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Saturday, February 02, 2008

Nice Try but No Cigar

On the one hand, we would rather think of health care as ministry rather than as business.

On the other hand, we know that the health care system responds to financial incentives and would like to use them to improve quality and control cost.

So we keep trying to have it both ways.

Sometimes it works. For a time, Medicare payments to hospital were based on cost. In the 1980’s it changed its system and started paying a flat amount per admission, based on the patient’s diagnosis. Sure enough, the length of stay came down and hospitals started to do something about excessive utilization of lab, x-ray and other services.

The latest stratagem is called Pay for Performance or P4P for short. Under P4P, a provider that meets or exceeds defined performance standards gets paid extra. Medicare is making noises about doing that, with the reward being in the range of 2% to 5% of regular payment.

I have my doubts about P4P. For one thing, we are paying too much for health care already and P4P sounds like paying even more. Then I see that Medicare wants to avoid that by doing P4P on a “budget neutral” basis. It proposes to hold back part of what it ordinarily would pay, and then release the “bonus” only to providers who meet the performance standards. That sounds more like Penalty for (Inadequate) Performance.

Supposedly, the idea of P4P is to improve quality. But the extra payment is based on meeting specified standards, which can be a very different thing. Hospitals can be very good at meeting the letter of the law while ignoring its purpose.

Finally, there are the costs of collecting the data needed to prove compliance with the standards, which some already claim eat up most or all of the financial reward.

So here’s my verdict on P4P:

Nice try, but no cigar.

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