Small Hospital Challenges Monthly: Pay-for-performance

Dear Medical Staff Leader and Professional,

Pay-for-performance (P4P) is a system initially developed by the Centers for Medicare & Medicaid Services (CMS) that links evidence-based performance measures to financial incentives for physicians and has the potential to improve patient safety. In short, physicians are compensated more for high quality care, a methodology that has been adopted by many third-party payors.

Although many believe P4P will help healthcare organizations overcome quality issues, it also poses challenges for hospitals and medical staffs across the country. Small hospitals in particular face some unique challenges when developing a P4P system. These challenges include:

• P4P pays big for large hospitals: P4P has the most impact when it deals with larger sums of money, meaning that high-volume practitioners who practice in large hospitals and medical centers have the potential to earn more money through P4P than their counterparts practicing in small hospitals. The smaller the hospital or medical group, the smaller the potential pay-back. In addition, CMS limits P4P compensation for some procedures only to high-volume hospitals since it easier for the payor to deal with a small number of large organizations.
• Transferring data can be costly: Another major obstacle hospitals and physicians’ offices face when adopting P4P is that they need to transfer physician performance data to the payor. If a hospital or physician’s office does not have appropriate IT systems in place (which is more common in small organizations), staff members need to manually abstract this data. However, small hospitals and physicians’ offices need to invest in the appropriate IT systems to ensure accurate reporting and to cut down on human resource costs; the cost of employing individuals to acquire this data will become insurmountable as CMS requires new measurements.

Small hospitals, many of which employ physicians and may have more difficulty capitalizing on inpatient P4P programs, should take advantage of outpatient P4P programs, which may help them maximize their earning potential. Medicare’s Physician Quality Reporting Initiative (PQRI) reimburses physicians 1.5% of all Medicare allowable charges for reporting quality data at an 80% or greater rate on three measures chosen by physicians. Although 1.5% of total allowable Medicare charges does not seem like a lot, it can significantly affect a provider who cares for a substantial Medicare population. With pending Medicare funding cuts on the horizon, organizations need to capitalize on every revenue stream available.

Although physician offices do have some extra responsibilities when submitting physician performance data to P4P programs, the burden on the physician can be limited. Many organizations, including the American Academy of Family Physicians and American College of Physicians, have aides that can streamline the documentation required by physicians to submit to Medicare.

Best regards,
Mary Hoppa, MD, MBA, CMSL
Senior Consultant
The Greeley Company