Health legislation puts emphasis on pay for performance

The hundreds of millions of dollars in new Medicaid payments that will go to providers under the health reform legislation have a catch: Hospitals and doctors must show they are meeting quality standards -- and controlling costs -- before they can collect all of the money.

With the legislation, the state will jump into a hot new area: pay-for-performance.

Many private health insurers and the federal Medicare program already pay providers bonuses for improving the care of patients with conditions such as diabetes or heart failure, and keeping them out of hospitals. They also pay more when providers hold down costs such as limiting the use of expensive imaging tests such as MRIs.

The Massachusetts bill adds a new aspect to pay-for-performance. In addition to improving quality, hospitals and doctors must show they are reducing racial and ethnic disparities in the delivery of healthcare and outcomes for patients.

The increase in Medicaid money is a major coup for providers. Hospitals and doctors will get an additional $90 million in the next fiscal year, which begins July 1; $180 million in fiscal 2008; and $270 million in 2009. Most of the money will go to hospitals.

Partners HealthCare System, the parent organization of Massachusetts General Hospital and Brigham and Women's Hospital, estimates that the additional funds mean that Medicaid, the state-federal program for low-income patients, will reimburse Massachusetts hospitals 95 percent of the cost of providing care by the third year of the legislation, up from 84 percent now.

The quality requirements will begin July 2007, the second year of the legislation. The legislation does not spell out the performance measures, cost control criteria, and the amount of Medicaid payments that will be at risk. The Executive Office of Health and Human Services, along with two outside advisory groups, will develop the criteria over the next year.

At least in the beginning, hospitals will be able to appeal any reduced payments if they believe they have a particular hardship that has kept them from making improvements.

''We understood that transparency and accountability were going to be part of the picture," said Paul Wingle, spokesman for the Massachusetts Hospital Association.

How hospitals rate many of these quality and cost measures will be posted on a public website.

The debate is sure to heat up when it comes time to determine the benchmarks.

The Romney administration, which has a website comparing hospitals and doctors on quality and cost, usually uses billing data to analyze individual hospital's mortality rates and other measures.

The hospitals, Wingle said, will push for measures derived from clinical data, or from combing through patients' medical records, which is far more time-consuming and expensive.

Billing data, hospitals contend, cannot fully account for differences between hospitals such as the number of older and sicker patients that contribute to a high mortality rate.