Pay-for-Performance and how Medicare pays for care

Pay-for-performance (P4P) is the latest panacea that's supposed to overcome the cost problem, improve quality and remove practice variation. Medicare has leapt on this bandwagon, following the examples of pilots in California and Massachusetts. It's already rewarding hospitals (albeit only a tiny amount) for reporting quality information. This year we'll see the impact a full year of reporting has had on hospital quality. A similar program for nursing homes has had good success so far.

Of course, the big issue behind all this is how physicians and hospitals will demonstrate quality, and how they will be paid extra for doing so--or paid less for failing to do so. While Medicare is taking a soft approach so far, there's at least one bill in Congress demanding the introduction of pay-for-performance for the whole of Medicare Part B. However, there are also some early indications that P4P may not be having as big an effect on physician behavior as its backers would like. Considering we're talking about how healthcare gets paid for in America, this is definitely one to watch.