The New Health Dialogue

A Blog from New America's Health Policy Program

IN THE STATES: Pay for Performance in Medicaid

Published:  October 1, 2009

We've written often about misaligned incentives in the US health care system -- we pay for quantity of care instead of paying for quality. We've seen high-performing health systems across the nation work to reverse this trend -- and succeed in bringing down costs and improving quality. It is possible for the U.S. health care system to become a value-based purchaser, to move toward pay for performance (healthier patients getting the right treatment at the right time) rather than fee for service (paying for more and more tests and procedures, regardless of whether or not they help the patient). So we're glad to see states taking steps toward pay for performance by including it in their Medicaid contracts.

According to a 2007 study sponsored by the Commonwealth Fund, half of all states currently operate some kind of pay for performance initiative in Medicaid. Researchers conducted a survey of state Medicaid directors and found that 85 percent of the states planned to incorporate some form of pay for performance program within the next five years.

The most common type of pay for performance program in Medicaid is managed care or primary care case management (PCCM), according to the report. The goal of PCCM is to encourage patients to foster a relationship with a primary care provider, so that patients get more comprehensive, coordinated care. Patients can stay healthy (or healthier) with affordable preventive care visits and stay away from costly emergency rooms. According to the Children's Health Insurance Research Initiative, states are free to use regular fee-for-service or PCCM under Medicaid and SCHIP. About half of states use PCCM, and about 30 percent of kids in SCHIP are getting care through a primary care case management.

The Commonwealth Fund report offered examples of some problems and solutions encountered by state Medicaid officials:

Alabama is offering reimbursement increases tied to provider participation in a program using technology to improve monitoring of chronic diseases. HIT also has the potential to reduce data collection costs, which should facilitate P4P expansion into less traditional venues.

The Oregon Health Care Quality Corporation, involving state government, health plans, medical groups, insurers, purchasers, providers, and consumers, is working to incorporate standardized performance measures into their P4P activities.

Several Medicaid directors were concerned that P4P activities might impinge upon beneficiaries' access to care by causing providers to leave the Medicaid program or limit the number of Medicaid beneficiaries in their practices. This concern is shaping some of the approaches taken in pay-for-performance programs, particularly in states with large rural or sparsely populated areas. For example, South Carolina is offering increased reimbursement to providers who agree to establish a Medicaid medical home.

The vast majority of Medicaid directors reported that their priority in operating pay-for-performance programs is to improve quality of care rather than reduce costs. Some states are targeting specific aspects of care, such as the overuse of emergency department services. Maine's Physician Incentive Program ties 30 percent of a performance bonus to emergency department utilization.

A caveat from Commonwealth: Though quite a few states have implemented some kind of pay for performance program in Medicaid, the study found very few states actually conducted any followup studies to evaluate how well P4P was working.

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