FP Robert J. Ostrander in Rushville, NY, gets 60 percent of his business from Blue Choice, a local HMO run by Excellus BlueCross BlueShield in nearby Rochester. The plan withholds between 15 and 20 percent of his reimbursement, but if he meets certain quality and efficiency goals, he has the ability to earn up to 150 percent of this withhold for superior performance.

While withholds are as old as managed care, their return to doctors used to depend mainly on their restraint in the use of services. The idea of basing most or all of withhold returns or bonuses on quality is relatively new. The rapid spread of this "pay-for-performance" approach promises to revolutionize managed care and to throw an important new variable into medical economics.

Ostrander, who usually gets his full withhold back but little more, has no problem with the concept of pay for performance. But he thinks the plan's measures of preventive and chronic care are too narrow to make much of a change across the broad range of conditions he manages. Also, he says, the claims data used to measure his work are riddled with errors and omissions.

While Roy earns all of the pay-for-performance money available to her, she notes that some plans aren't delivering what they promised. For example, the largest local HMO said that if a doctor did everything required on the clinical measures, he or she could get a bonus equivalent to $2 per member per month. But Roy and other doctors received only 75 percent of that amount, because the plan funded the program inadequately.

Meanwhile, the plans are starting to measure outcomes such as the blood glucose and LDL cholesterol levels of diabetic patients. Their auditors come into Roy's office and review six or eight of her charts, and if the clinical indicators aren't what they should be, she loses part of her bonus. That's already prompting some doctors, she says, to encourage noncompliant patients to find other physicians.

While one plan in Roy's area rates individual doctors on its Web site for access and patient satisfaction, nobody's publicly scoring them yet on specific clinical indicators. If they ever do, Roy says, "noncompliant patients won't be able to find a doctor. If all of a sudden your income and your reputation are significantly influenced by how many noncompliant patients you have, no one will take them."

Pay for performance gains momentum These two doctors are on the leading edge of a trend that represents a major change in managed care. This movement has ramifications that go far beyond measuring performance and rewarding the doctors who do the best on certain measures. It's connected with the evolution of "consumer-driven" health plans, the tiering of physician networks, and disease management programs.

In addition, many purchasers want to give consumers report cards on the clinical performance of physicians. So far, such scorecards have been used to rank only group practices in California and Minnesota, but all signs point to the same strategy being applied to individual doctors nationwide. Many insurers are now measuring doctors in small practices, and a few HMOs have announced plans to publish ratings of individual physicians.

According to a recent survey, there are now 80 pay-for-performance programs across the country—twice as many as there were a year ago. And that may be just the tip of the iceberg. Richard Sorian, a vice president at the National Committee for Quality Assurance, says these programs now exist in nearly every state, many of them launched with little fanfare or visibility.

Among the most visible pay-for-performance efforts has been the joint initiative of the Integrated Healthcare Association in California, which includes six health plans (seven in 2005) that insure the majority of the state's population and have 7 million HMO enrollees among them. The program awarded roughly $50 million to California groups and IPAs this year for their performance in 2003.