Designing Incentives that Reward High-Quality, Cost-Effective Care

The search is on for ways to align incentives so that hospitals, physicians, and other care providers are rewarded—rather than financially penalized—for doing the best thing for their patients.

Healthcare providers want to provide high-quality, cost-effective patient care, but the fee-for-service payment system actually discourages hospitals and physicians from working together to enhance preventive care, manage chronic diseases, reduce readmissions, and improve efficiency.

Many healthcare leaders are experimenting with ways to fairly share financial rewards and risks when working together across the continuum to improve care and reduce costs.

Empowering Primary Care Physicians

Since the beginning of this year, Mount Auburn Hospital, a 210-bed Harvard teaching hospital, has been operating under a new, risk-based quality contract with Blue Cross and Blue Shield of Massachusetts, the leading insurer in its market.

The Cambridge-based Mount Auburn entered into the Blues arrangement in conjunction with Mount Auburn Cambridge Independent Practice Association (MACIPA), a group of more than 300 primary care and specialty physicians with staff privileges at the hospital.

The new quality-focused contract is an “alternative” to the typical contract with the insurer. The contract aligns the financial interests of the hospital and physicians, encouraging them to work together to provide high-quality, efficient care—and reap financial rewards for doing so.

The new contract includes two components: The risk portion provides a global, or fixed, payment per patient adjusted for age, sex, and health status. That payment, which will be adjusted for inflation annually, covers all the primary, specialty, hospital, and sub-acute care that Mount Auburn and MACIPA provide to Blues members.

The incentive portion of the contract provides performance bonuses, awarded annually, based on the providers’ achievement on 60 measures of quality, effectiveness, and patient satisfaction. “To the extent we are able to meet these quality metrics, the better we will do financially. But, most important, the patients will fare better,” says Jeanette Clough, president and CEO of Mount Auburn Hospital.

The new contract dispenses with traditional fee- for-service payment in favor of capitated per-member-per-month payments. If a Blues member develops a complication or has an extended inpatient stay at Mount Auburn, the physicians and the hospital bear the risk for the cost of that inpatient stay.

On the other hand, the providers get a bonus payment for preventing hospital-acquired infections. “We have decreased infections markedly, so we will actually get recognized and paid for having achieved that,” says Clough.

Having a deep well of primary care physicians makes it easier to manage patients’ care and succeed in a risk-based contract, says Clough. Mount Auburn’s medical staff mix is about 50 percent primary care physicians and 50 percent specialists, compared to a 30/70 split that would be common for an academic medical center.

“In my mind, primary care physicians are the core of health care. They are the leader of the patient’s care team,” says Clough.

Under the Blues alternative quality contract, Mount Auburn agreed to let the MACIPA primary care physicians receive the total per-patient payment from the insurer, including the bonuses achieved through managing and improving quality. The primary care physicians, in turn, pay specialists and the hospital based on negotiated rates.

“By allowing these primary care physicians to control the dollars, and the physicians to be in charge of all the utilization, it takes the hospital out of the role of cajoling the physicians to go along,” says Clough. “The physicians are in charge and, as a result, they do very well on the risk agreement. They manage pharmacy very aggressively. They manage the care of high-risk patients very aggressively.”

Because the Massachusetts Blues agreement is a five-year contract, it is in the providers’ financial interest to improve patients’ health status to avoid high-cost treatments and unnecessary hospital stays in the future. This is why the hospital and MACIPA jointly fund case management for patients with diabetes and other chronic diseases to help ensure these patients comply with physician orders and receive needed services. In addition, phone-a-thons are being conducted to schedule mammogram and colonoscopy appointments for eligible patients. And a pharmacy team is tracking high-risk patients who take high-risk medications, seeking to prevent serious and expensive drug/drug interactions and other adverse events.

For her part, Clough works to make Mount Auburn Hospital an attractive choice for physicians in the Boston-area market, which has more than 20 hospitals that could serve the physicians’ patients. “It is in our best interest to make sure we remain their best partner and that we keep ourselves efficient and less expensive than many of the academic medical centers,” she says.

Another key to alignment: MACIPA pays all physicians to become educated about and participate in quality improvement.
Clough is confident that the Blues alternative quality contract will be a win-win-win—good for the hospital, the physicians, and best of all, for patients. When quality measures are reviewed at the end of the first contract year, Clough expects to see many improvements and increased efficiency.

“This is almost like starting again,” she says. “We are evaluating and managing our patients’ short- and long-term health even more carefully and with a tremendous team effort—more than ever before.”

Valuing True Partnerships

Hampden County Physician Associates (HCPA), a multispecialty practice in western Massachusetts, also signed the Massachusetts Blues Alternative Quality Contract earlier this year, taking responsibility for the total healthcare budget of 5,000 patients. Like Clough at Mount Auburn, HCPA’s CEO Robert Suchecki believes the contract will improve patient care, reduce costs, and work out well for his physician group.
“I’ve been waiting for global capitation to come back around for 20 years now,” says Suchecki.

Unlike the physicians who work with Mount Auburn, HCPA does not have a contractual relationship with the hospitals that serve its patients. But HCPA has experience sharing financial risks and benefits with hospitals under Medicare Advantage contracts. For more than a decade, the physicians group and two area hospitals—Mercy Medical Center and Noble Hospital—have worked together under risk-based, global capitation contracts to serve 6,000 Medicare patients.

One of the ways HCPA succeeded under Medicare Advantage is by cutting inpatient admissions by more than 30 percent through medically appropriate use of 24-hour to 48-hour hospital observation stays. The medical group has its own daytime hospitalist group working at two area hospitals, as well as nurse case managers who help patients at risk of inpatient admission manage their own care at home. The group’s hospital admission rate for its Medicare Advantage members is about 210 admissions per 1,000 members—compared to a statewide average of 340 admissions.

Recognizing that the hospitals could take a big hit financially from these practices, HCPA agreed to significantly increase the rate it pays the hospitals for observation. “The hospital leaders are not upset with us for keeping people out of the hospital because they are getting much, much more than the regular Medicare rate for an observation stay for our Medicare Advantage patients,” says Suchecki.

That is just one of the ways that Suchecki makes sure that what works for HCPA also works for the hospitals. “Our partner hospitals also share in surpluses and are referred all services that they are able to provide,” he says. For example, HCPA contracts with the hospitals’ in-house hospitalist groups to provide nighttime coverage for HCPA patients. That helps offset the hospitals’ need to subsidize their in-house hospitalist service.

Beyond that, HCPA makes a point of sending work to the hospitals whenever possible. “We use their home care service agency, we use their lab, we use their MRI services—anything that the hospitals have, we like to use because they are our partners,” says Suchecki.

HCPA also seeks to collaborate with other providers in the community in ways that create a steady stream of referrals to its partner hospitals. Through HCPA’s management services organization, for example, more than 70 independent primary care physicians have the opportunity to participate in HCPA’s Medicare Advantage contract.

“This allows physicians in the community to offer a continuum of care for their patients through us,” he says. “They are seeing their patients in their offices just like before. But when their patients need inpatient hospital care or skilled nursing, HCPA is the entity that takes care of them via its network of partner relationships.”

Believing HCPA is positioned to thrive under global capitation, Suchecki hopes the idea catches on. “If other payers follow suit, we would certainly be able to have a very profound effect on the overall cost of health care,” he says.

A Give and Take

HealthPartners, a Minnesota-based integrated healthcare system, has reduced emergency department visits by 39 percent over four years and hospital admissions by 24 percent. Hospital readmissions for frail elderly patients are 40 percent less than the community average.

HealthPartners, which provides insurance to more than 1 million members in five Midwestern states, also includes a teaching hospital, two critical access hospitals, and a multispecialty group practice that employs more than 600 physicians.

HealthPartners success in improving patient outcomes can be attributed in part to the system’s integrated payment and delivery model. Andrea Walsh, executive vice president and chief marketing officer, believes integration is essential to improving the coordination of healthcare services, although integration can follow many models, including “virtual” integration via shared technology.

“There are a lot of ways to get there, but there has to be some system,” says Walsh. “Single operations in their own siloed practices of medicine will find it very difficult to achieve the kinds of results needed, both in affordability and in health outcomes.”

HealthPartners uses a pay-for-performance payment structure to align the incentives of its employed primary care physicians with that of the overall system. Physician compensation is based on productivity, quality and service metrics, and participation in improvement activities.

Beyond that, the insurance company’s Partners in Excellence program provides financial bonuses for medical practices that hit what medical director Patrick Courneya, MD, calls “stretch targets—things that are not a slam dunk.” Bonuses are available for a variety of primary care and specialty measures, including the percentage of patients who receive optimal care for diabetes.

In 2007, more than $21 million in incentives were distributed to individual hospitals and medical groups for meeting quality, patient satisfaction, and other goals, including the use of health information technologies. That translates into 2.2 percent of total physician reimbursement, although the amount awarded to each physician varies, depending on his or her performance on measures.

While financially aligning the interests of physicians and other providers is a component of HealthPartners’ success, Walsh says the bigger factor is cultural alignment, in which patients, providers, and payers are all working toward the same goals.

That culture is partly external: The long collaboration between Minnesota healthcare providers and payers to improve the state healthcare system sparks envy from the rest of the country.

Internally, HealthPartners fosters cultural alignment through consistent processes that systematically deliver best care. To meet HealthPartners’ best care standards, patient care must be supported by an electronic health record (EHR) and delivered in a way that is customized to the needs of individuals.

Operating on the assumption that physicians, hospitals, and other providers truly want to deliver the best care for their patients, HealthPartners is creating the infrastructure to make optimal care the easiest care to deliver, says Walsh.

For example, two years ago, HealthPartners introduced a radiology management program that reduced the number of unnecessary high-tech images by 7,000 in the first full year of operation—and cut costs by $6.6 million over what would have been spent without the program.

Under the program, physicians who use a decision-support tool in their EHRs—which informs them of the appropriate test for a given medical situation—do not have to seek approval before ordering scans. Physicians who do not use EHRs can get decision support in other ways (for example, from the referring radiologist or an online decision-support database). Courneya estimates that 70 percent of HealthPartners members are now treated by physicians with EHR-based decision support.

Even though radiologists saw the growth of their businesses slow as referring physicians opted for fewer MRIs and PET scans, they supported the initiative because it is part of a communitywide, and highly publicized, effort to reduce unnecessary diagnostic imaging in Minnesota, says Courneya.
Important support also came from HealthPartners’ Medical Group physicians.

“Our medical group knew that we and other health plans were going to be doing something to better manage radiology, and asked, ‘Can we build a clinical capability to address this?’” says Courneya. The medical group physicians developed the decision-support content to be used in their own medical record system—and gave the tool to other physicians in the state who use the same medical record system.

Another strategy that fosters cultural alignment: public reporting of quality data. Each year, Health-Partners publishes a clinical indicators report that shows how individual medical groups and hospitals are performing on care processes and outcomes. This year’s report compared providers’ performance on 54 measures related to care for heart disease, diabetes, depression, prevention, medication prescribing, and patient satisfaction.

Beyond that, HealthPartners hosts an annual ceremony to recognize top performers.
“It’s fascinating and actually very invigorating to see enlightened medical leaders in our community competing over how they get their systems to do a better job of delivering care and being proud about the measures and the numbers that they are able to report to the public,” says Courneya.

Sharing Savings with Physicians

CAMC Memorial Hospital, home to the nation’s fourth largest cardiology program, expects to save $2 million this year through its participation in the Medicare Hospital Gainsharing Demonstration. The Charleston, W. Va., hospital will share 50 percent of that amount with cardiovascular surgeons, vascular surgeons, and electrophysiologists who are making those savings possible. The referring physicians are serving on hospital committees and teams that search for ways to reduce hospital expenses and improve quality.

Although the gainsharing concept is thought to hold great potential for increasing healthcare efficiency, the Centers for Medicare & Medicaid Services (CMS) demonstration project is also designed to prove that aligning the interests of referring physicians and hospitals can also improve quality.

“This is not just a cost-reduction project,” says Bill Adams, Memorial’s administrator and a vice president of the four-hospital Charleston Area Medical Center. “We want to improve quality and reduce costs, and CMS wants us to do both. In fact, if quality goes down in the demonstration project, then there are no payments to the physicians.”

After CAMC’s application for the gainsharing demonstration was approved, Adams worked to educate the hospital’s cardiovascular surgeons, vascular surgeons, and electrophysiologists about what gainsharing means. The biggest job was to dispel the misconception that gainsharing would involve global payments and shared billing.

“We would never have gotten off the ground if they thought that their billing becomes our billing and they had to open up their books to us,” he says.

The hospital board appointed a physician-led steering committee to decide the details of the physician-hospital relationship. That committee worked out the terms of the contracts that determine how savings are shared.

At the end of each quarter, CAMC analyzes its costs for the cardiovascular diagnosis-related groups that are part of the demonstration project. If costs increase relative to the baseline, no gainsharing payments are made. If quality is maintained or improved, costs decrease relative to the baseline, and the savings are attributed to specific cost control initiatives, then 50 percent of the savings are shared with physicians.

CAMC’s gainsharing committee is pursuing multiple initiatives. The biggest source of savings, Adams says, is coming from better prices and physician selection of automatic implantable cardioverter-defibrillators and pacemakers.

“Hospitals have struggled for years to get the cost of these implants down and the vendors, in many cases, just ignore our requests because we don’t have the physicians on our side,” says Adams. “In this case, we did have the physicians on our side.”

Indeed, hospital leaders worked closely with physicians to negotiate better prices on the implants they prefer from the vendors they have worked with in the past. So savings were generated without any significant changes in the products used.

A second project—reducing the variation in the process of getting a patient prepared for cardiovascular surgery—is improving efficiency, reducing supply costs, and increasing the number of surgeries that can be scheduled per day.

After a patient enters the operating room (OR), preparing for surgery can be completed within 45 to 60 minutes under ideal conditions. But historically, CAMC Memorial had experienced variation in this process that was not always related to the patient’s condition. Sometimes this variation led to “move in to cut time” as high as 75 to 90 minutes.

“This was an ideal project because it has a quality as well as a cost component, as there are several people in the OR during this process, including the cardiovascular surgeon, anesthesiologist, perfusionist, an RN circulator, an RN/PA first assistant, and a first and second scrub,” says Adams.

By agreeing to organize and standardize the work so surgery can start as soon as the patient is prepped, the hospital has eliminated wasted time. Fewer anesthetic supplies are also being used because patients are anesthesized for shorter periods of time.

“That extra 10 or 15 minutes can make a lot of difference when you’re as busy as we are and you’ve got other cases you have to do in that room,” says Adams.

Unclogging Physicians’ Time

The Seattle-based Virginia Mason Medical Center is using a different type of incentive to get busy physicians engaged in quality improvement activities: the lure of added time.

The not-for-profit health system is well known for using manufacturing-based quality approaches—specifically the Toyota Production System—to improve patient safety and reduce inefficiencies in healthcare management.

One of Virginia Mason’s goals is to improve patient flow in inpatient treatment as well as in primary care and specialty clinics. “What we want is complete flow for patients throughout our entire system,” says Suzanne Anderson, senior vice president, CFO, and CIO.

Physicians are represented on the improvement teams that are looking for ways to improve patient flow, and their input has helped identify some innovative efficiencies. For example, a new primary care clinic that opened earlier this year was designed with no patient waiting room.

“Patients walk in the door and immediately start this flow of service,” says Anderson. “Because of that, patients move through our system more quickly. That allows us to be more efficient, to see more patients, and to generate a better bottom line.”

It also improves life for Virginia Mason physicians. The physicians, all of whom are employed by the health system, benefit from improved work flow because they can treat more patients in a shorter amount of time. Seeing additional patients also translates into higher pay for the physicians, who are paid primarily on a production basis.

Not all of Virginia Mason’s clinics have migrated to no-waiting-room status yet, but many have adopted other changes to improve patient flow. These types of efficiencies are transforming care delivery and financial performance.

For example, the health system’s general internal medicine unit had operated in the red for 34 years before work processes were redesigned to improve patient flow. “Flow stations” located immediately outside of exam rooms are now used so that physicians no longer need to return to their offices between appointments. While the physician is seeing a patient, a medical assistant prepares indirect work, such as lab results to review, so that the physician can handle these small tasks between patient visits rather than saving them until the end of the day.

The result: Physicians are now working shorter days, more patients are being seen each day, and the general internal medicine team generated a positive net margin of $310,000 in 2007.
 

Nationwide Demonstration Projects

In the search for a new payment system that would encourage better coordination and more efficiency in healthcare delivery, the Centers for Medicare & Medicaid Services (CMS) and other payers are experimenting on several fronts. Here is a sampling.

Episode-based payment. Through the Acute Care Episode (ACE) demonstration that started in five health systems this summer, CMS is testing the use of a bundled payment for hospital and physician services for several cardiac and orthopedic procedures. The goal of the ACE demonstration is to align hospital and physician incentives so both provider groups are motivated to use clinical pathways, improve coordination of care among specialists, and engage in gainsharing.

Pay for performance. CMS’ Premier Hospital Quality Incentive Demonstration, now in its third year, is testing whether performance incentives and quality reporting requirements result in improved inpatient care. Nearly 150 other pay-for-performance programs, including the well-known Leapfrog Group and Bridges to Excellence initiatives, are currently sponsored by private and state-level payers.

Capitated payment for care management. CMS’ Medicare Medical Home Demonstration, expected to start with 400 physician practices late this year, will examine whether paying physicians to coordinate a patient’s overall care would translate into better health care at a lower cost. Many state governments and private payers are also experimenting with the medical home concept.

For more information on payment reform, access HFMA’s Health Payment Reform: A Call to Action. The free report is available at WWW.HFMA.ORG