The Truven Health Blog

The latest healthcare topics from a trusted, proven, and unbiased source.


Sometimes 1% Reward Can Change Behavior - Sometimes it is Not Worth the Effort

By Truven Staff
Carol Alexander imageThree thoughts occur when reading the . The first is the notion of paying, or in this case rewarding or penalizing physicians for the quality of their care. The use of the term “quality” would indicate to most that the physician has measurable clinical outcomes, or that a patient’s health improvement can be measured through the physician’s treatment plan. Although the Medicare measures have not been finalized, it appears what will be measured will be process rather than clinical outcomes. They will be measuring how the physician manages basic medical screenings, documentation, and other tasks associated with prevention quality indicators. Many physicians have been actively submitting Physician Quality Reporting System (PQRS) data for several years — particularly the larger group practices that have been encouraged to track and report the data and also gain access to the incentives associated with reporting at the time; which brings me to my second thought. 

Focusing at the group level has it merits. Larger groups will be positioned better to implement, monitor, and encourage physicians within the group to earn these incentives. Although a 1% to 2% incentive does not sound like much and may not persuade an individual physician to change behavior, a true group practice — where the whole is greater than the sum of its parts — will strive to reach the aggregate reward of 1% of Medicare payment. In a group size of 100 or more physicians of multiple specialties, 1% can be enough to gain the attention of management or physician finance committees and have them make an effort to reach and achieve these dollars to help offset other rising practice expenses. 

However, to get the attention of the individual physician, it is true that the percentage of reward or penalty needs to be much higher. We have seen many compensation plans that try to drive a different behavior through physician compensation formulas that put more than 10 percent of pay at risk; these tend to not be effective. The rule of thumb is that to achieve changes at the individual level, the incentive/risk should be greater than 15%-20%.

Lastly, the small groups will have difficulty adapting to these changes. The lack of incentive for an individual practitioner does apply here. The amount of effort needed to redesign care, track outcomes, and monitor performance internally may not be worth a 1% or 2% reward or penalty, and if too onerous can even lead to more physicians — particularly the small, independent practices — dropping out of the Medicare coverage pool.

Carol Alexander
Senior Consulting Manager

Illustrating How ACOs Could Save $380 Million in First Year

By Truven Staff
Mike Taylor imageA recent article in USA Today, “,” stated that Affordable Care Organizations (ACOs) saved approximately $380M in their first year of operation, exceeding Centers for Medicare & Medicaid Services (CMS) expectations. ACOs were conceived as part of the Affordable Care Act passed in 2010, and there are currently 114 Medicare ACOs in existence. Interestingly, the ACOs mentioned in the article are reporting lower costs than Medicare as a whole. ACOs also outperformed traditional Medicare on quality measures that evaluate the quality of care received. This is encouraging news, and I hope the number is confirmed.

The promise of an ACO is to provide healthcare in a fundamentally different way from traditional fee-for-service (FFS) Medicare. I believe the most fundamental reason healthcare is so expensive in the U.S. is the FFS payment model, in which doctors and hospitals are paid based on the volume of services delivered. ACOs are completely disruptive to the FFS model. ACOs are centered on the patient, not the provider – meaning the ACO receives a certain payment per patient, and payments increase when the quality of care is demonstrably improved over certain benchmarks. There are a variety of payment models in ACOs, but a common characteristic is the payment is linked to the outcome, not the volume of services delivered. This payment method encourages use of medical treatments that have been proven to work, discourages unnecessary medical care, and incentivizes for higher quality care.

Consider the traditional way care has been delivered: an elderly patient falls at home, developing severe hip pain. An ambulance takes the patient to an emergency department (ED). The physician examines the patient, orders and x-ray. The radiologist reads the film showing a fracture, and communicates back to the ED physician. The patient’s primary care doctor (or a hospitalist) is notified, the patient is admitted. An orthopedist is consulted, repairs the fracture under anesthesia delivered by an anesthesiologist and sends the patient to an inpatient bed. Physical therapy is ordered, medications are given and after a few days, the patient is transferred to a skilled nursing facility (SNF) for more rehabilitation. After two weeks there, the patient is not able to return home, so the patient is admitted to a nursing home.

In this example, think about all the care transitions as the patient goes through the system – there were at least nine transitions, and seven physicians were involved along the way. Every transition is an opportunity for an error to occur, or a miscommunication to happen – and they do happen. If any error leads to a complication, the medical costs increase. There is no coordination of care, and the payment has no bearing on the quality of care delivered.

In the ACO model, the ACO physician provider organization receives a certain dollar amount to care for this patient. Now, the physician thinks differently about the case, in a much more patient-centered approach. The physician brings together a clinical team to care for the population, and the team develops a home assessment process for all the high-risk elderly patients for whom they are giving care. The electronic health record data are leveraged to study the population. There is now an incentive to analyze patient data to predict who has a high risk of falling.  A case worker is given the patient name, does a home safety assessment, removing all loose floor rugs and looking for other safety hazards. The case worker finds the patient has poor balance, so he orders home physical therapy under the direction of the physician, who has evidence-based guidelines informing what type of therapy has been shown to reduce falls in the elderly. The patient gets stronger, never falls and continues to live at home. All the costs and pain derived from the fall never develop. Medicare paid the physician a pre-determined amount – much less than the cost of the hip fracture.

Which outcome do you want for you and your family? The point of the example is that ACOs have the potential (and financial incentive) to provide this high level of service; in a FFS world, the physician is not paid until an event occurs. Physicians desire to give the highest level of care to their patients, but our FFS system assures their failure. In a FFS model, physicians may provide excellent care to the patients they see, but they have no infrastructure or incentive to care for their population. There is no money set aside to encourage this type of preventive approach to a population. In an ACO environment, physicians and hospitals are paid based on how well they care for the population. Multiply this case for all the Medicare patients, and it’s easy to see how $380M might be saved.

Michael L. Taylor, MD, FACP
Chief Medical Officer

What Do Hospitals Do When Medicare Cuts Hospital Prices?

By Truven Staff
Tracy Yee imageOne of the key provisions in the Affordable Care Act (ACA) permanently lowers the default rate of growth in Medicare prices for hospitals and most other providers by applying a downward adjustment each year equal to the growth in the economy. The Congressional Budget Office estimates that policy change will reduce Medicare expenditures by $379 million from 2012 through 2021. Researchers and policymakers have theorized that this approach may lead hospitals to try to recoup their anticipated losses in a number of ways—one of which would be increasing inpatient hospitalizations in an attempt to “make it up on volume.”

To test this theory, Chapin White, a senior researcher at the Center for Studying Health System Change, and I recently completed analyses to examine whether changes in Medicare prices were associated with changes in Medicare inpatient patient volume. We examined the relationship between market-level price trends and trends in the number of inpatient hospital discharges among the elderly (65+ years of age) across 10 states over a 15 year period (1995-2009).

Overall, we observed that by 2009, inpatient hospital stays were much shorter and patients received much more intensive treatment. Taking a closer look, we found that hospital markets with lower growth in Medicare prices had smaller increases in hospital utilization and greater decreases in length of stay compared to markets with higher growth in Medicare prices. These results suggest that Medicare price cuts lead hospitals to reduce capacity and provide fewer services to the elderly. When we simulated the effect of a 10 percent decrease in the Medicare price, we found that discharges of elderly patients decreased by 4.6 percent and the number of hospital staffed beds decreased by 6.3 percent.

Our findings run counter to the notion that hospitals will attempt to recoup losses from Medicare price cuts by increasing inpatient volume. Rather than leave beds empty, hospitals appear to constrain their scale of operations. In this way, hospitals appear to behave as profit-maximizing firms that increase output when they are paid higher prices and decrease output when the costs of production rise. Considered in the context of the ACA price cuts, findings suggest that Medicare savings may actually be larger than expected due to hospitals volume response. Conversely, if the Medicare provisions in the law were repealed, Medicare spending might increase by more than has been projected. Our findings also point to important questions for future research – in particular, examining the impact of Medicare price reductions on the quality of care beneficiaries receive, as well as their overall health outcomes.

Tracy Yee
Research Leader
Behavioral Health and Quality Research Division

Are Doctors Learning From Hospitals?

By Truven Staff
Michael R. Udwin imageAs suggested in the recent article from Kaiser Health News, in collaboration with The Washington Post, “,” physicians will soon be confronted with a reality that hospitals have already experienced. With reimbursement currently at risk for readmissions, perhaps doctors can learn from hospitals as they adjust to a new world.

Hospital reactions to pay for performance have varied dramatically, from denial to indifference to dread. Those that have fared best recognized the importance of data and understanding their unique position within the care continuum. They began by asking the right questions. If heart failure readmissions were too high, they posited the “why.”  They were not afraid to pursue the follow-up questions, including “What populations are at higher risk?”, “Is this related to process or provider-related?” and “What needs to change within our control and outside our walls?”

Although doctors often pride themselves on the desire to deliver top quality care, in the office much of the focus for many has been on establishing an efficient, sustainable practice. Through hospital employment and other alignment strategies, physicians of late have begun to view their role as team member within an organization. As co-management of patients takes hold and process measures begin to meld with outcomes, this team approach will become even more important.

For some this will be a new way of viewing performance in the outpatient space.  Quality does count, as suggested in the article. And now more than ever, doctors can learn from hospitals, as they leverage data and ask the right questions to ensure the best for their patients.

Michael R. Udwin, MD, FACOG
National Medical Director

Hooray for CMS, Agreeing to Reconsider a Longstanding Program!

By Truven Staff
Jean Chenoweth imageAfter restricting Medicare payment for bariatric surgery to only Medicare approved centers of excellence for seven years, . That does not mean that the policy will be adjusted to broaden access to the procedure, but at least CMS will review the previous decision. That reflects a lot of flexibility for a government agency.

What is the cause for the policy reassessment? Results of research by Justin B. Dimick, M.D., Director of Policy Research at the University of Michigan’s Center for Health Care Outcomes and Policy, demonstrated that the Medicare policy made no difference, except to limit access to the procedure. The policy did not drive improvement. The policy did not improve complication rates or outcomes.

Almost everybody thinks development of Centers of Excellence is a great idea – including me! But I must admit that I am chastened by this example. Dr. Dimick allows the data to speak , which we do routinely within the 100 Top research group. Objective data often produces results that are contrary to what seems logical. Dr. Dimick’s results suggest a very uncomfortable idea. Maybe CMS’s channeling of patients to Centers of Excellence is a misguided good idea. Maybe a Center of Excellence makes people feel safer, but might cost them more out of pocket or cause them to seek no care. 

Let’s contrast this approach with the other side of the government coin, the National Cancer Institute, which is unrelated to payment for care. The National Cancer Institute created the National Cancer Information Service (NCIS) because of the huge disparity in physician and patient access to the latest treatments for various types of cancer. The NCIS enables cancer patients to directly call 800-4-CANCER to find out about new diagnostics and treatments as well as clinical trials so that the best possible options are known to all. Maybe the NCIS model which makes vetted, trustworthy diagnostic, treatment and clinical trial information available as widely as possible is a better approach. The NCIS model increases patient knowledge and patient involvement in decision-making. That may be a better approach than CMS deciding for us.

Jean Chenoweth
Senior Vice President, Performance Improvement and 100 Top Hospi


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