle, manager of quality improvement and patient safety.

“It is work. I am not going to minimize that,” Doyle says. “It does involve setting up systems, [changing] how they track their labs. … To a lot of practices that sounds like things they do every day, but they don’t really have a formalized process to make sure it happens on every patient, every day.”

Your fair share

Health plans are typically mum about whether - or how much - they gain financially from P4P programs. A small percentage offer “shared savings” to participating physicians, but it is a rare plan that reveals the percentage it keeps for itself.

Big savings have been documented, however, for employers participating in P4P programs. BTE officials report that the diabetes care program, which Lalude participates in, saves employers $350 per patient with a cost of $175 (including physician payments).

The cardiac program costs employers $200 per employee and yields savings of up to $390 per patient.

Some physicians have reported big P4P payments, but they are typically in large practices, and most - if not all - have an EMR. For specific examples and more information on how to pick a P4P program, see “Show Me the Money” in the February 2006 issue of Physicians Practice, or read it online at www.PhysiciansPractice.com.

Less is known about how physicians fare individually or in small groups under P4P programs, and the physicians themselves don’t seem to know either. Last March, in an MGMA Web survey, only 21 percent of physicians said they’d “had any experience with private-sector pay-for-performance programs.”

Sixty-five percent indicated they “did not know if their participating health plans offered pay-for-performance programs or had plans to do so,” the findings show. Following the survey, MGMA developed a P4P toolkit for members, including the group’s principles for such programs, a complaint form to report any programs that don’t seem up to snuff, and contracting tips. The toolkit is available at www.mgma.com, on the Tools page of MGMA’s members-only section.

Lalude didn’t conduct an ROI analysis to see if he should join the BTE program. He knew the financial incentive was small, but he figured national publicity might help his practice. Lalude used the $700 bonus he received to pay for his continuing medical education.

“The cost [of P4P programs] is so amorphous. It is subtle. The cost is your time, your energy,” he says. Another cost to consider? “You might lose your employee who says, ‘I don’t want to do this.’”

But he can name one other possible benefit - Lalude noticed that his claims have rarely been denied over the two years he’s participated in the program.

Because so many health plans are involved in P4P programs, many physicians are already being measured, and their compensation is being adjusted accordingly. “It is quite possible [physicians] have been receiving reports for two years and throwing them away,” says Kathleen Curtin, Med-Vantage vice president for client services.

It’s time to pay closer attention, she says, especially as plans begin to shift from claims-based P4P programs to those based on clinical data. And don’t just accept the “bonus” that’s offered by a plan, nor presume that it is adequate to cover your costs, she adds.


Physicians should become more aggressive about asking P4P program sponsors to explain the savings that the plan or employer expects to reap if the physician meets the goals. “We save you money, and we want part of it,” should be the attitude, says Curtin. “Use it as a bargaining chip.”

Theresa Defino can be reached via editor@physicianspractice.com.

This article originally appeared in the July/August 2006 issue of Physicians Practice.