Pay for Performance in Health Care:Provider Perspective

Jeff Levin-Scherz, MD MBA FACP

Assistant ProfessorHarvard School of Public Health

jlevinscherz@gmail.com

February 4, 2009

Slide 1

Summary: Provider Goals in Health Care Finance

• Get paid for “value” delivered– Get paid enough to account for the opportunity cost of being

a clinician!

• Be held accountable for what providers control• Incentives aligned with patient needs• Minimize non-value-added work• Health plan does not perform medical management • Simple finances with prompt reliable payment• Full risk adjustment (at least theoretically)

Slide 2

My Prescription to Lower Health Care Inflation

Step One: Pay for bundles of services – not individual components

Step Two: Isolate and eliminate variation

Step Three: Enforce a high level of transparency for health care quality and value

Step Four: Increase consumer responsibility for preference-sensitive care, and reengage government for supply-sensitive care

Step Five: Pay more for better care, and pay less (or nothing) for worse care

Step Six: Calorie restriction

Step Seven: Yacht repo men!

From Harvard School of Public Health HPM 235, Managing Health Care Costs, 12/08 Final Class Summary

Agenda

Slide 4

Slide 5

Medical Inflation Persistently OutpacesOverall Inflation and Worker Earnings

Slide 6

Source: KFF/HRET Survey of Employer Sponsored Health Benefits, 2007www.kff.org/insurance/7672/upload/7693.pdf

Underuse: U.S. Adults Receive Half of Recommended Care, and Quality Varies Significantly by Medical

Condition

7

55

7665

5445

39

23

0

20

40

60

80

Overall Breast

Cancer

Hypertension Asthma Diabetes Pneumonia Hip Fracture

Percent of recommended care received

Source: E. McGlynn et al., "The Quality of Health Care Delivered to Adults in the United States,"The New England Journal of Medicine (June 26, 2003): 2635–2645.

Composite Diabetes Screening Measure

8

BCBS 0 144 2.11%BCBS 1 375 5.49%BCBS 2 778 11.39%BCBS 3 2,284 33.45%BCBS 4 3,247 47.55%

6,828

HPHC 0 52 1.82%HPHC 1 151 5.28%HPHC 2 304 10.62%HPHC 3 937 32.74%HPHC 4 1,418 49.55%

2,862

TAHP 0 50 1.76%TAHP 1 155 5.46%TAHP 2 358 12.60%TAHP 3 976 34.35%TAHP 4 1,302 45.83%

2,841

All Plans 0 246 2.0% Measures Percent1 681 5.4% At least One 94.6%2 1,440 11.5% At Least Two 88.5%3 4,197 33.5% At Least Three66.5%4 5,967 47.6% All Four 47.6%

Total 12,531 100.0%

Diabetes Screening Tests, 2005 All Payer

0

94.6%

88.5%

66.5%

47.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Measures At least One At Least Two At Least Three All Four

94.6%

88.5%

66.5%

47.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

At least One At Least Two At Least Three All Four

Four Measures:

HbAIC,LDL,Eye ExamRenal Screen

Quality Is Not Proportional To Cost

9

Katherine Baicker and Amitabh Chandra Medicare Spending, The Physician Workforce, And Beneficiaries’ Quality Of Care Health Affairs Web Exclusive, April 7, 2004

10

Source: Boston Municipal Research Bureau, 11/06

“Boston’s health insurance spending increased by 92% over the past six years [while] all other operating spending excluding health insurance increased by 18%”

11

Slide 12 Slide 12

Initially published in 1992

Fragmentation of Physician Practices In the US

Slide 13Source: http://www.gao.gov/new.items/d0865.pdf

Slide 14

Levers

• Overarching payment methodology• Claims administration• Prior Authorization• Restrictions on choice

Slide 15

Slide 16

“There are many mechanisms for paying physicians; some are good and some are bad.

The three worst are fee-for-service, capitation, and salary”

James Robinson, PhDMilbank Quarterly, 2001

Correlation between perceived loss or gain and actual loss or gain

17

GainsLosses

Perceived Losses

Perceived Gains

Prospect Theory

Prospect Theory, Kahneman and Tversky, Econometria 1979

Slide 18

Behavioral Economics Principles• Losses valued more than gains• Certainty valued more than chance• Context matters• Percent difference valued more than than actual

dollar value• Endowment Effect: We like what we already have• We are unrealistically optimistic• We prefer patterns and meaning over randomness• Memorable anecdote valued more than just numbers

“There is nothing more difficult to carry out…than to initiate a new order of things. For the reformer has enemies in all whose who profit by the old order, and only lukewarm defenders in all those who would profit by the new order”

MachiavelliThe Prince

1513

Quoted in Emmanuel, HealthCare, Guaranteed, 2008

Loss Aversion: Fee For Service Vs. Capitation

GainsLosses

Perceived Losses

Perceived Gains

Incremental FFS Payment

Incremental Cap Payment

Loss Aversion: Fee For Service Vs. Capitation

GainsLosses

Perceived Losses

Perceived Gains

FFS Denial OR Capitation Resource Utilized

Loss Aversion: Value-Added Tax vs. Payroll Deduction

GainsLosses

Perceived Losses

Perceived Gains

VAT

Baggage fee vs. fuel surcharge?

Withhold vs Bonus

• Scenario One: $90 initial payment with $5 bonus• Scenario Two: $100 payment with $10 withhold, half

of which is returned

Loss Aversion: Scenario 1Bonus vs. Withhold

GainsLosses

Perceived Losses

Perceived GainsBonus Payment+ =

This assumes that bonus is bundled into regular payment, which lowers its emotional impact

Loss Aversion: Scenario 1 (version b)Bonus vs. Withhold

GainsLosses

Perceived Losses

Perceived Gains

Bonus Payment

+ =

Bonus, if paid separately, more likely to look like a new small payment rather than an increment atop a large initial payment.

Loss Aversion:Scenario 2 Bonus vs. Withhold

GainsLosses

Perceived Losses

Perceived Gains

-=

Incentives: Lessons from Prospect Theory

• Daniel Kahneman awarded Nobel Prize for Economics in 2002

• Explains what was previously considered economically irrational behavior

• More perceived value ascribed to– Losses (compared to gains)

• MDs dislike risk of a $100 loss more than they like potential for a $100 gain

– Percent difference (than actual dollar value)• People will drive two miles to save $1 on gallon of milk, but not

to save $1 on television set

27

Prospect Theory: Implications for P4P

• Multiple smaller incentive pools create more “bang for buck” than single larger pool

• Steep portion of curve -- Sum of two gains (or losses) have greater perceived value than single equivalent gain (or loss)

• Threat of loss of withhold creates more unhappiness – but more action – than offer of a bonus

• Sum of gain (e.g., $1,000) and smaller loss (e.g., $750) has less perceived value than total ($250)

29

Considerations for P4P Arrangements• Encourage providing the right care in the first place

rather than only identifying and remedying “defective” care

• Provide adequate incentives to increase primary care• Match provider incentives with patient benefits

Slide 30

Considerations for Contract Financing• Provide adequate reimbursement to sustain the

delivery system• Don’t overpay for overutilized procedures• Don’t underpay for underutilized procedures

Treating a Diabetic

Current Approach

Slide 31

OV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes

OV: Unrelated OV: Preventive

OV: Diabetes

RegistryShowsDefect

Phone Intervention

Process Measures Achieved by 12/31OV: Unrelated

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Future ApproachOV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes

OV: Unrelated OV: Preventive

OV: Diabetes

OV: Unrelated

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

All process and outcome measures addressed regularly. Patients have access to their own lab values and report card throughout the year.

Slide 32

1976 Ford Crown Victoria 1990 Toyota Camry

Pay for Performance: Design Elements from the Provider Perspective

• Payment Methodology– Fee for service vs. capitation– Exclusions from “global” budget– Annual “inflation” rate

• Pay for Performance Methodology– Many measures vs. few measures– Process measures vs. outcome measures– Claims measures vs. EMR measures– Bonus vs. withhold

Slide 33

Case Study: Destruction of Value

Slide 34

Note that billing process yields costs to payer of $97 and yield to providers of $91. This $6 provides no value to patients

Numbers for illustrative purposes only

$0

$20

$40

$60

$80

$100

$120

Bill

ed

Adj

ud

Cos

ts

Sav

ing

s

App

eals

Pay

Bill

ed

Bill

Cos

ts

Rec

eipt

s

App

eal C

ost

App

eal P

ay

$100 $104 $94 $97 $100 $97 $90 $88 $91

Gardisil™ Case Study

• Cost per vaccine $120/dose; $360/recipient• For 325,000 delivery system, there are about 8400

females ages 14-171. • Delivering this vaccine at a rate of 100% would cost

over $3m in year one• Delivering this vaccine at a rate of 50% could

increase the entire practice’s “bottom line” by 6%

Slide 35

(1) Source: US Census Bureau demographic estimates, Massachusetts, 2008

Numbers are illustrative only

EMR Data vs. Claims Data

Slide 36

Claims EMRMammography 85.6% 75.1%Pap Smears 93.3% 87.8%Chlamydia (16-20) 51.7% 44.6%15 mo well visit 96.9% 79.2%3-6 well visit 93.4% 86.6%Adol well visit 79.0% 70.8%HbAIC Test 93.6% 88.3%DM: HbAIC <7 45.2% 50.8%DM: LDL<100 46.9% 54.5%COPD Spirometry 31.9% 42.1%URI 93.0% 98.6%ACE/ARB 78.5% 77.4%Digoxin 77.8% 84.2%Diuretics 78.8% 78.9%Seizure Meds 73.3% 66.3%DMARD Rheum 93.2% 83.1%

Slide 37

Jeff’s Provider Wish List

FROM

• Mostly fee for service• Payers and Providers

each make huge investments in promoting or denying payments

• Long claims delays• Health care delivery at

both health plan and provider network

• Variable quality• Confused, disheartened

patients

Slide 38

TO

• Capitation for services often overutilized; fee for service for underutilized services

• Plans and providers together create operational efficiencies

• Instant adjudication• Health care delivery in

provider network only• Reliable high quality• Engaged patients

Slide 39

Payer and Provider Point of View

Slide 40

Providers Payers Patients

Overall Costs High Low Low

Cost per Unit High Low (FFS)Agnostic (Cap)

Depends on Financial Exposure

Units Delivered High (FFS)Low (Capitation)

Low (FFS)Agnostic (Cap)

Ambivalent

Quality High for All Differentiated High by Plan

High for ME

Administrative Processes

Hate “hassles” Hassles can save money

No hassles for ME or MY physician

Disrupt Relationships

No No NO

Summary: Provider Goals in Health Care Finance

• Get paid for “value” delivered– Get paid enough to account for the opportunity cost of being

a clinician!

• Be held accountable for what providers control• Incentives aligned with patient needs• Minimize non-value-added work• Health plan does not perform medical management • Simple finances with prompt reliable payment• Full risk adjustment (at least theoretically)

Slide 41

My Prescription to Lower Health Care Inflation

Step One: Pay for bundles of services – not individual components

Step Two: Isolate and eliminate variation

Step Three: Enforce a high level of transparency for health care quality and value

Step Four: Increase consumer responsibility for preference-sensitive care, and reengage government for supply-sensitive care

Step Five: Pay more for better care, and pay less (or nothing) for worse care

Step Six: Calorie restriction

Step Seven: Yacht repo men!

From Harvard School of Public Health HPM 235, Managing Health Care Costs, 12/08 Final Class Summary