POLICY: How will you get paid? By Paul Levy

Paul Levy is the President and CEO of Beth Israel Deconess Medical
Center in Boston. Paul recently became the focus of much media
attention when he decided to publish infection rates at his hospital,
despite the fact that under Massachusetts law he is not yet required to
do so.  For the last year and a half he has blogged about his
experiences in an online journal, Running a Hospital,
one of the few blogs we know of maintained by a senior hospital
executive. Today he gives his take on pay for performance.

This is the next chapter in my Wednesday is Student Day series. Rocky, a medical student, asks below: "What is your take on pay for performance, and will it be integrated into BIDMC?"

economics professors in college set forth a series of theories and
formulas that described the functioning of the free market. We all knew
that this formulation was unrealistic, in that most markets are
imperfect. There is often "friction" between parties in a marketplace
that result in imbalances between supply and demand, that result in
uneven knowledge between and among buyers and sellers, or that
otherwise gets in the way of an economically efficient equilibrium

But it was not until I joined the health care world
that I discovered the extent to which an economic system could be so
convoluted that there is virtually no relationship between the value of
services provided and the compensation for those services. In health
care, there are not only intermediaries between the procurer of a
service (i.e., the patient) and the supplier (i.e., the doctor or the
hospital), but the actual pricing of specific services is often based
on the wrong premises.

I think that most people would like to
think that a doctor or hospital would be paid based on the quality of
the service provided, but that is not so. Most recently, insurance
companies have introduced surrogates for real measures of quality. They
attempt to reward providers with "extra" payments for certain
accomplishments — administrative or clinical — that are deemed to be
of value to the insurance company in the plans it offers to its

This is a crude system in several respects. For
one, the measures chosen do not always add quantifiable value. For
another, even when they do add value, the amount of the performance
bonus is not related to the value. For another, the bonus does not
necessarily pass through to the specific providers who deliver specific
services to patients. For another, the bonus is often not really a
"bonus" that provides extra revenue to the provider. Rather, it is
often in the form of a withholding of a portion of the fair
compensation to which the provider is entitled even if the chosen
metrics are not accomplished.

It is my hope that, over time,
insurance companies will actually base payments on accurate and
measurable levels of service quality. It is also my hope that the
current imbalance in payments between "cognitive" specialists like primary care doctors,
neurologists, and nephrologists and "procedural" specialists like
surgeons and interventional cardiologists will some day be set aright.
In the meantime, places like BIDMC live with the rules that are decided
by the insurance companies. There really is no other choice for us,
for, in the parlance of my economics professors, we are price takers.
(By the way, the same is true regarding our payments from Medicare and

Livongo’s Post Ad Banner 728*90

Categories: Uncategorized

Tagged as:

Leave a Reply

13 Comment threads
0 Thread replies
Most reacted comment
Hottest comment thread
12 Comment authors
ShelleyJon KesslerChironTom LeithJack Lohman Recent comment authors
newest oldest most voted

We as physicians need to determine the direction of health care if medicine is to remain a viable business: How to Fix the United States Health Care System We Must Do It Ourselves “Problems cannot be solved at the same level of awareness that created them.” –Albert Einstein Identify the Components: Ones That Work and Ones That Don’t The first step to solving any seemingly daunting problems is to break it down into component parts, identify what works about the existing status; and what doesn’t. It’s crucial to learn from the past. As a physician and owner of a solo… Read more »

Jon Kessler

As an economist by training, I’m in agreement with Paul’s comments. P4P sounds good in theory but will have the intended impact in practice. Now here’s my question regarding “accurate and measurable levels of service quality.” What role should patient satisfaction play in all of this versus more utilitarian measures of outcomes? My father recently died very quickly of an aggressive lymphoma. Nothing his physicians tried was remotely useful at stopping the rapid course of his deterioration, and indeed, some of what happened, including contracted infection, may have contributed to it. But I would say that the care he and… Read more »


Matt makes a perfectly valid suggestion, and one that I would encourage hospital administrators, physicians and sundry other health care providers to take into serious consideration. Insurance companies are big businesses… and as such, they’re full of people trying to do the right thing, but looking at the problem from a very self-interested perspective. That doesn’t mean they’re not open to suggestion. Insurance companies are simply not accustomed to interacting with health care providers from anything but an adversarial perspective. This just means that if a group of hospitals get together and come to an agreement over what are reasonable… Read more »

Mehul Dalal
Mehul Dalal

> It apparently undervalues Primary Care relative to procedures — and we all suffer the bad consequences of that. But its politically easier.
True, it us unlikely CMS would want to be cast in the role of “rationing” healthcare.
However, if we can better balance the composition of the RUC between cognitive and procedural specialties, CMS could maintain its neutral position AND pay discrepancy would improve. I’m not sure how feasible this strategy is, but if MedPAC continues to pressure them it may work.

Tom Leith
Tom Leith

> CMS adopts their recommendations rather uncritically My personal read on this is that CMS is saying something like this: “Here’s how much we’re spending on physician fees – you guys figure out how you’re going to divvy it up. We’re staying out of it.” Its easy to imagine how or why CMS might have come to a stance like this. Imagine the howls of protest: “The Federal Government is dictating my income.” Easier for the bureaucrats to stay out of it than deal with the political fallout. So The Guild was permitted to come up with a relative fee… Read more »

Jack Lohman

As a patient I likw the idea of P4P, but I see loads of lawsuits over the ratings and the lawyers are going to get rich over this one.

Mehul Dalal
Mehul Dalal

We cannot talk about closing the income gap between the cognitive and procedural specialties without mentioning the role of the Relative Value Scale Update Committee (RUC). Their proceedings are opaque and dominated by specialists and my understanding is that CMS adopts their recommendations rather uncritically.
It seems that these proceedings should be more transparent and perhaps an independent entity should ensure their recommendations are aligned with the preferences of the beneficiaries. (this is public money after all).

Gary Levin

Paul Levy’s commentary about P4P is very articulate, and right on the mark. P4P is a shallow manipulation by insurers and CMS . It may very well be illegal according to the original Medicare legislation that forbidded medicare from “altering the way medicine is practice”. P4P will be “credited” according to financial billing codes. Physicians and providers will most likely be audited for the accuracy of their reports. It places another layer of bureaucracy and increases the cost of medical care more than it will save. No one organization, such as BIDMC alone has enough clout, it will take all… Read more »

Mike Belman
Mike Belman

The correction of the imbalance in payment between PCPs and “proceduralists” is not going to be solved by the plans alone. How about a coalition between the plans and the PCPs – I think the incentives are aligned.

Paul Levy

Matt, you say:
I believe that BIDMC has enough clout and stature to define how it would like to get paid. The first step is to define the “accurate and measurable levels of service quality.” If as a provider, you could measure this and present it to the plans, you would get paid more fairly for the services that you provide.
Not so. Sorry. There is no indication that the insurance companies or the federal government or the state government are prepared to do this yet.

John Irvine

Gooz News has an interesting piece on the same subject that Merrill ran a few months back.

Matt Cooke
Matt Cooke

It’s hard to argue with your comment “It is my hope that, over time, insurance companies will actually base payments on accurate and measurable levels of service quality”. What I do question is the conclusion in which we all seem to throw up our hands. Charles Baker (CEO of Harvard Pilgrim) recently took part in a panel (Paul, you were also part of the panel) and said “Every plan will tell you that they would much rather have the clinicians themselves determine the rules of the game.” I believe that BIDMC has enough clout and stature to define how it… Read more »


While I would like to see every healthcare provider provide the highest quality of care, I think compensation based on “measurable levels of service quality” is a slippery slope.