Physicians can be profiled on the health care they provide to Medicare beneficiaries using measures in two performance dimensions: the resources used to provide care to beneficiaries and the quality of that care. CMS has established goals and made progress in developing its Physician Feedback Program. Resource use can be measured using two methods: the per capita method and the per episode method. The per capita method measures the resources used by a physician to treat his or her Medicare beneficiaries over a fixed period of time. By definition, it is a comprehensive measure of a physician’s practice patterns because it includes all health care resources used and is generally considered more straightforward than the per episode method to measure and understand. The per episode method measures the resource use associated with treating a specific episode of an illness in a beneficiary—for example, a stroke or a hip fracture. An episode of care may refer to all services related to a health condition with a given diagnosis from a patient’s first encounter with a health care provider through the completion of the last encounter related to that condition, including postacute services such as home health, skilled nursing, and rehabilitation. Since this method provides condition-specific results, it may provide more useful, or “actionable,” feedback to physicians. Per episode costs are generally considered more difficult to measure than per capita costs since it can be challenging to determine whether a particular health care service should be grouped to one episode of care or another. Per episode costs may be determined using “episode groupers,” which are software programs that use diagnosis codes to assign claims to clinically distinct episodes of care. Using both the per capita and per episode methods may more fully capture differences in resource use among physicians. For example, in a 2006 report, MedPAC found that beneficiaries in Miami had significantly lower per episode costs for coronary artery disease than beneficiaries in Minneapolis, suggesting that Miami physicians were providing more efficient care for coronary artery disease. However, MedPAC noted that because the beneficiaries in Miami had more episodes of care for this disease, physicians in Miami actually used more health care resources in total to treat their coronary artery disease beneficiaries than physicians treating similar patients in Minneapolis. In this case, the per capita method and the per episode method together would provide a more complete picture of physicians’ resource use than either method by itself. Health care quality measures can be used to evaluate how well health care is delivered, and information obtained from such measures can promote accountability among physicians. Quality measures can be classified as process or outcome measures. Process measures assess whether appropriate clinical practices, such as screening and diagnosis, were followed. An example of a process measure is whether a patient with high blood pressure received appropriate medication. Outcome measures assess a patient’s health status after receiving health care services. An example of an outcome measure is tracking the percentage of patients who were diagnosed with high blood pressure and whose blood pressure was adequately controlled during the measurement year. Efforts are under way by a range of organizations, including CMS and the National Committee for Quality Assurance (NCQA), to develop measures of physician quality, and by the National Quality Forum (NQF) to endorse the quality measures developed by others. For example, NCQA created the Healthcare Effectiveness Data and Information Set (HEDIS)®, which is a tool used by over 90 percent of health plans in the nation and includes measures of both health plan and physician performance. CMS has developed the Physician Quality Reporting System (PQRS), which is a quality reporting program that provides an incentive payment to professionals who satisfactorily report data on quality measures for covered professional services furnished during a specified reporting period. CMS also contracted with Masspro, a quality improvement organization for Massachusetts, to calculate performance rates for the Generating Medicare Physician Quality Performance Measurement Results (GEM) project. The GEM project used 2006 and 2007 Medicare administrative claims data to generate performance rates for 12 process measures that were drawn from HEDIS®, such as persistence of beta blocker treatment after a heart attack. CMS established the Physician Feedback Program in 2008 with the goal of encouraging higher-quality and more efficient medical practice and creating a transparent process for developing meaningful, actionable, and fair physician performance indicators that could later be used in CMS’s value-based purchasing initiative. Feedback reports can help ensure quality health care and control costs in three ways. First, the feedback reports are intended to be educational by providing useful information to physicians on how their resource use and quality of care compare to their peers’. Second, the reports are intended to be actionable by helping physicians identify and develop strategies for improving quality and reducing costs in their practices. Third, the reports are intended to help physicians become familiar with the resource use and quality measures that the agency plans to use to adjust their Medicare reimbursement under the value-based payment program. CMS intends to distribute at least one feedback report to physicians before paying them differentially under the value-based modifier. CMS has implemented the program in phases by distributing feedback reports to an increasing number of physicians in selected metropolitan areas. In each phase, CMS conducted pretesting to obtain physicians’ reactions to the methodology and format of mock feedback reports, distributed feedback reports populated with actual performance data, and followed up with a sample of the profiled physicians to obtain their input on the reports. In Phase I, CMS distributed feedback reports to 239 physicians who practiced in one of 12 metropolitan areas. These reports were distributed in April and August 2009, and included information about physicians’ resource use but not their quality of care. In Phase II, CMS expanded the program to distribute feedback reports to 36 physician groups and to 1,641 individual physicians who practiced within these groups from the same 12 metropolitan areas used in Phase I. Phase II reports were produced in November 2010, and included resource use measures and selected quality measures as well as information on beneficiaries’ hospital admissions. In addition, the reports to physician groups included hospitalization rates for ambulatory care sensitive conditions—acute conditions for which effective outpatient care could have prevented complications or more severe disease. The reports also contained the average per capita costs of treating Medicare beneficiaries, as well as per capita costs by specific categories of service, such as laboratory tests and imaging services. In addition, the reports provided summary information about the average annual cost of treating a subset of Medicare beneficiaries with selected common chronic conditions: congestive heart failure, chronic obstructive pulmonary disease, coronary artery disease, diabetes, and prostate cancer. CMS plans to continue to develop feedback reports and distribute them to an increasing number of physicians and physician groups. It plans to distribute Phase III reports to about 20,000 physicians in late 2011, and intends to provide feedback reports to all physicians and physician groups by 2017. CMS faces challenges in selecting resource use and quality performance measures that make feedback reports meaningful, reliable, and actionable. In addition, the agency faces trade-offs in making other key methodological decisions concerning risk adjustment, attribution of beneficiaries to physicians, minimum case size, and peer group selection. While CMS has tested different approaches to developing feedback reports, challenges remain in making methodological decisions that will enable CMS to accomplish its program goals. Measuring resource use. CMS intends to use both per capita and per episode methods to measure physicians’ resource use, but it faces particular challenges in determining per episode costs for the Medicare population. In Phase I, CMS tested two commercially available episode groupers, but found that these groupers had the following shortcomings when used with Medicare claims data:  Because of the prevalence of comorbidities in the Medicare population, a beneficiary can be treated for several different conditions concurrently, and it was difficult for the groupers to determine which services belonged with a given episode.  Because diagnosis coding used for different Medicare claim types was inconsistent, claims from different sources were not always linked to the same episode of care, even when they appeared to be clinically related. For example, hospital, physician, and skilled nursing facility claims have slightly different diagnostic information.  Because it was difficult to identify the appropriate beginning and end of an episode involving a chronic condition, the commercial groupers did not work well to create episodes of care for the Medicare population, since a significant portion of Medicare beneficiaries have chronic conditions. CMS concluded that per episode measurements included in Phase I reports were inaccurate, and discontinued use of the commercial groupers. Some medical specialty societies and other stakeholders commended this decision. CMS intends for shortcomings to be addressed by the Medicare-specific episode grouper under development. In September 2010, CMS awarded four contracts to develop a Medicare-specific episode grouper. CMS plans to select a grouper developed under one of these four contracts for future feedback reports. However, it is not clear that all the problems identified with the commercial groupers can be solved by a Medicare- specific grouper and the timeline for its development is challenging. In Phase II feedback reports, CMS elected to provide information on resource use for beneficiaries with five high-cost, high-volume chronic conditions. Because episode measures were not available, it used per capita measures as proxies for per episode costs for patients with diabetes, congestive heart failure, coronary artery disease, chronic obstructive pulmonary disease, and prostate cancer. These proxies included all the resources used to treat beneficiaries with these select chronic conditions, regardless of whether the resource use was related to that specific condition. CMS officials stated that these proxies were adequate substitutes for episode-based cost measures for these chronic conditions. In Phase III reports, CMS plans to provide per capita information on subgroups with the same chronic conditions as in Phase II with the exception of prostate cancer. Measuring quality. CMS faces the challenge of incorporating into its feedback reports quality measures that are available, apply to specialists, and provide information on patient outcomes. Phase I reports did not contain quality measures. In Phase II, CMS included 12 GEM measures in feedback reports. These measures have the advantage of being readily available because they are based on claims data. For Phase III, CMS is considering 28 claims-based quality measures, which are endorsed by NQF.