Keep P4P out of Traditional Medicare

Medicare Advantage P4P, patient-focused incentives are keys to quality care

July 31, 2006

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WASHINGTON – In response to growing concern over the quality of medical care in the U.S., Medicare is experimenting with “pay-for-performance” (P4P), a financial incentive that rewards health care providers for recommended care. A new Cato Institute working paper to be published in the Yale Journal of Health Policy Law & Ethics, however, finds that P4P is an unproven tool for improving quality and carries significant potential for harm.

In the study “Pay-for-Performance: Is Medicare a Good Candidate?Michael Cannon, director of health policy studies at the Cato Institute, warns policymakers to take a cautious approach to P4P, especially when applying it to Medicare: “Given Medicare’s patient population, size, and sensitivity to interest group lobbying, any harm that could result from a P4P scheme would be more likely to occur within traditional Medicare than elsewhere in the health care system.”

Cannon explains that the high incidence of chronic illness among Medicare beneficiaries “increases the likelihood that a P4P scheme would create incentives to mistreat such patients and turn them into ‘medical hot potatoes’ that providers make an effort to avoid.”

Furthermore, Medicare is a creature of the political process. This, the study asserts, not only increases the potential for error at each stage of designing, implementing, and maintaining a P4P scheme, but guarantees congressional and administrative lobbying by providers who seek to protect their own interests in shaping a P4P initiative.

According to Cannon, Congress can harness the potential of provider-focused P4P incentives while reducing the likelihood of harm by confining P4P to private Medicare Advantage plans and by encouraging greater participation in those plans.

In addition, P4P financial incentives can be targeted to patients as well as providers to allow greater transparency. “A weakness of provider-focused financial incentives,” Cannon explains, “is that it can affect the quality of care, or even a patient’s access to care, without the patients’ knowledge. In contrast, patient-focused financial incentives would engage patients in the pursuit of quality, while allowing them to deviate from ‘best practices’ if doing so fits their needs.”

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