Foreign Policy Blogs

Pay for performance – a grand experiment

A few weeks ago, I wrote about the new Medicare initiative to reward hospitals with better performance metrics, and punish those with worse.  On Monday, the New York Times published an article which gave greater detail about the proposed payment methodology.  According to the article, the “plan has drawn fire from hospitals” due to a clause which requires hospitals to measure the total health expenditure outlay for the period ranging from 3 days prior to hospitalization to 90 days post-release. 

Hospitals with lower total cost of care, including payments in the 3 months following treatment to other providers – such as physical therapists, home health practitioners, and specialists –  would receive bonuses; hospitals with higher total costs would receive reduced reimbursements.

This is truly significant.  The “total cost” methodology proposed is an attempt to grapple with the true complexity of health care costs, rather than seeing each payment “event” as an isolated and individual one.  Complex it most certainly is.  Creating incentives to design and implement a continuum of care that is both effective and efficient is certainly heading into new territory.  Or, in the words of Charles N. Kahn III, president of the Federation of American Hospitals, it is “unrealistic, beyond the pale.”  Well, forgive me for saying it, but perhaps he gets paid to say things like that. 

Medicare is charting new ground here.  Payment for performance (P4P) programs are in their infancy, and there is little emperical evidence to prove that they improve quality or result in lower overall costs.  They also raise ethical issues, particularly if programs are designed without attention to unintended consequences, such as “de-selection” of patients who are too expensive to treat.  But pilot programs (primarily conducted by insurer groups with strong incentives to reduce costs) have shown moderate success, and, in this early stage, have given some guidelines for implementation.

But Medicare is not alone in its journey on the public health side.  As developed countries with rising elderly populations and burgeoning healthcare costs seek ways to lower the burden, P4P programs are getting a test ride.  The UK’s National Health Service has run a P4P called the “Quality and Outcomes Framework” since 2004.  Its objectives were  different than those of Medicare, primarily keeping doctors practicing with the NHS thorugh incentives to increase their overall pay.  The plan has increased doctor staffs by 4,000 but has increased the overall bill to the NHS by GBP 1.76 billion – so reviews are decidedly mixed.

I am optimistic about the new ground that is being forged with P4P, and I’m particularly interested to see and understand the implications as Medicare begins its “grand experiment”.   And I heartily agree with Paul Krugman’s post yesterday: “…here’s my thought: I do believe that many people in the commentary business can manage to read stories like this, tut-tut about the difficulties, and then — in the very next breath — complain that Obama is doing nothing to limit the growth of health care costs.  The point is that this is what cost control looks like. Things like the Ryan plan, which just shift the cost of care onto seniors, are fake; this is the real thing.  And it gets no credit at all.”

Let’s give credit for trying something – and we can learn as we go.



Cynthia Schweer Rayner
Cynthia Schweer Rayner

Cynthia Schweer Rayner is an independent consultant and philanthropy advisor specializing in public health, social entrepreneurship and scalable business models for positive social change. As a recovering management consultant, she spent several months living in South Africa, and later co-founded the US branch of an organization providing support to orphaned and vulnerable children. In 2009, she was an LGT Venture Philanthropy Fellow, working with mothers2mothers (m2m), a multinational non-profit organization employing mothers living with HIV as peer educators to positive pregnant women. She currently works with individuals, companies and nonprofits to finance and develop models for positive change. Cynthia has an MBA from INSEAD and a BA in English Literature from Georgetown University. She currently lives in Cape Town and visits New York frequently, where she co-owns a Manhattan-based yoga studio, mang'Oh yoga (