Physician leaders regard the current method of determining Medicare reimbursement as deeply flawed, but they have serious reservations about the proposed alternative. While they support the new "pay for performance" approach because it could help improve quality, they want both Medicare and private payers to adhere to some basic principles in their P4P programs.

In recent months, the AMA, the American College of Physicians, and the Medical Group Management Association have all made statements regarding these principles. Meanwhile, the American Medical Group Association has launched a "quality-based reimbursement initiative" to examine the issues involved, with the help of leading experts.

One reason for this burst of activity is the prospect that Medicare will cut physician reimbursement by more than 30 percent over the next six years. That's the plan under CMS' "sustainable growth rate" approach. The Medicare Payment Advisory Commission (MedPAC), in its annual report to Congress, recommended that physicians get a small raise instead in 2006. But MedPAC also suggested that future reimbursement be geared to meeting quality goals. Under this proposal, 1 to 2 percent of Medicare payments to doctors would be placed in an incentive pool; only those who met clinical performance goals would share this money.

"That's why we think that to be successful, these P4P incentives need to be handled with new funds. Over time, those additional funds will save money by improving overall performance."

The ACP argues that the cost savings from reduced hospitalizations and ED visits should be shared with physicians. If that were done, the P4P program could be budget-neutral while raising overall physician payments, says Robert B. Doherty, the ACP's senior vice president, governmental affairs and public policy.

The medical organizations say that P4P participation should be voluntary, as it is today in the private sector. Medicare and private payers shouldn't punish doctors who don't participate in P4P by paying them less or not including them in preferred tiers, the MGMA believes.

All three associations want performance measures to be evidence-based and chosen with input from physicians. The MGMA says the data should be risk-adjusted to take into account differences in patient populations—a position that MedPAC supports only for outcome measures.

Both the MGMA and the AMA want payers to reimburse practices for the cost of collecting and reporting data in P4P programs. According to the MGMA, payers must reward doctors for the adoption of health information technology if that is required for program participation. The AMA says physicians should receive incentives to implement clinical information systems "that interact with aspects of the [P4P] programs."

Most private P4P programs provide incentives only to the best performers or those who meet certain goals. The AMA states that all physicians who achieve performance goals or show improvement should be rewarded. Jessee agrees. As long as there's a shortage of physicians and hospital beds across much of the country, he says, it makes sense to help every provider who's trying to improve.