Why health care’s flawed ‘pay for performance’ model needs rethinking

Published on
June 30, 2016

Two leading health policy experts zeroed in on problems with Medicare’s “pay for performance” model in a Center for Health Journalism webinar Tuesday, arguing the current incentive-based reimbursement system isn’t significantly improving care or curbing spending. 

Despite Obamacare’s emphasis on using payments to incentivize better care, pay for performance “is an idea whose time has passed,” said Dr. Robert Berenson, a fellow at the Urban Institute who focuses on health care delivery. Even so, since you “can’t put genie back into the bottle,” Berenson urged a smarter approach to the government’s payment system.

Berenson was joined by Dr. Ashish Jha, the director of the Harvard Global Health Institute, and journalist Sabriya Rice of the Dallas Morning News, who has reported extensively on the topic. The panel examined the evidence so far behind the idea that health providers’ pay should be linked to outcomes.

Even though the strategy has gained popularity — the Obama administration has called for half of all Medicare payments to be performance based by 2018 — the evidence hasn’t been encouraging. Instead, the movement has led providers to “game the system” and penalized safety-net hospitals, which serve the poorest patients, panelists said.

High hopes, disappointing results

The traditional fee-for service health system gives payments to providers based on the quantity of services provided. Under the pay-for-performance model, medical providers are rewarded or penalized depending on whether they reach certain care goals. The idea is that Medicare shouldn’t be paying the same money to hospitals that have significantly higher death rates after heart attacks, even after risk adjustments, Jha said.  

“There’s been a sense for a long time that that’s not right, and it’s not creating the kind of incentives we need to make the health care system better,” he said.  

But even though incentives for quality “make a ton of sense,” according to Jha, studies have shown little to no impact on the quality of care. He showed data from one pay for performance model that showed no impact on mortality after six years.

Despite that evidence, the Affordable Care Act has accelerated the move toward pay for performance programs. Jha pointed to a hospital readmission reduction program designed to reduce patients returning to the hospital within 30 days. It penalizes hospitals that have higher-than-expected readmissions for a select group of conditions, such as pneumonia or heart attacks. 

The vast majority of hospitals nationwide have received some sort of Medicare penalty, and 30-day readmission rates have fallen – which seemed like good news to some policymakers. But such penalties were more likely to occur at safety-net hospitals, where poorer, sicker patients are more likely to receive care, Jha said.

“We need to understand the trade-off between lowering readmission rates for everyone but delivering penalties to safety net hospitals,” Jha said. “And reducing admissions isn’t exactly the same thing as making care better.”

Jha questioned whether the program led some hospitals to deny people access if they came back to the emergency department within that 30-day period, thereby improving their readmissions numbers. “The jury remains out,” he said.

Since the pay-for-performance model is here to stay, Jha suggested it’s time to reframe the debate from “Does pay for performance work?” to “How do we get pay for performance to work?”

“Should we have much bigger incentives on the table?” he said. “Should we target smaller outcomes? … And should we be structuring it much more simply?”

Berenson of the Urban Institute echoed Jha’s concerns about pay for performance, and said that accurate and uniform measurements are difficult to achieve, even on something as straightforward as readmissions rates.

A narrow focus on one measure may also encourage providers to ignore other important metrics, resulting in an overall decline in care, he said. Such metrics could also encourage some doctors to avoid seeing more difficult patients. And, he pointed out the high administrative costs involved in pay for service models, such as the $15.4 billion annually for physician practices to report quality measures.

“That’s $15 billion that could be spent improving people’s health care,” he said.

Berenson acknowledged there is a role for measurements in health care, but argued it should look very different from Medicare’s current program. He suggested more strategic use of measurements, such as a greater emphasis on providers’ diagnostic errors. There should be more attention given to patients’ experiences verses outcomes. And, instead of comparing hospitals with different patient populations, Medicare programs could be looking at hospitals on a more individual basis to gauge improvements.

How reporters can cover payment reform

While it can be challenging to cover emerging health care payment models, the Dallas Morning News’ Rice encouraged journalists to make these stories relevant to the average person, and add context to complicated policy discussions. To do so, consider drawing parallels between more familiar topics such as education, where teachers are rewarded or penalized for performance.

“Journalists could dig into lessons learned and how they overlap,” she said. “It’s a very complicated issue to talk and write about, but there are ways to get beyond the political speak and get to the impact on a local level.”

Potential story angles outlined by Rice include:

    • Look at local or regional differences among providers in your community. Why does one provider do well with the pay-for-service model while the other does not? Do they serve different populations or have different business models?
    • What is the financial impact of the federal penalties on a local level?
    • How are hospitals in your area changing the way they do business in order to adjust to the payment landscape? Are they consolidating or aligning services differently?
    • Where is necessity driving invention? What are providers doing to get ahead and not have the payment structure negatively impact care they provide?

Journalists should also be skeptical of hospitals rankings from various media outlets, since oftentimes they simply pick one specific quality metric that they deem most relevant, Jha added.

“Everyone is using slightly different measures and weighting,” he said. “It baffles me and I study this stuff for a living.”

Before expanding the pay-for-service model, there needs to be greater attention on what’s being measured, how to measure it accurately, and how to avoid unwanted side effects – such as unfairly penalizing safety nets, argued Berenson.

“I do think it’s a work in progress,” Berenson said. “We need a refresh button rather than a deletion …. Let’s figure it out on a small-scale basis before we scale it large.”


Watch the full webinar here: