The proverbial 800-pound gorilla of health care seems poised to jump on the pay-for-performance (P4P) bandwagon.

Last week, the Institute of Medicine released a report recommending that Medicare start moving in that direction — though in a measured, gradual way, acknowledging that there’s still precious little data on P4P programs, no truly standardized metrics, and a need to support providers with the IT infrastructure necessary to measure and report performance.  The press release noted:

"Medicare beneficiaries are not getting the highest possible quality of care because the program’s payment system encourages volume rather than efficiency and quality," said committee chair Steven A. Schroeder, Distinguished Professor of Health and Health Care, University of California, San Francisco.  "The urgency of the situation demands that steps be taken now to encourage health care institutions and clinicians to improve their quality.  Pay for performance has demonstrated sufficient promise based on early experience that it should be pursued, albeit cautiously and in a manner that allows for learning and adjustment as needed. And we should remember that pay for performance is just one part of the solution; other interventions will be needed to achieve the level of quality that Medicare patients deserve."

The IOM panel recommends implementing this approach with no new dollars, which means base compensation for providers would be reduced.  This yielded the expected calls for new funding for bonus pools from the American Hospital Association and American Medical Association (see AP/Yahoo story).

The provider lobby is not wrong — providers as a group will see lower base compensation if and when these proposals are implemented.  (. . . And even if they aren’t; coming reductions in Medicare payments to providers have been the subject of several HealthBlawg posts — including those here, here and here.)  What P4P offers, though, is an opportunity for providers to distinguish themselves based on outcomes, compared against a standardized set of measures.

In theory, this approach dovetails nicely with the consumer-directed health policies espoused by the current administration, and holds out a glimmer of hope that not only may providers be held more accountable for patient outcomes (measured over a large population of cases), but provider selections by consumers may be made on the basis of meaningful, consumer-friendly data — and not on the basis of provider likeability or other factors unrelated to quality of care (see recent RAND study).

While neither providers nor patients like serving as test subjects for investigators trying to prove a theory like this, P4P programs focused on paying for outcomes rather than process are the wave of the future, and providers would be well advised to continue developing the means to provide and measure what payors are prepared to pay for.