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Issue #10-2 | March 21, 2013

Bumpy road for hospital pay-for-performance plans

Hospitals are trying to figure out how to effectively design incentives to induce physicians to reduce costs and increase the quality of care. The trouble is, experiments with pay-for-performance plans have not worked out too well. Plus, there’s the human element, which can be a major stumbling block, as the nation's largest public health system is finding out.

Doctor gripes: This past January, the New York City Health and Hospitals Corp. (HHC) announced a plan to tie bonus payments for more than 3,000 employed physicians to their performance on certain quality measures. The plan “has set off a firestorm of debate in the medical community and is being closely watched across the country," according to a report in the New York World. The union that represents more than half of the physicians affected by the new plan is trying to short-circuit the process, saying it should have been consulted more and that the plan leaves many questions unanswered.

Until the Affordable Care Act made them mandatory, pay-for-performance initiatives were voluntary. In October, Medicare started withholding payments to providers and then redistributed the amounts to hospitals that performed well on certain quality measures. The withheld amount was only 1%, but this will eventually increase to 7%, so the stakes are high.

Mixed results: Hospitals will have a tough time coming up with plans that will work effectively. To date, results of these plans have been mixed, says a brief from Health Affairs. For example, the largest pay-for-performance experiment so far has been the Premier Hospital Quality Incentive Demonstration project, which tested a variety of approaches among different categories of providers. Quality at participating hospitals initially improved, but the effects were short-lived, and after five years, there was no significant difference between them and the hospitals without the incentive.

Another study, published in the New England Journal of Medicine, revealed that there was no significant difference in the mortality rate for heart attacks, heart failure, bypass surgery, or pneumonia between patients treated at hospitals participating in an incentive program and those who were not.

What to do: Amid the complexities of designing these plans, keep a few things in mind. The physicians must be able to control the performance factors that are used in the incentive plan. If there is no cause-and-effect relationship, there will be trouble. You simply can’t hold people accountable for something outside their control.

Also, get input from the physicians when designing the plan. This was a major sore point in the New York City case. The doctors were not opposed to the pay-for-performance concept, but they did take issue with the performance indicators that management chose.

Are healthcare M&As creating price-gouging monopolies?

Hospital combinations are stifling competition and triggering higher prices, says the American Enterprise Institute, a conservative think tank. What’s more, there is no corresponding improvement in quality, the group said during a recent panel event titled Big Health: Consolidation and Competition Under the Affordable Care Act.

Existing evidence corroborating rising consolidation in healthcare has resulted in a lack of competition among hospitals and other providers that allows them to monopolize the market and charge higher prices, explained panelist Martin Gaynor, professor of economics and health policy at Carnegie Mellon University. Another panelist, Robert Murray of Global Health Payment LLC, noted that these higher prices contribute significantly to growth in health spending.

Price inelasticity: Despite rising prices, patients are paying. Most of them are insensitive to rising prices because they are buried in health insurance, according to panelist Barak Richman of the Duke University School of Law. Therefore, their demand for healthcare does not decrease as prices increase.

The panelists also agreed that the rise of accountable care organizations (ACOs) could cause more trouble by encouraging further consolidation.

Patients resist bargain basement pricing

The healthcare industry’s efforts to cut costs are coming up against some interesting opposition—from the customers themselves. Patients simply don’t want to skimp on their own healthcare needs, reveals a new study in Health Affairs.

Price-quality thing: It appears that the long-standing phenomenon of higher price meaning better quality is going on here. If so, it will be a tough nut to crack for hospitals that engage patients to weigh costs when deciding on alternate treatments.

For the study, 22 focus groups of people with health insurance discussed their willingness to weigh costs when comparing various clinical options for treatment. Researchers identified four barriers to having patients take cost into account:

  • A preference for what they perceive as the best care, regardless of expense;

  • Inexperience with making trade-offs between health and money;

  • A lack of interest in costs borne by insurers and society as a whole; and

  • People acting in their own self-interest, even though they realize they are depleting limited resources.

Researchers say these barriers can be overcome with new research in patient education, comprehensive efforts to shift public attitudes about healthcare costs, and training to prepare clinicians to discuss costs with their patients.

Of course, these are long-term efforts, so it will take some time to change ingrained public attitudes.

How does your EHR progress stack up?

A majority of healthcare leaders say they have qualified for Meaningful Use Stage One with their electronic health records (EHR) systems. Plus, the vast majority say they expect to qualify for Stage Two in 2014—and also complete their conversion to ICD-10, reveals a new survey from the Healthcare Information and Management Systems Society (HIMSS).

Big money: The U.S. Centers for Medicare & Medicaid Services (CMS) has doled out almost $8 billion in reimbursement payments to hospitals and physicians that deploy EHRs under government guidelines. Hospitals are eligible for base payments of $2 million a year, and physicians and other qualified healthcare workers can receive up to $44,000 each in incentive payments. The federal government requires that healthcare providers achieve three stages of meaningful use of EHRs over the next five years. Also, providers are implementing the World Health Organization's ICD-10 classification system, which calls for replacing about 15,000 codes with about 68,000 new ones.

Nearly two-thirds of health IT professionals in provider organizations surveyed have already qualified for Meaningful Use Stage One and three-quarters indicate that they expect to qualify for Stage Two in 2014, according to the 24th Annual HIMSS Leadership Survey. Additionally, 87% of respondents indicate they expect to complete their conversion to ICD-10 by October 2014. Almost half (47%) of respondents say that implementing ICD-10 continues to be the top focus for financial IT systems.

ROI expectations: EHRs in the largest hospital systems can cost more than $10 million to implement, and 30% of respondents expect the ROI to be less than $2 million. About a quarter (23%) expect a $2 million to $3 million ROI, 16% envision a return of between $4 million and $5 million, and 3% expect an ROI of $6 million to $7 million. Only 7% of respondents expect a return of $10 million or more.

By contrast, the level of investment made for Stage One of Meaningful Use ranged from under $250,000 for 14% of those surveyed to $10 million to $19 million for 6% of respondents. The greatest number of IT executives (17%) said their organizations have to spend $1 million to $2 million to achieve Stage One of Meaningful Use, while 11% expect to spend $3 million to $4 million.

Beyond the numbers: “There’s a growing realization that smart IT investments don’t just make business easier or lower costs for the organization—they directly impact patient care,” said Steve Fanning, vice president of healthcare industry strategy at Infor, the sponsor of the survey. “Our customers are concerned with how they can use IT to accomplish more with less, while at the same time security to ensure the confidentiality of patient information.”



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