Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them

Executive Summary

Pay for performance (P4P) is a new phenomenon intended to motivate physicians to improve the quality of the care they provide by paying them more money for meeting certain targets.[1] Some programs get their money to pay physicians directly from employers (e.g., Bridges to Excellence (BTE), while other programs are sponsored by the managed care companies themselves (e.g., the Integrated Health Association (IHA), at www.iha.org). Although these initiatives are new and there is little national experience with them, physicians should be aware of the potential legal issues involved when they consider participating in these programs.


Mistake 1        Not Understanding How the Determination to Pay Is Made

In a number of P4P programs, the BTE for example, determination as to whether to pay is based on a threshold of performance. Whether the physician qualifies is evaluated based on data reported by the physician to another entity, such as the National Committee for Quality Assurance. NCQA certifies an appropriately performing physician as a “recognized diabetes physician” or a “recognized heart and stroke physician” in accordance with the standards set forth in NCQA’s physician recognition programs. This certification qualifies the physician for a single payment (e.g., $100) per patient per year for each condition for which the physician is certified. The number of patients that determines the total payment is based on the managed care payers’ data. In other programs, all participating physicians are divided into tiers, based on their performance in comparison with each other. In these programs, whether any payment will be made depends on the behavior of the other physicians who are participating and not just on the actions of the physician hoping to be paid.

Action Step     Before physicians decide to participate in P4P programs, they should make sure they understand whether they will be paid if they meet the targets or whether their payment will depend on how they rank in comparison with other physicians whom they do not know and may never know.


Mistake 2        Not Knowing If a Legal Right to Access the Comparative Data Exists

Most P4P programs are take-it-or-leave-it propositions. They are not set forth in a contract or an amendment to an existing contract. As a result, a physician may disagree with the determination as to whether or how much he or she will be paid, but there is no legal right for the physician to see what other physicians have done or how they performed in order to ascertain how the physician ranked or whether he or she should have qualified in comparison with others.

Action Step     Physicians should ask for and review all the descriptions of the program, including any contract addenda or amendments to see whether they have a right to review the data upon which their pay will be based. Physicians might also look at their state managed care reform legislation to see whether there are generic provisions that were enacted or regulations that were published before P4P existed that could be used to get access to the data.


Mistake 3        Not Figuring Out What It Will Cost to Get the Money

The amounts paid in P4P programs are quite variable. Some are enhancements to the capitation rate the physician is already being paid. Some are a flat amount per patient once a physician qualifies. Some programs do not just pay more, they lower administrative burdens by giving the participating physicians personal digital assistants or permitting them to prescribe off formulary. Still, the point of P4P programs is to change physician behavior. Therefore, physicians may incur costs as they put themselves in a position to get the additional money. Staff time to cull data from medical records is estimated at 15 minutes per chart reviewed for NCQA’s diabetes physician recognition program. Some physicians report their staff having to spend time validating health plan data upon which the physicians are paid. Physicians who have not been providing enough of the evidence-based services that the P4P program rewards may incur additional costs in time, equipment, and personnel to get up to the targets for payment. For physicians who have been overutilizing services, some of their revenue may decline. So will some of their costs associated with the services they no longer will provide, but whether these are equal amounts is the real question.

Action Step     It is important that physicians analyze as closely as possible what it will take in their practice to reach the P4P targets. Costs in terms of new equipment, supplies, and staff time should be evaluated. This evaluation will show whether the additional revenue will translate into improved profit rather than just more revenue.


Mistake 4        Assuming the Payer Has a Legal Obligation to Pay

Astonishingly, many P4P programs are not documented in any contractual provision. BTE, for example, does not use any contracts with the physicians involved in the program. This means that while the physicians may work hard to reach the targets, there is no legal obligation on the party with the money to pay them the enhancement pay they expected. On the other hand, in some cases, such as some payers in California that are part of the IHA initiative, there is an amendment to their basic contract that establishes the program.


Action Step     It is critical for physicians to know before they get into the program whether they will have any right to assert that the plan or payer has breached the contract if they are not paid or are not paid as much as they think they earned.

Mistake 5        Assuming a Right to Appeal the Enhanced Payment Determination Exists

Even when they use a contract amendment to establish the payment system, several of these programs have stated explicitly that physicians have no right to appeal the determination that they qualify for payment or the amount they will be paid. This means that the physician’s decision to change his or her behavior on the expectation of being paid should be seen as a gamble. These programs may end up functioning just fine, but there is also good reason to believe that some of them will end up not operating as advertised.

Action Step     Groups that are big enough might have enough clout to ask for contract amendments that give appeal rights. Otherwise, physicians should make the decision regarding participation with the understanding that doing so is not without risk.


Mistake 6        Not Knowing If Others Are Being Paid to Influence the Care That Determines the Basis for Payment

The health conditions that are often the subject of P4P programs (e.g., diabetes, congestive heart failure, asthma, and coronary artery disease) are also sometimes the subject of the disease management programs of an important managed care plan. Whether the disease management is performed by an outside company or by the plan itself, these programs are also designed to improve outcomes, utilization, and patient compliance, and the outside vendor is often paid based on improved savings.[2] In no discussion of P4P programs has information been provided about the interaction of these programs.

Action Step     Physicians should ask if there is also a disease management program in place at the managed care companies in which the P4P program is being rolled out in an area that is important to their practice. If so, they should try to determine what the disease management program is trying to accomplish. In some instances, physicians may find that the presence of such a program may help them; in other instances the disease management program may present additional challenges.

Mistake 7        Not Understanding the Relationship Between the P4P Program and Existing Contractual Obligations

Physicians must comply with the standard provisions in managed care contracts involving the medical management programs of the plan (e.g., quality improvement, utilization management, NCQA accreditation). If a cardiologist, for example, seeks to be an NCQA recognized diabetes physician, the cardiologist’s ability to get the outcomes of his or her patients to the levels that qualify for payment (e.g., diagnostic test results) might require increased numbers of office visits. If the plan compares the cardiologist to his or her peers and finds that the cardiologist has a higher number of office visits, or if payment for the additional visits is denied because the norms used in the utilization management program differ from the P4P expectations, what will happen to the cardiologist? These issues are also generally unaddressed. Further, when the P4P money comes from the employer, as in the BTE program, but the basic managed care contract uses different standards, inconsistencies may result.

Action Step     Physicians should be sure to review their basic participation agreement and provider manual to clarify which programs may have an effect on their behavioral changes made to produce the appropriate results. They should try to obtain an amendment to their contract such that the plan’s utilization management program cannot penalize them for actions they may take in furtherance of the P4P program.


Mistake 8        Not Appreciating the Potential Effect of Adverse Selection

One of the fundamental principles of P4P programs is “transparency,” increased data on quality performance made available to patients, as suggested in the principles set forth in Crossing the Quality Chasm,[3] the Institute of Medicine study that led to the creation of many of these programs. To the extent that a physician who is performing well under these programs is seen in a health care report card as an excellent provider, the result may be that sicker patients with the condition for which the physician is receiving additional money may flock to his or her practice. If the physician is being paid on a capitated basis, the resulting “adverse selection” would produce a patient panel profile most likely quite different from what the actuarial assumptions were when the capitation rate was set. As a result, that physician will have to provide more services to a sicker population for the same amount of money. The paradoxical financial effect may be that by performing effectively in a P4P program, over the long run the physician may significantly disadvantage himself or herself.

Action Step     Physicians who are paid on a capitated basis while participating in a P4P program should seek the ability to limit the numbers of patients with the disease condition addressed in the program. Alternatively, participating physicians might bargain for an increase in the capitation rate if their proportion of the target patients increases by some predetermined amount (e.g., 10%) over a defined period of time.


Mistake 9        Not Recognizing Potential Liability in Self-Reporting Data

Some P4P programs are predicated on data reported by the physician. If a physician overstates or even misstates data upon which additional payment would be made, insurance fraud liability may result. False claims liability extends to any statement made to secure reimbursement, even in private insurance and not just the public programs of Medicare and Medicaid. In general, to prove liability, intent is important, depending on the circumstances; however, this new form of data production may increase a physician’s liability.

Action Step     Physicians participating in P4P programs should include monitoring of the accuracy of data before it is submitted as part of their general compliance efforts.

Mistake 10      Not Recognizing a Potential Shift in the Standard of Care Even If Not Participating in the P4P Program

According to some predictions, even if a physician chooses not to participate in a P4P program, the standard of care that is represented in the targets that the P4P programs are looking to produce may, over time, emerge as the expected standard of care within communities where these programs exist. Since the programs are predicated on the principles of evidence-based medicine, they may, impliedly at least, speak to the standard of care under any circumstances. Plaintiff’s attorneys may seek to use these programs as a new basis for malpractice liability when physicians do not do what the P4P programs require.


Action Step     Physicians who choose not to participate in P4P programs would be well advised to think carefully about what they are doing in their own practices, whether or not they are being paid for behavior that differs from that of their colleagues. While not currently an issue, it is not difficult to predict that it might become one in the near future.


Pay-for-performance programs are a new phenomenon with potential legal and operational pitfalls for physicians. Still, they represent an important recognition that not all physicians should be paid the same way, and that more evidence-based medicine deserves enhanced payment. While the final story will unfold over time, these programs should be examined carefully by those who would participate. Physicians should consider other potential approaches to increasing their profit margins and improving their clinical outcomes as well.

Additional Resources

  • A. Gosfield, “The Doctor-Patient Relationship as the Business Case for Quality,” Journal of Health Law (Spring 2004), pp 197-224 (www.uft-a.com/pdf/DrPatientRelationship.pdf)
  • A. Gosfield and Reinertsen, Doing Well By Doing Good: Improving the Business Case for Quality (June 2003), www.uft-a.com
  • Leibenluft and Weir, “Clinical Integration: Assessing the Antitrust Issues,” in A. Gosfield, ed., Health Law Handbook (WestGroup 2004 ed.), http://www.gosfield.com/PDF/ch1PDF.pdf

Written by:

Alice G. Gosfield, Esq.

Peer reviewed by:

Daniel F. Shay, Esq.

[1] For more information on P4P in provider contracting, see Gosfield, “Contracting for Provider Quality: Then, Now, and P4P,” in A. Gosfield, ed., Health Law Handbook (WestGroup 2004 ed.); www.gosfield.com/publications/ch3PDF.pdf.

[2] For more information, see A. Gosfield, “Disease Management, Demand Management, and Telemedicine: The Leading Edge of Utilization Management,” in A. Gosfield, ed., Health Law Handbook (WestGroup 1998 ed.), pp. 235-265.

[3] Corrigan, Donaldson & Kohn, eds., Crossing The Quality Chasm: A New Health System for the 21st Century (Washington: National Academy Press 2001).

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