Tuesday, July 21, 2009

Health Care P4P

Congress is wrangling over the question of health care reform, but some states and localities have already started their own grass roots reform through Pay-for-Performance program – P4P. For example, the Pennsylvania program rewards physicians on quality of care and participation in disease management and hospitals on care improvement and patient safety. Eligible providers get payments in three areas: 1) assistance in enrollment of patients in disease management programs, 2) collaborating in care management of disease management enrollees and 3) delivery of key clinical interventions that improve quality of care.

There are about forty such P4P programs spread across the country. Evaluation has been sketchy at best. However, it appears that P4P works. In the first six months in Pennsylvania program, improvements could be observed in diabetes, asthma and heart disease patients. Pennsylvania has been reworking the program all along, finding better scoring systems and adjusting compensation rates and payment schemes.

Of course, physicians have been quick to criticize P4P. However, the patient disincentives often cited by physicians have not materialized in the early stages of P4P adoption.

That have been hitches for hospitals. Patient compliance is a critical factor in the success of P4P. Hospitals with a high concentration of Medicaid patients that might not be as diligent in complying with treatment regimens have not faired as well as hospitals with a wider mix of private pay and social service programs. This leaves the so-called safety-net hospital out of the running for performance bonuses offered in Pennsylvania’s P4P program.

There is no P4P investment as such. As noted in previous posts, we continue to like Health Grades (HGRD: Nasdaq) as a play on consumer-driven or market-based health care system. We believe P4P is on element of such a system. We also like A.D.A.M., Inc. (ADAM: Nasdaq) for its online information and technology solutions for employers, healthcare organizations and benefits brokers. Neither stock has fully recovered from price lows set earlier in 2009, leaving the door open for establishing positions are compelling values.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a buy rating on HGRD shares and ADAM was featured in a recent issue of Small Cap SEARCH newsletter with generally favorable comments.

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