ABA Health eSource
 March 2007 Volume 3 Number 7

Making P4p As Easy As 1, 2, 3
by Denise Webb Glass, Fulbright & Jaworski L.L.P., Dallas, TX

Denise Webb GlassAs with most things in life (and especially so in the area of healthcare), the devil's in the details. As commercial managed care organizations ("MCOs") and healthcare providers begin to take tentative steps into the realm of pay-for-performance ("P4P") initiatives, both sides are quickly learning that navigating the maze of issues can be time-consuming, contentious and costly. This article focuses on some of the key decisions which must be made after the MCO has decided to offer, and the provider has decided to participate in, a P4P program.

Who Participates?

If a hospital and MCO are initiating a P4P program together, one of the first things the parties must do is define the scope of participation. If the hospital is part of a multi-hospital system, will just one hospital participate or all? To what extent will physicians on the hospital's medical staff be included? Depending on the scope of the program and the measurements targeted, the hospital may only want, or need, to involve either certain specialists or just primary care physicians. Similarly, the hospital may, at the outset, only seek to target physician groups rather than individual physicians, since groups may be in a better position to collect and report data.

How to Document Participation.

Typically, the MCO and a hospital will already have in place an existing managed care contractual relationship. The parties can create an addendum to their agreement to capture the P4P program aspects. However, if physicians are also going to participate, especially if it is a single physician group, a stand-alone agreement may be a better vehicle, so that the hospital, physician group and MCO can each be a party. If many physicians from different practices are going to participate, the MCO may wish to impose on the hospital the obligation to secure the physicians' agreement to participate, either through downstream agreements or by virtue of the medical staff bylaws and hospital policies.

Whatever method is used to document the P4P program, it should strive to include all of the pertinent aspects of the P4P program and the respective duties of the parties. In particular, timing issues, such as how long the program will last, when data must be reported, when performance will be measured and when payments will be made, should be spelled out to avoid later conflict.

Defining the Metrics.

The key to all P4P programs is defining what quality indicators or performance outcomes are going to be measured, determining against what baseline they are to be compared and setting the benchmarks for when incentive payments will be made if the provider achieves stated goals. The parties may want to start slowly at the outset of the P4P program by focusing on only a few clinical areas and sets of measures which can be drawn from existing data sources. In some cases, the very act of collecting and reporting data may warrant an incentive payment, with additional or higher payments built in over time for performance.

The parties may seek, in the early stages, to simply set a fixed benchmark—if the provider meets or exceeds the threshold, the MCO will make an incentive payment. This approach may work for short-term programs, but it has drawbacks from the MCO's standpoint in that it does not necessarily promote continuous improvement over time. For longer-term programs, tiered incentives for achieving different levels of benchmarks may better motivate providers to improve performance.

Reporting Data.

The primary means of tracking the progress of the provider under the P4P program is through the reporting of data to the MCO. Prior to implementation, it is critical that the parties reach consensus as to what data is going to be collected and reported as well as how and in what format those reports will be submitted. The provider also needs to ensure internally that the data is in fact collected and that the provider's information systems are capable of compiling the data and generating the required reports. If the reporting process will require manual manipulation of data by provider's personnel, the provider will need to consider whether it has the resources to devote to such effort and the associated costs. HIPAA privacy and security rules issues will need to also be addressed if any individually identifiable patient data will be transmitted.

Audit Rights and Access to Information.

To ensure that the provider is correctly gathering the data and accurately reporting the information to the MCO, the MCO may want to conduct an audit of the provider's records and systems. The parties can negotiate the frequency of those audits. In some cases, the MCO may want to validate the data prior to payment of any incentives; in others, it may suffice to perform audits on a more episodic basis. The provider must use caution that the MCO is only given access to individually identifiable patient data for persons enrolled in the MCO's health plan. Access to other patient information without an appropriate authorization could run afoul of the HIPAA privacy rules.

The parties should agree to follow-up mechanisms to receive the audit results and address discrepancies between the reported data and the audit results.

Publication of Data.

The parties should thoroughly discuss in advance what data will be published or otherwise made public. Will the data be disclosed in such a manner so as to identify the provider or will information only be disseminated on an aggregate basis? The parties must ensure that no individually identifiable patient information is used unless the parties have complied with the HIPAA privacy rules. The provider may wish to preview the data to be disclosed in advance to verify the content and accuracy of the information. These details, the timing of any such review and the ability of the provider to object to the contents of the materials should all be documented at the outset of the P4P program.

Limitations on Charges.

In instances where the incentives are based on the hospital's revenues, the MCO may want to ensure that the hospital does not inflate its charges to increase the amount of its payments. To accomplish this, the MCO may require the hospital to contractually agree not to increase its charges while the P4P program is in effect. The hospital may seek to limit application of such a restriction to only those services included within the scope of the P4P program.


The various constituents in our healthcare delivery system have clamored to adopt P4P initiatives to promote best practices and improve quality. However, the ability of a P4P program to have a meaningful and long-term impact on the quality of healthcare services provided to the public will depend largely on the success of the participants in structuring a program with clear, objective processes and measurements tied to appropriate incentives which are designed to produce systematic improvements.