P4P is Dead. Long Live P4P!

Robert_wachterRobert Wachter coined the
term “hospitalist” in an influential 1996 essay in The New England
Journal of Medicine.  Dr. Wachter
is Professor and Associate Chairman of the Department of Medicine at the University of California, San Francisco. He currently serves on the healthcare advisory boards of a number of technology companies, including Google and Intellidot.  His most recent book, Understanding Patient
Safety, (McGraw-Hill, 2008) examines the factors that put patients at risk in American hospitals.
His posts appear semi-regularly on THCB and on his own most excellent blog “Wachter’s World.”

(pay for performance) is all the rage in healthcare. And why not? In
the face of the damning evidence
that we “get it right” only about half the time, criticizing linking higher payments to better care seems frankly un-American.

And there is accumulating evidence that P4P may work. A study
earlier this year by my friend Peter Lindenauer found that P4P led to
about a 3 percent improvement in quality measures (compared to public
reporting alone) over two years. The Centers for Medicare &
Medicaid Services (CMS) surely believes in it, promoting their P4P
experiments at every turn. And where CMS goes, private payers usually

But P4P is really tricky. As in…

  • How much do you pay for better performance? In most industries,
    bonuses of less than 5-10% are felt to be all-but-meaningless. But few
    believe that P4P bonuses will be more than 5%, because…
  • Where does the money come from? The UK National Health Service’s P4P experiment appeared to be going swimmingly until a smart actuary noticed that it was busting the NHS budget.
  • In fact, given budgetary realities, the bonuses for the winners are
    surely going to come from lower payments to poor performers. But what
    happens when safety net hospitals are forced out of business by the
    cuts needed to generate bonuses for well-heeled hospitals?
  • How can you be sure that you’re not skewing priorities
    inappropriately (like spending more energy on giving pneumovax to
    hospitalized patients – an element of the P4P program, but one with scanty supportive evidence – than on discharging them safely).
  • Finally, do you pay the top performers or the top improvers? I like
    to ask this question when I lecture on the topic: “There’s a terrific
    hospital that began at the 90th percentile and stayed there. Then there’s another, a plucky improver that started at 10th percentile and improved to 40th.
    Which one gets the bonus?” The audiences always split 50-50, which
    means that the (relatively wimpy) P4P payment will have to be split, in
    the best Solomonic tradition, as well.

The Lindenauer study has been characterized as being mildly supportive of P4P. It was, but it – together with a prior New England Journal study – also provides the biggest surprise of the quality movement. Here it is:

Transparency, via public reporting, works incredibly well, despite the fact that there is little evidence that patients are looking at or acting on the results!

This raises the key question about P4P, one that I don’t hear many
people asking. Not, “Does P4P lead to improvement?” but rather, “Is any
additional improvement that P4P generates above that generated by
transparency alone worth all the administrative hassles and political

I’m guessing that the answer will be “no”. Does that mean that P4P is dead?

Far from it.

At my hospital, staff – including the residents – now receive
bonuses when the organization performs well on the publicly reported
quality measures. And, throughout the country, I see more and more
senior leaders wading into the quality bonus pool.

What’s going on here? Basically, transparency is generating terrific
social pressure within healthcare organizations, both from the
embarrassment and shame that accompany poor scores and the elation that
accompanies good ones. This pressure, in turn, is leading institutions
(now hospitals, soon group practices) to figure out how to improve
their performance. Everyone begins these efforts without P4P –
buying bagels for the docs, distributing glossy newsletters – but
sooner or later, most will feel the need to put some “skin in the
game.” At that point, bonusing (determined by local rules and
distributed through local channels) for better quality performance will
become nearly ubiquitous. All driven by public reporting.

And I think that’s a good thing. I trust the hospital or the
multispecialty group to thoughtfully move money around – respecting
local conditions and culture and being careful not to do something
silly and harmful – more than I do a 3rd party payer with an arms-length relationship to providers and patients.

So long live P4P! But before payers roll it out everywhere, let’s
give public reporting and transparency a chance to generate versions of
P4P within healthcare organizations. I suspect that it’ll work better.

EDITOR’S NOTE: You’ll find more excellent posts by the talented Dr. Wachter on his blog, Wachter’s World.

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