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Pay for Performance Pays off in 50,000 Fewer Deaths


Rarely does the federal government hand physicians a tool that makes life a little better. That’s what OIG Opinion 12-22 does, and now data backs up the theory.

HHS issued a glowing report on December 2, crediting itself and its healthcare partners with 50,000 lives saved, 1.3 million fewer iatrogenic patient injuries, and $12 billion in health spending saved.

“Today’s results are welcome news for patients and their families,” said HHS Secretary Sylvia M. Burwell. “These data represent significant progress in improving the quality of care that patients receive while spending our healthcare dollars more wisely. HHS will work with partners across the country to continue to build on this progress.”

Since the Affordable Care Act's enactment in 2010, HHS’ mandate has been to change the model from fee for service (FFS) to pay for performance (P4P). HHS is now focused on improving the coordination and integration of healthcare, engaging patients more deeply in decision making, and improving the health of patients - with a priority on prevention and wellness.

This is also very good news for physicians.  In the Office of Inspector General (OIG) Advisory Opinion 12-22, the OIG issued a favorable opinion on compensation bonus agreements between physicians and facilities that partner to improve patient outcomes. The partners are permitted to share in performance bonuses if certain outcome metrics or benchmarks are met. The HHS report on December 2 tends to support the conclusion that these “comanagement” P4P agreements actually work.

Critics will certainly argue along the lines of the famous Ronald Coase observation, “If you torture data long enough, it will confess to anything.” This may be one time, however, when it is OK to be less philosophical. Rarely does the federal government hand physicians a tool that makes life a little better.  That’s what OIG Opinion 12-22 does, and now data backs up the theory, with numbers showing lower program costs, lower injuries and deaths, and greater patient satisfaction.

Under a typical FFS model, a physician is usually compensated separately for the professional component, while a facility is compensated for providing the technical or facility component. Often, the facility fee is much higher. Sharing some of the facility fee with the doctor could constitute illegal remuneration. On the other hand, P4P models don’t work if physician compensation is limited to the time and effort spent performing a procedure, and not upon management duties aimed at improving quality and outcomes at the facility. Comanagement agreements recognize that the physician can become more active in reducing bad outcomes, and should be compensated for implementing quality-of-care initiatives.

Comanagement arrangements must nevertheless be carefully structured. Under the comanagement agreement in Advisory Opinion 12-22, the physicians’ group provided management and medical-direction services for a cardiac catheterization lab in exchange for a comanagement fee comprised of two components: (1) a guaranteed, fixed payment per year (the “fixed fee”), and (2) a potential annual performance-based payment equal to a maximum per year (the “performance fee”).

The OIG likely did not issue this favorable advisory opinion as an act of pure kindness.  I envision that writing Opinion 12-22, favoring a compensation plan between physicians and a facility was, for the OIG, a bit like pulling teeth.

It simply stands to reason, however, that “pay for performance,” requires two things: (1) “pay,” and (2) some method of measuring “performance.” Thus, the OIG had to approve of sharing compensation between the facility and the physicians.  Happily, the data suggesting 50,000 lives saved, means the OIG and HHS got one right this time.

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