pg22_art-for-feature-performance-contractsHealth plans have been using pay-for-performance contracts to influence provider behavior for years, but the amount of money involved has been relatively small. That may change as transparency grows and employers seek a more aggressive approach to measuring and paying for value.


Key Takeaways

Experts in performance-based payment approaches are anticipating a number of future trends: 

  • The percentage of pay at risk under value-oriented contracts may increase in the future-by as much as 20 percent if some purchasing groups achieve their goals
  • Travel surgery contracts will likely only be pursued by large employers with big-name health systems
  • Accepting more financial risk under bundled payment and other value-oriented arrangements will be easiest for health systems that are currently using performance data for payment and for management

Although many health systems have been in pay-for- performance contracts for several years, the number-and variety-of those contracts is burgeoning as health system performance becomes more transparent. Centura Health, Colorado's largest health system, for example, has insurance contracts that tie payment to its performance on everything from readmissions and quality improvement goals to patient satisfaction scores and timely notification of a member's hospitalization (see the exhibit below).

pg25_exhibit-pay-for-performance

The percentage of pay at risk in these arrangements varies widely, says Bradley Olson, former director of payer relations and contracting for the 13-hospital system.

In general, 1 percent to 2 percent of Centura's net revenue is tied to its performance-and that is enough to get Olson's attention. "One to 2 percent is an important number for Centura," he says. "It does mean a lot."

Major employers, however, are pushing for much more. Catalyst for Payment Reform, a not-for-profit organization that represents 22 of the nation's largest employers and other healthcare purchasers, wants 20 percent of aggregate net payments to providers to be value-oriented by 2020. "When you look at the breadth and depth of programs available today that are value-oriented, they are very superficial," says Suzanne Delbanco, executive director, Catalyst for Payment Reform. "They touch very few providers, they touch very few of the healthcare dollars in the system, and they touch very few patients."

Catalyst for Payment Reform's definition of "value- oriented" payments extends beyond traditional pay-for-performance contracts to include new payment strategies that reduce waste, such as paying the same price for Cesarean and vaginal deliveries, thereby discouraging unnecessary C-sections. "If we can settle on which of those strategies seems to be effective and implement them more broadly, I don't think it's unrealistic to get to the 20 percent," says Delbanco. "If you don't push for something bold, you will never make any progress."

Employers Going Bold

The boldest employers are contracting directly with health systems to deliver certain procedures at set prices through so-called "travel surgery" programs. That strategy hinges entirely on the use of quality and cost data to identify providers that can deliver the value the employers want.

The home improvement retailer Lowe's pioneered this concept in 2010 when it signed a bundled payment contract with Cleveland Clinic to provide heart surgeries for its employees. The company said it would be pleased if 10 employees used the travel surgery option in the first year of the program; indeed, 30 workers chose the option, says Michael McMillan, Cleveland Clinic's director of market and network services, in a February 2011 HFMA Forums article.

Most recently, PepsiCo contracted with Johns Hopkins Medicine to provide cardiac and joint replacement surgeries for its U.S. employees and their dependents, regardless of where they live. Although traveling to Baltimore for those procedures is optional, the 250,000 individuals in PepsiCo's self-insured health plan will see their deductibles and coinsurance waived if they choose that option. The company will also pay the travel and lodging expenses for the patient and a companion.

The consulting firm that arranged the contract on behalf of PepsiCo started the process by reviewing Johns Hopkins' quality data. "We did go through a significant vetting process with PepsiCo's consultant about our program," says Patricia M.C. Brown, president of Johns Hopkins HealthCare LLC. "They reviewed all of our data to ascertain our quality before they even introduced the employer to us."

The health system then proposed prices for 27 bundles of services-22 cardiovascular procedures and five joint replacement procedures-which include all hospital and physician charges and certain preoperative tests. "PepsiCo's consultants had the ability to assess our rates because they have a lot of data," she says. "We negotiated, obviously, but the consultants were able to ascertain from their own data whether we were offering a competitive price, and whether that price would offer savings to the purchaser-in this case, the employer."

Arnold Milstein, MD, is an expert on the travel surgery phenomenon, having initiated the contract that allows Lowe's employees and dependents to travel to Cleveland Clinic for cardiac procedures. He expects to see complex cardiac and spine surgeries, major joint replacements, and possibly brain surgeries slowly migrate out of community hospitals in the years ahead. However, he thinks direct contracting between employers and providers will be limited to only the very largest employers because of the extensive administrative work involved.

Those employers that do pursue direct contracting will demand data that proves high-quality care before they consider a provider for a travel surgery contract. However, employers' decisions will be based on cost; they want to control costs through a bundled payment approach that holds the provider financially responsible for any complications of care associated with the procedure.

That said, community hospitals may be at a disadvantage when it comes to direct contracting with employers-even if they can document top quality and lower cost of care. "When employers are starting down this road, they want their employees to embrace the idea of traveling for surgery rather than using the local team," says Milstein, director of the Clinical Excellence Research Center at Stanford University School of Medicine. "They don't want ambiguity in people's minds as to whether the quality is worth the trip."

In the immediate future, he expects employers will only pursue travel surgery programs with big-big-name centers like Mayo Clinic, Stanford, and University of California-Los Angeles Medical Center.

Delbanco agrees that few employers will want to contract directly with providers. But she says the motivation for direct contracting is the same one that is driving employers to demand other changes in healthcare purchasing. "Employers are increasingly aware of the fact that there is wide payment variation for the same service, and it does not necessarily have anything to do with differences in quality," she says.

Providers Getting Paid for Performance

Of course, that fact benefits health systems that are able to deliver high-value care. Olson, at Centura Health, says the system has focused on quality improvement since it was organized in 1996. Over time, the concept of value-quality divided by cost-has become increasingly important, and it is a central theme in the system's strategic plan for 2020. "Centura knows patients, employers, and payers are very focused on cost and quality," he says. "We have well-laid plans to manage this."

Nearly a decade ago, the system entered into its first pay-for-performance contracts with managed Medicare plans. In the past five years, pay-for-performance measures have also been used in its contracts with managed care preferred provider organizations (PPOs) and health maintenance organizations (HMOs).

Olson worked with Centura's clinical quality directors when he negotiated with payers about the metrics to use in performance-based contracts. In addition, he shared the results with those directors each quarter so they could see how clinical performance affected Centura's revenues.

The data that is used to assess Centura's performance comes from a variety of sources. For example, one payer uses a third-party vendor to gather data that is manually submitted once each year by Centura's quality directors or case managers. Another payer tracks performance measures by analyzing Centura's claims data, which includes information on the services provided to patients.

This claims data analysis sometimes reveals facts about Centura's performance that the health system may not be able to see internally. At quarterly meetings with Centura, the insurer reviews length of stay and discharge data for its members who have been admitted to Centura hospitals and identifies opportunities for improvement. For example, when a payer pointed out that a certain physician had a longer-than-expected length of stay for newborn deliveries, Centura responded by coaching that physician about the system's policy regarding mother-and-baby discharges.

At these quarterly meetings, the insurer also reviews the percentage of admissions for which Centura notified the payer within 24 hours, 48 hours, or 72 hours. Olson says the health system's goal is to notify insurers within 24 hours for 100 percent of admissions, but its track record is closer to 95 percent. Tracking the payer's notification data helps Centura reduce claims denials, he says.

See related sidebar:Succeeding in a Value-Based Payment World

Information Used in New Ways

This kind of information sharing between payers and providers would have been remarkable just a few years ago. But providers and payers alike are realizing that data can drive improvement. In many cases, adversarial relationships between health systems and insurers are giving way to mutually beneficial collaborations based on data.

Both parties are responding to pressure from employers that are tired of ever-increasing healthcare costs and nagging questions about the quality and safety of care. That is what prompted GE, 3M, Xerox Corp., Walmart, and other major employers to come together in 2009 to form Catalyst for Payment Reform.

The not-for-profit's strategy is one of shared strength. Although no single employer or purchaser has enough buying power to change the way health care is paid for, large healthcare purchasers banded together do have that power, says Delbanco. The organization's reach is spreading. Earlier this year, Ohio Medicaid became the first state Medicaid program to work with Catalyst for Payment Reform.

The Push for 20 Percent

Catalyst for Payment Reform's strategy is to influence insurers in ways that drive payment reform. All employers or other purchasers that participate in the organization's efforts agree to use its health plan Request for Information (RFI) to query insurers about how they currently pay hospitals and physicians and their plans for the future. The goal is to help healthcare purchasers examine and compare the amount of physician and hospital compensation that is tied to performance through pay-for-performance and other value-based purchasing programs-and to put pressure on them to do more.

First introduced last summer, the RFI will be used by Catalyst for Payment Reform purchasers to vet health plans during their next contracting cycles. In the interim, employers are encouraged to use the RFI questions as a discussion guide during their periodic meetings with their current health plans. "We suggest to our purchasers that these are the questions they should be posing to health plans so they can find out what the plans are up to and push them into these value-based contracts," says Delbanco.

The RFI includes sections asking health plans to assess their performance-based payments, give evidence that the performance-based payment is effective in adding value, identify how performance is measured for payment purposes, and reveal their future plans for payment strategies.

Through an arrangement with the National Business Coalition on Health, the RFI will have a much broader reach than the 22 purchasers that work with Catalyst for Payment Reform. The National Business Coalition annually surveys more than 60 national and regional health plans using its eValue8 assessment tool. Most of the RFI questions have been incorporated into this year's eValue8 survey, and all of them will be included next year, says Delbanco.

The data collected through the RFI will identify the health plans that are most aggressively moving to value-based payment strategies, which will help employers decide which plans they wish to contract with. The very process of asking for the information, in and of itself, puts pressure on health plans to move beyond the current standard, in which providers are at risk for only 1 percent to 2 percent of total payment.

Beyond that, the information will illuminate which value-based strategies are most effective in controlling costs and which payment models are gaining traction. "Health plans are very open to working with us because, right now, they have every customer asking them for something different," says Delbanco. "To the degree that we can organize a health plan's customer base and have them all on the same page about what they want from the health plan regarding payment reform, we may make the health plan's work easier."

Readiness for the Future

Accepting more financial risk-either through accountable care organization contracts, bundled payments, or more aggressive pay-for-performance arrangements-will be easiest for those health systems that are already using performance data for payments and for management.

At Centura, Olson liked contracts in which payments reflect the well-recognized performance measures, such as the core measures for heart care and pneumonia. "Those are where Centura is focused," he says. "The outcomes are generally easier to meet because our health system is engaged-from the top to the bottom-in meeting those goals."


Interviewed for this article (in order of appearance): Bradley Olson is former director of payer relations and contracting, Centura Health, Englewood, Colo. Suzanne F. Delbanco, PhD, is executive director, Catalyst for Payment Reform, San Francisco (sdelbanco@catalyzepaymentreform.org). Patricia M.C. Brown, JD, is president of Johns Hopkins HealthCare LLC, Baltimore (pbrowna@jhmi.edu). Arnold Milstein, MD, is director of the Clinical Excellence Research Center, Stanford University School of Medicine, Stanford, Calif. (amilstein@stanford.edu). 

Publication Date: Friday, May 25, 2012