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No Pay for Non-Performance in Healthcare?

by Scott MacStravic

The majority of pay-for-performance systems offer bonuses for healthcare providers that adhere to treatment guidelines and best practices.  In many cases, there are specific outcomes included, such as patient satisfaction, cost reduction, and reduced infections.  This “carrot” approach is intended to reward providers that improve or maintain high quality and efficiency, as defined and measured by specified criteria.

But just as is the case with P4P systems that apply to individual behaviors and health status, there are a growing number of “sticks” being added to systems that apply to providers.  Medicare, for example, has frequently included “budget neutral” policies in its P4P programs, where the extra payments for high-performing providers comes out of the payments for low-performers, in order to keep the total payments the same as usual.

Payers are also beginning to refuse to pay for the care required to address “never events” in medical care, such as wrong-site surgeries.  They argue that when providers cause costs to increase, often dramatically, by making serious errors in patient care, they should not be rewarded for such errors by getting increased payment over what would have been paid had there not been such an error.  While this makes eminently good sense, and will generally not harm providers dramatically, given the rarity of “never events”, this policy could end up having dramatic impact, as the definition of such events changes.

If payors decide that providers should not be paid for what amounts to careless or unsafe practices, for example, rather than egregious mistakes such as wrong-site surgery, they could save significant amounts, while providers could be severely affected.  Already lists of non-payable problems have been created that include quality failures such as decubitus ulcers in inpatients, for example.  The case can certainly be made that such conditions should not occur, since good care should prevent them among bedridden patients, but the effects of non-payment would be far greater than for truly egregious errors.

A recent study, for example, found that hospital-based or “nosocomial” infections have cost between $200 million and $473 million in the state of Massachusetts alone.  This includes extended inpatient stays, and additional costs of treatment for such infections.  While the recommendation accompanying the report calls only for hospitals to publicize their infection rates, it would take little for payors to decide to include them among the events for which they will no longer pay.  In such a case, payors could save hundreds of millions of dollars in dozens of states, and hospitals could be seriously hurt as a result. [“Infections Acquired at Massachusetts Hospitals Cost up to $473M Annually, Report Finds” Kaiser Daily Health Policy Report Aug 10, 2007 (www.kaisernetwork.org)]

Even publishing the different performance levels achieved by providers could severely damage low-performers, by causing patients, providers, and payors alike to avoid doing business with them.  This has been one of the expectations of the “Buy Right” concept originated in the 1970s, though the effects of publishing performance data has, thus far, been minimal.  With more costs and responsibility for sickness care use management being shifted to consumers, and easy Internet access to performance data, the effects of publishing comparative performance may become significant in the current and future system.

Any “punishment” of providers for poor performance will have at least two effects: 1) making it that much more essential for them to correct mistakes and improve poor performance; and 2) depriving them of resources that may be needed to do so.  With many hospitals and physician practices operating at or below minimal survival levels in terms of revenue vs. expense, significant cuts in payment could easily drive them out of business before they are able to improve.

For those who favor a “free market” approach to healthcare reform, this would be a consummation devoutly to be wished, rather than a negative effect.  But when poor performers are the only available or accessible source of care for particular communities or sub-populations, their going out of business would not always be an overall improvement in their healthcare system.  With individuals, “capital punishment” is reserved for relatively rare and truly egregious behavior, not merely lower than average performance, but with healthcare organizations, there could be a far higher percentage of providers so “punished”.

There is also the risk that payors could find the refusal to pay for “never” events could become overly attractive, since it reduces their costs and improves their profits.  In such a situation, the free market may favor payors too much, and cause overly aggressive definitions of such events, and even greater reductions in payment levels, since payors are competing with each other to keep their costs down.  It will always be a temptation for payors to choose not to pay enough for providers to survive, witness the severe underpayment compared to providers’ operating costs that is already the case for Medicare and Medicaid, where these payors can simply dictate how much they will pay.

While carrots and sticks are often effective combinations in achieving improvements in individuals’ behavior and organizations’ performance, the stick carries with it some side effects that should warrant extreme care in its use.  While there may well be a number of hospitals, as well as physicians and other practitioners that should not continue to deliver care, the potential that “No Pay for No Performance” could do significant harm, as well as good, should not be ignored in either public policy or private payment.

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[…] I wrote the blog piece posted on Aug 15 about “non-payment for non-performance”, little did I realize how prophetic it was.  In […]

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