February 19, 2007

Pay for Performance: The Boost Healthcare Needs?
By Aggie Stewart
For The Record
Vol. 19 No. 4 P. 20

Some believe aligning the right incentives with quality performance can help save an ailing industry.

News about the quality and safety of healthcare in the United States has been anything but uplifting for quite some time. The Institute of Medicine’s 1999 report To Err is Human: Building A Safer Health System, followed by its 2001 report Crossing the Quality Chasm: A New Health System for the 21st Century, documented in neon terms what many health professionals, researchers, and policy makers had long known: The healthcare industry suffers from serious, systemic problems that adversely affect its ability to provide safe, high-quality care.

Little has changed, and the pace of what has changed has been painfully slow. According to the latest reports on U.S. healthcare quality, while there has been some improvement, the overall rate remains the same as the previous two years (3.1%), variation in quality remains high, and significant disparities in access to care based on race, ethnicity, and economic group persist.1,2

Quality and safety issues aren’t the only concerns. Runaway cost escalation coupled with a rise in the number of uninsured and underinsured patients has only aggravated longstanding concerns about the impact our quality- and safety-challenged healthcare system is having not only on individual lives and household economies, but also the nation’s ability to remain competitive in a global economy.

One great irony about where the healthcare system finds itself today is that quality, safety, and cost issues have been addressed by both public- and private-sector healthcare organizations for decades. The quality movement carried forward by these organizations—not to mention the incredible work done by healthcare providers themselves—has produced tremendous methods, tools, and evidence for measuring, assessing, and improving healthcare quality and safety. So why haven’t these methods, tools, and evidence created a fundamental change in behavior and sustainable improvement in quality? What’s been missing? According to some, it’s the alignment of the right incentives—ie, financial and other recognition—with quality performance.

Aligning Incentives
This alignment lies at the center of pay for performance or value-based purchasing, the latest evolution in the quality movement. Pay for performance aims to promote “quality improvement by rewarding providers (meaning individual clinicians or, more commonly, clinics or hospitals) who meet certain performance expectations with respect to healthcare quality or efficiency.”3 The idea is to induce behavior change on the part of providers on a larger scale and more quickly than other approaches to systemwide quality improvement have been able to accomplish.

Although in its infancy, pay for performance has captured the attention and imagination of significant stakeholders within the industry, namely purchasers and payers, with its still mostly theoretical promise of fundamental change and sustainable improvement in quality, safety, and cost. The idea of linking payment and other rewards to performance, however, is seen as a unique and necessary, if not radical, strategy for getting out of the current quality/safety/cost quagmire.

“What makes pay for performance different ... [is] a very clear recognition that the current reimbursement system is often not just neutral about quality, it’s actually antithetical to providing high-quality care,” says Carolyn Clancy, MD, director of the Agency for Healthcare Research and Quality (AHRQ), the research arm of Health and Human Services for healthcare quality, costs, outcomes, and patient safety. “It’s an effort to align how we pay for care with what we want from care; that is to say, high quality.”

As much as pay for performance targets quality improvement, it also takes aim at the structure of healthcare reimbursement. It recognizes that, by itself, providing safe, high-quality, affordable care is not enough to make it an industry standard.

“For the most part, everything that’s happened in the quality and safety movement heretofore has been relying on professional motivation, encouraging people to do the right thing, and fear of litigation,” explains William F. Jessee, MD, FACMPE, FACPM, president and CEO of the Medical Group Management Association (MGMA). “[The system] almost punishes organizations that provide safe, high-quality care because if you keep patients well, they won’t be seen as often and that reduces your income. And the DRG [diagnosis-related group] system pays hospitals more for patients who develop complications than for those who don’t. So there’s little economic incentive in the payment system to really enhance quality and safety. Pay for performance changes that dynamic a little bit by actually offering some degree of economic incentives for achieving either specified levels of performance or for making improvements in performance.”

Increased Stakeholder Involvement
While pay for performance may be ushering in a new era of healthcare financing that places a premium on safe and affordable care, it is also ushering in a new era of stakeholder involvement in the way healthcare is delivered. Payers and purchasers participate in the quality/safety/cost equation in unprecedented ways, using their purchasing and payment power as leverage for change. Some organizations, such as the Leapfrog Group—an employer-based organization that works to initiate breakthrough improvements in healthcare safety, quality, and affordability—see the patient as an equal player in that equation.

“As Leapfrog likes to think about it, the concept of aligning incentives for quality requires collaboration among many different stakeholder groups,” says Catherine Eikel, Leapfrog’s director of programs. “What’s different about pay for performance is that all the people who are going to be encountering care are focused on the idea of quality or quality improvement. Everyone has some skin in the game for it now.”

Leapfrog, which launched its own pay-for-performance program, The Leapfrog Hospital Rewards Program, in 2005, takes a broad view on the alignment aspect of pay for performance, reasoning that the incentives of every group that touches healthcare must be aligned to achieve a sustainable healthcare system that provides safe, high-quality, and affordable care. Informed patients, as much as informed payers and purchasers, are essential to creating such a system.

“It’s not just about achieving a benchmark and saying you get an additional pot of money because you’ve achieved the benchmark,” explains Eikel. “It’s making sure that the patient has the right incentives aligned to seek out the most appropriate, highest-quality facility for what their needs are, making sure that they’re informed and their incentives are in line. It’s making sure that the doctors and the hospitals have their individual incentives and facility-level incentives aligned. It’s making sure that the employers are aligning incentives with the health plans to make sure they know that focusing on quality improvement is going to be rewarded.”

This degree of alignment, with all the necessary information and dialogue it demands, represents a significant cultural change in the way business is done in an industry that has operated largely with a silo mentality.

A Grand Experiment
Aligning incentives and, more pointedly, linking quality performance directly to payment constitute what many consider to be a grand experiment in extending the reach of quality improvement and spurring reimbursement redesign, one fraught with risks as well as potential benefits. And because pay for performance is still in its infancy, there’s not much evidence that it can—or can’t—deliver the results its theory posits. “I don’t think there’s clear evidence that pay for performance will do twice as much or half as much as a different approach,” says Clancy. “But what we do know about quality overall is that, in general, multiple strategies that are aligned tend to work better than any single strategy.”

Clancy believes that when what’s being learned from the multiple public and private sector innovations and experimentation is synthesized, a clearer picture will emerge of what aspects of pay for performance work well and which will need to be tweaked and refined. “Saying that we need evaluation and that we have a lot to learn doesn’t mean that we can’t start [implementing pay for performance] now. Employers and payers are feeling way too much pressure to just wait until we have better evidence,” says Clancy. “And frankly, I think there’s a lot in this for those who are delivering care as well because if you don’t have a good sense of how you’re doing, it’s almost impossible to improve. To that extent, I think that pay for performance—or any strategy to improve performance—can be a win-win for both sides.”

Clearly, whatever else pay-for-performance programs accomplish, they will boost measurement activity more broadly and deeply across the industry at both the individual provider and provider organization level. Physicians, in particular, are becoming more actively engaged in measurement, an objective that’s been extremely difficult to achieve up to now. “If the financial incentives cause the physicians and their teams to get engaged in measurement and improvement, then it will accomplish more than anything we’ve tried to do before,” says Bruce Bagley, MD, medical director for quality improvement at the American Academy of Family Physicians. “Measurement just hasn’t been a part of the culture of medicine.”

According to Bagley, its absence from the culture of medicine has created a knowledge gap around optimal performance. “We don’t actually know what optimal performance might be on any of these measures because we haven’t measured enough,” he comments. Bagley promotes the value of long-term measurement efforts—even without financial incentives—using HealthPartners in Minneapolis as an example. “[HealthPartners] has been measuring for years, and their diabetes outcome results are much better than everybody else’s because they’ve been looking at their numbers,” he explains. “And anybody else can do the same if they just look at their numbers and realize what process improvements have to occur to get better results.”

There is little doubt that increased, ongoing measurement across the spectrum of healthcare providers can only help the healthcare industry better understand how and what to measure to define quality healthcare and optimal performance in more precise terms. According to measurement experts such as Jerod Loeb, PhD, executive vice president for the division of research at the Joint Commission, one of measurement’s chief values—particularly measurement using scientifically sound, evidence-based process measures—is that they are uniquely capable of being embedded within an organization’s systems and processes of care in the form of reminder systems or other mechanisms that create an opportunity for certain therapeutic approaches to be, at the very least, considered. Using a term borrowed from engineering, Loeb refers to this as creating a forcing function to lead people into following evidence-based processes, which tend to have a positive impact on quality. “So it’s an opportunity to do the right thing,” says Loeb, “and how many times is that opportunity realized?”

Where this good begins to break down for Loeb is in the way this question is answered in the context of pay-for-performance programs—which mostly incorporate process measures—and how the answer becomes tied to payment. As he sees it, the number of times an opportunity to do the right thing is realized has “been translated into ‘I’m going to pay you more the closer you get to doing it all the time’—whether or not it was the right treatment for each patient,” he says.

Loeb’s concern involves the way a measure is constructed. “If you construct a measure that permits inclusion or exclusion of patients from the measure population based on individual clinical scenarios, and assuming things are documented appropriately in the record, organizations have the opportunity to do the right thing,” Loeb explains. “And they either didn’t do the right thing or they documented that there was a good reason not to.” The problem, however, is that this type of measure construct is not industry standard.

In addition to issues surrounding the construction of measures included in pay-for-performance programs, Loeb takes issue with conclusions about overall quality that can be drawn from current measurement results in a healthcare environment that is changing on so many fronts, not the least of which are regulatory requirements, payment, and IT implementation. From Loeb’s perspective, the variables in play in such a fluctuating environment raise more questions about what influences quality improvement than can be presently answered.

“Can we attribute quality improvements to public reporting?” asks Loeb. “Can we attribute it to accreditation requirements changing? Can we attribute it to payment? How do we derive a causal relationship here? I don’t think anyone is smart enough to know the answer.” Citing the example of significantly improved performance on a process measure regarding smoking cessation, he asks: “What made that [improvement] happen? Was it the fact the Joint Commission shined a light on it? Is it that we and CMS [Centers for Medicare & Medicaid Services] are publicly posting the data? Is it that it is now a measure that is in pay-for-performance programs? The answer may be all of the above, but then what’s the weighting? How much of the change is attributable, from a causal perspective, to one or more of the environmental changes? And the answer is, no one knows.”

The Foreseeable Future
Few in healthcare doubt that pay for performance will be part of the industry’s makeup for the foreseeable future. On the public-sector end, the CMS is required under the Deficit Reduction Act of 2005 to expand its pay-for-performance efforts, including development of a plan for implementing a Medicare hospital pay-for-performance program in 2009. On the private sector end, there appears to be little slowdown in the activity of the more than 100 existing pay-for-performance programs sponsored by a wide range of health plans and business coalition groups.

Among the risks the proliferation of programs carries is, as Eikel describes it, “a potential for a Tower of Babel”—that is, confusion in the face of the number of existing pay-for-performance programs about what to focus on in terms of performance, compounded by confusion about what types of rewards or recognition are associated with certain levels of performance. Jessee sees a similar potential for confusion. “If every [pay-for-performance] program has a different approach, it’s going to be incredibly chaotic and it’ll be an administrative nightmare for [a] practice to keep track of who’s incentivizing [who] to do what.”

Clancy, Loeb, and others see a great need for common measures to be established. Referring to efforts by the Hospital Quality Alliance and the Ambulatory Care Quality Alliance, Clancy says, “What we’re already seeing in the emergence of these multistakeholder quality alliances is work to try and figure out how their efforts can be harmonized.”

Loeb also sees a need for an evaluative strategy, which has been lacking despite the fact that pay-for-performance efforts started many years ago. “You can’t measure everything,” says Loeb. “And it’s very disadvantageous from a quality perspective to only focus on what’s getting measured—or worse yet, what’s getting reimbursed. There are great dangers in doing so, so one has to walk with trepidation in these fields and understand what the motivational factors are, or should be, and what the reward structure is, or should be, and how they influence behavior patterns in an organization.”

— Aggie Stewart is a freelance writer and editor, specializing in HIM and HIT. She also serves as consulting editor of Health Information Management Manual, 2nd Edition. She can be contacted at s-p-s@earthlink.net.

References
1. Agency for Healthcare Research and Quality. National Healthcare Quality Report, 2006. Washington, D.C. Available at: http://www.ahrq.gov/QUAL/nhqr06/nhqr06.htm. Accessed January 11, 2007.

2. Agency for Healthcare Research and Quality. National Healthcare Disparities Report, 2006. Washington, D.C. Available at: http://www.ahrq.gov/qual/nhdr06/nhdr06.htm. Accessed January 11, 2007.

3. Agency for Healthcare Research and Quality Patient Safety Network Glossary. Available at: http://psnet.ahrq.gov/glossary.aspx. Accessed January 15, 2007.