Archive for Pay-for-Performance
by Vijay Goel
April 21, 2008 at 10:48 am · Filed under Consumer Engagement, Pay-for-Performance, Prevention and Health Promotion, Business of Health, Value-based health care, Population health management
George Halverson, Kaiser Permanente’s CEO gave a keynote earlier today at the World Health Care Congress in Washington DC. The statistics he gave were compelling. The opportunities, also, really interesting. From a consumer perspective, the prescription he wrote was not– heavy on centralized best practice reminiscent of the socialistic command & control approach rather than incentives for innovative practice.
The issues today are pretty clear– we are focusing our resources heavily on the sickest individuals.
- 1% of the sickest consume 35% of the health spend
- 10% of the population consumes 80% of the health spend
Even more compelling are the stories of conflicting interests, where an institution such as Virginia Mason is able to significantly reform health costs through better treatment up front (in this case imaging)– only to find a 30% revenue cut putting the institution at a disadvantage in being able to meet payroll and overhead expense.
But these innovations, although they lowered costs and seemingly were good for patients, hurt Virginia Mason’s bottom line. For example, “the big employers saved $100,000 in the first year. But Virginia Mason fell into the red on the average migraine case, instead of breaking even as before.”
The diagnosis was clear– hospitals and hospital systems make such a large sum off of “excess” care, that they can’t afford to get off the gravy train by doing the right thing.
In my mind, this is where the solution laid out was exceedingly non-consumer friendly.
Halverson suggested that universal mandates are required to make health affordable– taking spend for the sickest 1% from $12K/month down to a more manageable $300/month. This makes sense if one looks at the purpose of insurance as a mechanism for wealth redistribution/ wealth transfer. Thus, universal healthcare has an individual mandate– the healthiest are subsidizing the sick at a level that they can’t reasonably expect to recoup.
From the viewpoint of the healthy consumer, spending $300/month for no benefit is a poor economic choice. The business model for insurance in fact rests on a different trade-off, the payment of an underwritten premium that matches actuarial risk against level of insured protection (e.g., amount of potential claim payment one could attain if the risk in fact occurs). The healthy consumer then faces one of two choices– pay premiums to insure against future risk or opt out of insurance altogether. As insurance costs go up, and are focused on highly technical solutions with marginal benefit, we would expect to see the largely healthy opt out, as we are starting to see in the employer health insurance market, via CDHP plans or dropping the benefit completely, as the job. Employers are increasingly showing that they believe health insurance’s cost is not a good value for the job(s) it was hired to perform.
The solution is unlikely to come from the hospital system that is disincented to cut its own throat by reducing the cost/ delivery of high tech care. Instead, how can we create incentives that increase reimbursement/ wealth for those that reduce the shift of the “healthy” 80% into the “sick” 20%? How can we also create better value for those currently seeing minimal value for their contributions, and limit the spigot being poured, without accountability, into the sickest 1%?
Note: this post is cross-posted on Consumer focused care
by Scott MacStravic
April 11, 2008 at 2:50 pm · Filed under Pay-for-Performance, Employee Health Management
The future of EHM is full of possibilities that go well beyond methods and concepts reflected in current trends and practices. While there are probably many more, there are at least three that deserve some consideration, in my view at least. They are not really innovations, per se, but different applications of methods and pursuits of different outcomes, than are reflected in present EHM practices. These include pay-for-performance, employee-directed health management, and positive presenteeism.
Pay-for-Performance (P4P)
While P4P schemes are already common in paying for sickness care, they also have two major advantages for employers in terms of EHM and their other value-based efforts to optimize the value of their workforces. In the first place, P4P systems have delivered productivity and performance improvements, even without any health efforts, while also dramatically reducing employee turnover. Given this potential, it is a good idea to consider the potential for including it as part of EHM efforts.
And perhaps even more important, P4P brings with it more sophisticated performance measurement methods, which would significantly improve the EHM assessment of productivity/performance impairment and improvement levels in the workforce. This would create a far more credible basis for evaluating economic benefits for employers, meaning that EHM providers would have far better evidence for their economic impact. With better evidence of impact come better methods for matching EHM interventions to the reward potential of individuals and segments, and of entire populations.
Measured P4P-based bonuses, raises and promotions may prove at least as good an incentive basis as the current use of incentives for EHM participation, behavior and health status change. They can be matched precisely to the added value of individual employees in terms of their performance improvement, for example, rather than based on guesses as to how much of an incentive is needed for all employees to achieve high EHM participation. And performance-based incentives, as far as I know, are not subject to the same kinds of restrictions under HIPAA, ERISA, or ADA as are those based on health behavior or status measures.
The argument can be made that healthcare organizations have much to gain from P4P systems, since they have significant added revenue potential if they meet third-party payers’ P4P criteria. Since meeting such criteria is mainly due to how workers perform, it would be logical to tie workers’ performance ratings and P4P to the specific criteria that determine HCO’s P4P bonuses and other revenue or advantages gained through improved performance. This should make EHM and P4P behave synergistically.
Employee-Directed Health Management
As employers increasingly move toward “Consumer-Directed Health Plans” (CDHPs) with high deductibles and personal spending accounts, it is natural to consider coupling these with “EDHM”. This approach to EHM would empower employees more than seeking to manage them, and offer them significantly more choices regarding what kinds of health issues EHM would address, and how they would be addressed. Given the known effect of empowerment on employee enthusiasm and effort, it makes sense to at least consider it as an element of EHM.
For example, it would be possible, with the use of predictive modeling forecasts of the risk/reward potential of individuals, to use this as the basis for offering each a “budget” to be spent on efforts to achieve selected health goals and improvements. Each could reserve an optimum amount as a “success incentive” based on measured productivity/performance improvement, depending on how confident each is in succeeding. Or employees could choose to reward themselves for efforts such as behavior and health status changes, if they feel they can control such outcomes more effectively.
Already, there are a few examples of EHM programs where employees (spouses and dependents, retirees, where applicable) choose their own health goals, rather than being “recruited” to a particular EHM intervention based on what the employer or provider decides. These are too early in their development and application to offer reliable insights into how well they work, and are not in situations where random control comparisons can be made to another population in any case. But they may help in enlisting higher levels of participation with costs based on predicted value of EHM achievements.
“Positive Presenteeism”
There has been clear evidence that the “normal” level of productivity/performance impairment, in the sense of falling short of one’s full potential, is high even without health factors. Health is by no means the sole, or even the most important factor determining workforce commitment and effort. Low motivation and support, family life problems, etc. conflicts with or distrust of management often affect more employees, and can affect their performance more than do health problems. This is one of the reasons for integrating EHM with all employer efforts to optimize employee contributions to the firm.
Even in the health domain, however, by focusing on promoting employees’ energy levels, via factors that are known to affect such levels, such as sleep, nutrition, physical fitness, emotional health, etc., gains may arise in productivity and performance. These may go well beyond what is currently “normal” for officially unimpaired workers. Studies have indicated anywhere from one-quarter to one-half of the time workers spend at work is not devoted to work, at all. Overall improvements in morale, commitment, trust, identification with the organization’s goals and interests, etc. may enable moving well past overcoming impairment.
Because few have even considered the potential of positive presenteeism, there is little in the way of research on what the its potential might be. On the other hand, research has indicated that even the proportion of their time, much less energy and enthusiasm, that employees spend actually doing work tends to be anywhere from one-half to two-thirds of their available and paid-for time at work. While such “underperforming” is clearly due to factors other than health, the EHM provider HealthMedia, Inc. in Ann Arbor, Michigan, has found average health-related impairment levels from six to nine percent or more in populations it has analyzed. In most cases, the overall impairment attributable to any one health behavior or condition causing impairment is less than the average level unrelated thereto.
While it may take some time to get past impairment factors in the workforce as a whole, there are likely to be individual members of the population who are already at no worse than average impairment. For these, some effort to move them into or even further into realizing their full positive presenteeism potential may be worthwhile, particularly if they are high-talent, high-worth employees. The model of empowerment reflected in EDHM efforts to address health-related impairment factors may also work well in addressing other factors that limit employees’ motivation, ability, or consciousness relative to improving their already normal levels of performance. And P4P systems could certainly help in this direction, as well.
The Safelite example demonstrated how P4P alone, for example, increased the average productivity by 56% in just one year, and was able to increase the productivity of individual employees by as much as 100%. [B. Hall, E. Lazear, et al. “Performance Pay at Safelite Auto Glass” Harvard Business School Dec 6, 2001 (Case Studies 9-800-291 & 292)] A similar approach by Best Buy in its corporate headquarters increased productivity by 36% and reduced turnover from 16.7% to zero. [M. Conlin “Smashing the Clock”, Business Week Dec 11, 2006]
These are but three of who knows how many possibilities might be tried by employers and EHM providers that are already making use of current trends in their strategies and interventions. Arguably, EHM is at roughly the stage in its development as were airplanes in the early 20th century, with a wide range of methods, including some pretty zany ones, being employed, though there are signs that some discipline in the form of rigorous analyses to identify best practices, is at least beginning. And future best practices, at least, are likely to go beyond what is common practice now.
by Scott MacStravic
April 11, 2008 at 2:31 pm · Filed under Hospital and Health System CEOs, Pay-for-Performance
The Patient Charter for Physician Performance Measurement, Reporting and Tiering Programs, developed by the Consumer-Purchaser Disclosure Project reflects one of the larger coalitions pushing for value-based purchasing, by all those who are customers of medical care. Aetna recently announced its support of the effort, which aims at combining transparency by or about medical care and providers, as well as improving the performance and value of the healthcare delivery system. [“Aetna Supports Patient Charter for Physician Performance Measurement, Reporting and Tiering Programs” Aetna Apr 1, 2008]
I recall when I was a hospital system executive in my last position before retiring what was meant by physician performance from the system’s perspective. My marketing/strategy division was, at that time, responsible for the system’s “physician relations” program, which relied mainly on a handful of “account representatives” who visited physicians on the medical staff to make sure things were working well for them when they admitted or referred patients to our hospitals.
We measured the success of this relationship management program entirely through the numbers of patients that the physicians involved admitted or referred. Initially, we lacked the ability to determine how profitable such patients were, but the intent was to learn, in effect, how profitable the physicians were, given the profitability of the patients they admitted. With such profitability increasingly in question now, thanks to physicians developing their own competing hospitals and ambulatory surgery or care centers, this is an even bigger issue today.
Within physician practices, particularly large, multi-specialty group practices, similar measures of the profitability, as well as quality performance of members are typically included in measurement efforts. Productivity, measured in terms of total billed charges and procedures, as well as adherence to evidence-based medicine and payer-sponsored “pay-for-performance” (P4P) criteria, are also logical measures.
I recall one interesting performance measure that a medical group I consulted with had used. If any subspecialty physicians within the group proposed that it invest in an expensive piece of equipment for diagnosis or treatment, the physicians who proposed it would become responsible for making sure the investment paid off. If the revenue they produced through use of the equipment failed to cover the costs of having it, the physicians would be “fined” the equivalent of the losses when it came time to split the practice’s revenue among its members.
This was intended to ensure that group physicians were on the conservative side when it came to proposing investments. It also had the natural tendency of such physicians to make sure their “hammers” were used, making even more patients’ conditions look like “nails”. Whether it promoted overuse, unnecessary use, etc. cannot be known without careful analysis, but the potential would certainly be there.
With payers involved, P4P measures of performance tend to reflect adherence to evidence-based quality in physicians’ care of patients, but often more importantly, their “efficiency”. This may tend to give too much weight, in overall ratings of and bonuses paid to physicians, on how low physicians keep the costs of care that insurers must pay, and physicians have typically bridled at such a payer-serving definition of performance.
Some insurers, with Regence Blue Shield in the Pacific Northwest coming to mind, have been working on measuring, reporting, or rewarding physicians based on how well each manages the health and particularly the diseases of patients. Such an approach to P4P might well serve primary physicians especially well for their “medical home” performance, and remove some of the pressure on them to see as many patients and deliver as many billable services as possible just to survive.
It is clear that however payers, consumer groups, and physicians, themselves, define, measure, and reward or punish performance will have a great deal to do with how medical care is delivered. One can at least hope that paying for and publishing performance measures will first and foremost serve the best interests of patients and the community, though it will also have to serve the interests of payers and physicians. The challenge is to align the incentives and performance measures used by all stakeholders.
by Scott MacStravic
March 11, 2008 at 1:00 pm · Filed under Employer CEOs, Pay-for-Performance, Employee Health Management, Health Management
In addition to the advantages cited in “Productivity vs. Performance in EHM” posted on March 10, the combination of measuring and rewarding performance improvement can avoid many of the regulatory limitations and restrictions relative to the use of incentives in employee health management (EHM). For some reason, the federal government has tended to view the incentives that employers offer their employees for participating in EHM initiatives, making health behavior changes or health improvements as dangerous in some way, and has severely restricted them.
For example, the total value of incentives offered cannot exceed 20% of the total health benefits that the employer offers. Given employers’ general reduction in how much they offer in health benefits, this tends to not merely limit but decrease the amount allocated for EHM incentives. The feds also demand that all employees have “equal access” to all such incentives, meaning that non-smokers, for example, should be eligible for the same incentives as are smokers who enroll in a tobacco use cessation program.
While this is arguably the only way to avoid discriminating against workers who are already healthy, it will also greatly increase the costs of incentives to employers. On the other hand, it may help to prevent healthy workers from slipping into unhealthy habits, since by paying them healthy habit incentives, employers automatically increase the out-of-pocket costs of not maintaining them. This form of “stick” along with “carrots” is already used in weight loss programs, for example, where employees may get a monthly incentive for having lost some percentage of their body weight, which they would lose if they let themselves gain it back.
Incentives can also be troublesome in unionized workplaces, where union contracts tend to push “non-discrimination” even more than the federal government does. Unions also may oppose pay-for- production wage adjustments, for that matter, or even the payment of incentives for any workers that are not paid to all. Moreover, incentives that are offered for specific health status gains, or even some behaviors, may be deemed discriminatory, when the status or behavior is deemed beyond the control of workers.
For example, there is a lot of pressure calling for the identification of overweight/obesity as a disease, rather than the result of overeating, thanks to research noting the genetic components that differentiate individuals with respect to weight gain. Smoking and alcohol abuse may be deemed addictions, forcing incentives to be limited to merely participating in an initiative aimed at reducing or curing the addiction, rather than for actually quitting. And since quitting the unhealthy behavior or correcting the unhealthy condition is the only thing that adds benefits to the employer, why should they pay an incentive just for participation?
While the justice and appropriateness of these kinds of restrictions and requirements for incentives may be argued, there is no question but that they severely limit what employers can do with them, and thereby what employers can achieve thereby. But the alternative of paying employees more based on their performance is arguably safe, though union contracts may restrict this practice as well.
Normally, employers are free to pay high-performing employees more than lower-performers. For example, when a windshield repair firm switched from a rigid hourly wage system to a pay-for-performance one, counting the numbers of windshields installed, the quality of installation and customer satisfaction with each job, it was able to increase overall productivity by 56% over four years, while payroll costs as a percent of sales fell from 12.3% to 10.8% (a relative decline of 12%). [B. Hall, E. Lazear, et al. “Performance Pay at Safelite Auto Glass” Harvard Business School Dec 6, 2001 (Case Studies 9-800-291 & 292)]
Pay-for-performance (P4P) has the advantage of achieving similar impact on overall productivity and performance, by itself. But it automatically creates an added incentive for workers to manage their health better, just as does the shift by many employers to high-deductible health plans and spending accounts that belong to workers. The difference is that P4P functions as a “carrot”, while the shift in health plans functions mainly as a “stick”. Moreover, it should enable employers to match the incentive to the actual economic value of the EHM result, since the result translates directly to improved performance.
Employers should be able to determine based on what they calculate as their economic gain from improved productivity and performance into a dollar amount that they are willing to “gainshare” with employees as incentives. They may also offer incentives just for participation, in order to get employees started, but employees, themselves, may eventually push for wholly performance-based incentives, since they should be significantly greater.
One of the devices that the windshield repair firm used in implementing its P4P system was to make a significant portion of the added pay a bonus, paid twice a year, rather than a weekly addition to workers’ paychecks. The workers who qualified for the “League of Superheroes” awards could get $7.60 extra per day/$38 per week for installing an average of 3.8 windshields per day with a 95% customer satisfaction rating, for example, meaning a six-month bonus of $988. Those who qualified for the top award, for 4.5 windshields/day and 97% customer satisfaction could get $18 extra per day/$90 per week, and a bonus of $2340 twice a year.
By getting this incentive as a bonus, employees got a major reminder of the cash they were earning, and in a form where it could be used for special, discretionary purchases, rather than routine expenses. They responded to this added incentive even more positively than to the P4P system as a whole. A similar approach could be used to identify a specific EHM “bonus” when improvements in health behaviors or conditions results in improved performance and economic benefit to the employer.
While it would take a labor lawyer to determine if there are any risks in adopting a performance-based incentive system to motivate and reward employee improvements in health that result in improved performance, the idea has significant advantages over other incentives. The incentive can far more easily be geared to a known value of the health improvement, since it will be expressed in performance improvement terms. And this should avoid most, if not all, the governmental restrictions and requirements relative to incentives for health behavior and condition changes, themselves.
by Scott MacStravic
March 11, 2008 at 12:56 pm · Filed under Employer CEOs, Hospital and Health System CEOs, Pay-for-Performance
There are a number of advantages available in a pay-for-performance approach to worker compensation, at least for as many workers as it can reasonably be applied to. It has been shown to, by itself, increase performance in two different ways, for example. First, it tends to motivate workers who have been performing at less than their best, due to lack of motivation and reward/recognition, to increase their performance, often dramatically, compared to what salaries or hourly wages.
This has been most clearly illustrated in a case study of a windshield repair firm, where the first year after shifting from an hourly wage of roughly $15 per hour, or $600 per week, average productivity increased by almost 40%, while overall compensation increased only 10%, i.e. a minimum $4.00:1 ROI ratio for the added pay (probably more since only the revenue per windshield was considerably greater than the pay given to workers for each one). [E. Lazear “Performance Pay and Productivity” American Economic Review 190:5 Dec 2000 1346-1361]
One of the advantages of paying for productivity in general is the fact that it directly and visibly affects their “life assets”. By my count, there are five such assets that are both important to individuals and affected by what their employers do. These are:
- Health – combinations of well-being, energy, physical strength, etc. that affect what we can do with our minds and bodies
- Power – the extent to which we can control/manage our environment and behaviors, perhaps influence others, but at least maintain some degree of autonomy
- Talent – capabilities, attitudes, motivation levels, etc. that determine what we are able to do and accomplish
- Time – both the sheer amount available to use and the portions of it we allot to specific necessities and discretionary use in our lives
- Wealth – personal and real property, liquid assets and investments that greatly determine what we can afford to do with our lives, particularly “discretionary” income and assets
Others may add to this list, but this is the set that I have found highly useful when dealing with attempts to influence human behavior in the contexts in which I have worked, in both marketing and management. And each offers an avenue to influencing behavior by enabling people to achieve gains or reduce costs related to one or more of these assets. Other approaches may work as well, but any strategy that does not take into account all five and the gains vs. costs relative to each involved in making behavior change is likely to be less effective.
The above firm soon discovered that paying for productivity alone brought with it two negative side effects, not anticipated when the P4P system was introduced. In order to maximize their “wealth asset” gains, workers tended to be somewhat slipshod in terms of the quality of their work, making it necessary to have the windshield re-installed in many cases. After assigning the job to whoever was available, the firm switched to making the original installer do it over, thus ensuring that there was no reward, indeed a penalty in added time asset costs without any added wealth asset gains. This took care of the problem.
But workers also leaned toward less care in ensuring that customers would be satisfied with their work. When the original windshield had been broken, and glass strewn inside the car, for example, workers were often a bit lax in ensuring that all the glass pieces were vacuumed up. To address this decline in service quality, the firm instated a customer satisfaction dimension into the P4P scheme. By combining the sheer output (numbers of windshields installed) with both technical and service quality dimensions, the former “Pay for Output” (P4O) system became a true Pay for Performance system.
This was accomplished by adding two more levels of incentive pay. For employees who increased their output from the original 2.5 average windshields installed per day to as much as 3.8 per day, a 52% increase, provided they also maintained an average customer satisfaction rating in surveys of 95% satisfied, they would get an additional $2.00 per windshield. This amounted to at least 3.8 x $2.00 = $7.60 per day or $38.00 per workweek. If they increased to 4.5 windshields installed per day and 97% customer satisfaction, they could get another $4.00 per windshield = $18.00 per day or $90 per week.
While their normal P4P compensation was reflected in their weekly paychecks, the extra output/satisfaction-based payments were accrued and paid out as a bonus twice a year. Since this bonus could be as much as $90 x 26 = $2340, it was far more significant when paid in a separate check than when added in smaller amounts to weekly paychecks. It felt far more significant to workers, who could use it for purely discretionary splurge purchases if they liked. [B. Hall, et al. “Performance Pay at Safelite Auto Glass” Harvard Business School (Case Studies 9-800-291 & 292) December 6, 2001)]
The P4P system gave employees boosts in at least three of their “life assets”, namely power, time, and wealth. By favoring high performers, who came close to doubling their personal compensation counting all incentives, it made a dramatic positive difference in their wealth account. Because it enabled them to control how much they earned by managing their own time and effort investments, it added significantly to their personal power and autonomy asset. It added to yet another asset, namely their time account, by enabling them to adjust the number of days or hours per day they worked according to their personal and family needs, while still ensuring an adequate income.
By combining three of the five life assets, such a P4P system can significantly enhance the effects of altering how employees are paid. It also adds an opportunity for employees to track and report, or at least to enable employees to track and remind themselves of how much better off they are for their added performance. By accruing a portion of the incentive payments into twice-yearly bonus checks, it gave employees a visible and more powerful reminder of their improved situation.
Had the employer simultaneously worked on its workers’ health asset, through worksite wellness or other employee health management efforts, or added training of some kind to enhance their talent assets, it would have maximized the number of life assets addressed and involved in its overall strategy. But involving three of the five proved highly effective in this case.
by Fred Fortin
October 17, 2007 at 11:52 pm · Filed under Uncategorized, Insurance, Policy Makers, Transparency/Public Disclosure, Pay-for-Performance, Quality Measurement, Value-based health care
The Robert Wood Johnson Foundation has sponsored a series of articles on legal barriers to health information that lays before us the reality of how difficult transparency efforts and moves to promote quality outcomes through financial incentives could become. In an article by Rosenbaum, Kornblet, and Borzi, the authors examine a number of possible allegations that could be brought against health plans that try to use some form of physician tiering based on quality or efficiency measures.
But first the authors issued a cautionary note, that for most of us, would seem obvious, but apparently still needs mentioning. They warn that
“Regardless of the legal theory chosen . . . certain basic attributes in current health plan practices are sure to trigger one or more theories and allegations: (1) secrecy in both the standards used and the weights used to perform rankings; (2) the absence of a transparent rational basis for the methods chosen; and (3) the absence of a process by which physicians can examine the data on which their rankings rest and challenge errors in data or methodology.”
To be honest, I don’t know of a reputable health plan that in this litigious day and age would be so lacking in common sense that they would knowingly go against this advice. If anything, health plans are too highly attuned to the risk of legal challenges. Progress in improving care will more likely be impeded rather than be pursued with the kind of reckless abandon implied here. But it is also my experience that no matter what reasonable precautions you take, lawsuits seem to materialize anyway and are a constant source of concern and expense.
In a nutshell, these are some of the legal strategies, according to the authors, that could be used by providers against health plans:
- Allegations of violation of statutory or common law fair process/due process requirements
- Allegations of violation of federal laws regulating health plans, state insurance laws, and more generalized consumer fraud statutes
- Allegations of violation of defamation and libel common law principles or statutes
- Allegations of violation of federal and state laws applicable to certain categories of sponsored health plans
- Allegations of intentional interference with contract/breach of contract
- Allegations of restraint of trade
- Allegations of violation of civil rights laws
It is beyond this post to go into any further detail about these strategies. But it’s easy to see that there’s a lot of legal ground that has to be covered here before physicians and health plans can become comfortable with each other around these issues, and before this national agenda can get the type of momentum it needs to make meaningful gains in the quality of health care.
by Scott MacStravic
August 20, 2007 at 4:45 pm · Filed under Health Plan/Payer CEOs, Policy Makers, Pay-for-Performance, Hospital Administration, Health Management
When I wrote the blog piece posted on Aug 15 about “non-payment for non-performance”, little did I realize how prophetic it was. In yesterday’s Times appeared an article - “Medicare Says It Won’t Cover Hospital Errors” - announcing that it will no longer treat the costs of preventable errors, injuries and infections that occur in hospitals. This is expected to save the federal government millions of dollars, while also saving many lives as hospitals have that much more motivation to prevent such errors.
Imagine what could happen if Medicare, Medicaid, commercial insurers and consumers got together and decided not to pay for preventable sickness! It has been estimated that roughly 75% of all sickness care could have been prevented by effective health management, immunizations, and other forms of proactive health care. There has long been a category of “avoidable” hospital admissions and treatments, regularly estimated as a large portion of all such treatments, based on best practices in ambulatory care.
This could easily become a “blame game” of course. Insurers, employers, and governments could blame either consumers for not adhering to healthy behaviors, or complying with medical recommendations and prescriptions, for example. Or they could penalize providers for not following best practices in managing their patients’ health, or not getting their patients to behave better.
Patients could blame insurers and their employers for not offering proactive health management programs they could enroll in (unless, of course, they did so), or not covering preventive and proactive services (unless they do). Providers could blame payors for not paying them enough or otherwise supporting them in proactive health care, e.g. not covering the amount of time and effort it takes in terms of “cognitive services” to get patients to behave themselves. And providers could easily blame their patients for not following their advice, once it has been given.
Payors would clearly have the upper hand in the blame game if they denied all payment for preventable sickness, not merely preventable errors, nosocomial infections, etc. They have a lot of practice in denying, or certainly dictating lower payment levels when they feel such is appropriate, as Medicare recently did in decreeing that ambulatory surgery centers should only get paid 65% as much as do hospitals for comparable procedures. [”Doc Group Says New ASC Rate Would be ‘Death Blow’” ModernHealthcare.com Aug 20, 2007]
Consumers, when they are payors for some or all the sickness care involved could also exert extreme pressure on providers, by denying them full payment of their charges for sickness care if they deem the sickness something their provider should have prevented. Providers could be caught somewhere between the impossibility of surviving on payment only for non-preventable sickness, and what they could legally command, or negotiate as their share of the blame for preventable sickness.
Given the widespread number of examples of in-fighting among healthcare stakeholders, there may be some movement toward such a policy and practice combination. After all, few insurers, employers, consumers, or governments have espoused a sense of responsibility for keeping the current sickness care system alive. And denying payment, in whole or even in part, for sickness that a given payor deems to be preventable, would threaten the existence of almost all providers.
Wouldn’t it be far better for providers, payors, consumers, etc. to get together and set annual goals for reductions in preventable sickness, involving all of their efforts, with all sharing in accountability for preventable sickness that doesn’t get prevented. Negotiating the relative share of accountability, in the form of lower payments by payors to providers, would be an interesting process to watch. On the other hand, if a cooperative approach to common problem solving were tried, where providers and consumers, as well as payors defined and treated preventable sickness as a common problem, that might end up moving the current sickness-focused “healthcare system” in the right direction
by Scott MacStravic
August 15, 2007 at 9:01 am · Filed under Hospital and Health System CEOs, Pay-for-Performance, Hospital Administration
Given the constant warring challenges of having enough of the right people in their workforces despite severe labor shortages, and keeping costs within the limits set by miserly payment for patient care, healthcare organizations (HCOs) have no choice but to ensure they get the most value possible from their existing workforce. While concepts such as “return on employee” (ROE) and “employee performance optimization” may not be commonplace, they are increasingly essential, as is equally true for “customers”.
While there have been many examples of re-labeling employees as “associates” or even “cast members”, what is really needed is the combination of thinking about and treating them, as well as motivating and enabling them to act as “partners”. This may well require revolutionary changes in how employees are managed, and how managers function in healthcare. And it will certainly require a revolution in the feedback systems that HCOs use in their employee relationship management (ERM) strategies.
When I began my career as a healthcare marketing executive, after teaching the idea for ten years, one of the practices I introduced in the two multi-hospital systems where I worked was a system-wide customer feedback mechanism, including patients, physicians and employees as “customers”. But this was generally limited to measures of the satisfaction and suggestions for improvement of each of these customers, with “marketing” implications in terms of recruitment and retention of all three categories, with only physicians monitored, managed and marketed to in terms of the value they delivered to the system.
In the current competitive and “reimbursement” climate, seeking ways to optimize both patient and employee contributions are just as essential, and employee contributions include their impacts on both physician and patient value. And the first, most essential requirement for optimizing employee value is to measure their performance and contributions, in order to manage them. In many cases, this can only be accomplished on a team, categorical, or unit basis, but without measures of current employee value, and ways to monitor changes therein, there is little hope for increasing it.
Fortunately, the growing practice of pay-for-performance (P4P) measurement and bonus payments for HCOs provides yet another motivation and mechanism for measuring employee performance and value. At a minimum, the contributions that employees make to P4P bonuses should be measured using the same metrics that determine the amount of added revenue their performance on such criteria delivers. This can then be used as the foundation for a wider system of measurement of total performance and value based on the HCO’s “balanced scorecard” of performance measures.
An added source of ROE should be actionable feedback and input into HCO operations and their improvement, in quality, customer satisfaction, and efficiency. The value of employee feedback can then be evaluated in the same performance dimensions as their overall worth is calculated. [“Designing Enterprise-Wide Real-Time Feedback Systems” CustomerSat, Inc. Aug 10, 2007 (www.mycustomer.com)] This will require system-wide collaboration across the HCO’s “silos” and systems, along with increased development and empowerment of employees.
When and if HCOs master the art and science of employee performance measurement and management, they may be able to offer their mastery as part of services and relationships offered to local businesses. This should help with employer relationship management and the public relations as well as marketing advantages improved relationships in that market deliver. And it would certainly be a great advantage for HCOs that venture into the employee health and performance market as a revenue-generating service to such employers.
To the extent that HCOs can achieve an integrated approach to employee performance optimization, for external ell as internal use, they may find a significant new source of revenue from employers, in addition to the added cost savings and revenue enhancement value of their own workforce optimization. In any case, it is an opportunity that few HCOs can afford to ignore.
by Scott MacStravic
August 15, 2007 at 8:58 am · Filed under Health Plan/Payer CEOs, Hospital and Health System CEOs, Pay-for-Performance, Proactive health management
The majority of pay-for-performance systems offer bonuses for healthcare providers that adhere to treatment guidelines and best practices. In many cases, there are specific outcomes included, such as patient satisfaction, cost reduction, and reduced infections. This “carrot” approach is intended to reward providers that improve or maintain high quality and efficiency, as defined and measured by specified criteria.
But just as is the case with P4P systems that apply to individual behaviors and health status, there are a growing number of “sticks” being added to systems that apply to providers. Medicare, for example, has frequently included “budget neutral” policies in its P4P programs, where the extra payments for high-performing providers comes out of the payments for low-performers, in order to keep the total payments the same as usual.
Payers are also beginning to refuse to pay for the care required to address “never events” in medical care, such as wrong-site surgeries. They argue that when providers cause costs to increase, often dramatically, by making serious errors in patient care, they should not be rewarded for such errors by getting increased payment over what would have been paid had there not been such an error. While this makes eminently good sense, and will generally not harm providers dramatically, given the rarity of “never events”, this policy could end up having dramatic impact, as the definition of such events changes.
If payors decide that providers should not be paid for what amounts to careless or unsafe practices, for example, rather than egregious mistakes such as wrong-site surgery, they could save significant amounts, while providers could be severely affected. Already lists of non-payable problems have been created that include quality failures such as decubitus ulcers in inpatients, for example. The case can certainly be made that such conditions should not occur, since good care should prevent them among bedridden patients, but the effects of non-payment would be far greater than for truly egregious errors.
A recent study, for example, found that hospital-based or “nosocomial” infections have cost between $200 million and $473 million in the state of Massachusetts alone. This includes extended inpatient stays, and additional costs of treatment for such infections. While the recommendation accompanying the report calls only for hospitals to publicize their infection rates, it would take little for payors to decide to include them among the events for which they will no longer pay. In such a case, payors could save hundreds of millions of dollars in dozens of states, and hospitals could be seriously hurt as a result. [“Infections Acquired at Massachusetts Hospitals Cost up to $473M Annually, Report Finds” Kaiser Daily Health Policy Report Aug 10, 2007 (www.kaisernetwork.org)]
Even publishing the different performance levels achieved by providers could severely damage low-performers, by causing patients, providers, and payors alike to avoid doing business with them. This has been one of the expectations of the “Buy Right” concept originated in the 1970s, though the effects of publishing performance data has, thus far, been minimal. With more costs and responsibility for sickness care use management being shifted to consumers, and easy Internet access to performance data, the effects of publishing comparative performance may become significant in the current and future system.
Any “punishment” of providers for poor performance will have at least two effects: 1) making it that much more essential for them to correct mistakes and improve poor performance; and 2) depriving them of resources that may be needed to do so. With many hospitals and physician practices operating at or below minimal survival levels in terms of revenue vs. expense, significant cuts in payment could easily drive them out of business before they are able to improve.
For those who favor a “free market” approach to healthcare reform, this would be a consummation devoutly to be wished, rather than a negative effect. But when poor performers are the only available or accessible source of care for particular communities or sub-populations, their going out of business would not always be an overall improvement in their healthcare system. With individuals, “capital punishment” is reserved for relatively rare and truly egregious behavior, not merely lower than average performance, but with healthcare organizations, there could be a far higher percentage of providers so “punished”.
There is also the risk that payors could find the refusal to pay for “never” events could become overly attractive, since it reduces their costs and improves their profits. In such a situation, the free market may favor payors too much, and cause overly aggressive definitions of such events, and even greater reductions in payment levels, since payors are competing with each other to keep their costs down. It will always be a temptation for payors to choose not to pay enough for providers to survive, witness the severe underpayment compared to providers’ operating costs that is already the case for Medicare and Medicaid, where these payors can simply dictate how much they will pay.
While carrots and sticks are often effective combinations in achieving improvements in individuals’ behavior and organizations’ performance, the stick carries with it some side effects that should warrant extreme care in its use. While there may well be a number of hospitals, as well as physicians and other practitioners that should not continue to deliver care, the potential that “No Pay for No Performance” could do significant harm, as well as good, should not be ignored in either public policy or private payment.
by Scott MacStravic
July 27, 2007 at 11:34 am · Filed under Pay-for-Performance, Facility design/management, Business of Health
There have long been serious disconnects between what healthcare providers are willing to promise and deliver, and what patients want to get from their healthcare encounters, episodes and relationships. Providers have tended to focus on “doing the right thing”, i.e. using their best judgment, adhering to evidence-based-medicine guidelines, etc. while avoiding accountability for the clinical outcomes and health/life quality value of their services. Patient satisfaction and loyalty to providers is certainly affected by the process of care, the “patient experience” that physicians and hospitals deliver, but are often much more concerned about the results they get.
On occasions when providers look at results, they often fail to recognize the full range of and variations among patients in results desired. Surgeons at the New York Hospital for Special Surgery, for example, focused on the single outcome of pain reduction when assessing the success of their procedures. Patients, on the other hand, looked for regaining ability to do normal activities of daily life, to resume favorite leisure and sports activities, improve their overall quality of life, not merely pain relief, and the specific outcomes desired varied by individual patient. [“Patients and Doctors Often Differ on What Constitutes Successful Surgery” Strategic Health Care Marketing 20:3 March 2003 p.12]
When patients have been the sole or main source of payment for care, however, providers have often been more sensitive to results. Fertility clinics, for example, have frequently guaranteed results or offered patients some or all of their money back if they failed to become parents. The 20/20 Institute in Denver offers a guarantee for its Lasik surgery: if patients do not achieve at least 20/20 vision in the treated eyes, they get a full refund of their payments. (www.2020institute.com/guarantee.htm)
Even hospitals have, on occasion, guaranteed results to some extent. Shouldice Hospital in Toronto has long guaranteed that if hernia repair patients must return for a repetition of the procedure, the surgeon’s fees will be waived. Hospital charges cannot be waived under Canadian law. Geisinger Clinic recently introduces a “ProvenCareSM” program for its coronary bypass surgery, with a warranty covering all needed care during the 90 days post procedure. [A. Casale, et al. “ProvenCareSM: A Provider Driven Pay for Performance Program for Acute Episodic Cardiac Surgical Care” American Surgical Association 2007 Abstracts (www.americansurgical.info/abstracts/2007/20.cgi)]
What such guarantees and warranties tend to do, in addition to promoting patient confidence in getting the desired results, is to motivate providers to strive for the absolute best processes and outcomes of care they can achieve. It alters the current “perverse” incentives in healthcare payment where providers who deliver worse care get paid more, as patients need more care for complications and repetitions or extensions of care, and payers add to their payment for individual episodes. [W. Lynch & H. Gardner “Getting Paid More for Doing Worse…Only in Healthcare” Health as Human Capital July 23, 2007 (hhcf.blogspot.com)
As Lynch and Gardner pointed out, this practice creates what amounts to pay-for-performance incentives for providers, self-imposed rather than offered by payors. It figures to fit very well with the increasing burden that consumers are bearing as employers shift more costs to employees and insurers sell more health spending account plans. It also figures to serve the providers well as they reduce the long-established disconnect between what consumers want to get out of healthcare, and what providers are willing to promise and deliver.
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