Pay for Performance in Health Care: Provider Perspective

1
Pay for Performance in Health CareProvider
Perspective

• Jeff Levin-Scherz, MD MBA FACP
• Assistant Professor
• Harvard School of Public Health
• jlevinscherz_at_gmail.com
• February 4, 2009

2
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)

3
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
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Agenda
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Medical Inflation Persistently OutpacesOverall
Inflation and Worker Earnings
Source KFF/HRET Survey of Employer Sponsored
Health Benefits, 2007 www.kff.org/insurance/7672/u
pload/7693.pdf
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Underuse U.S. Adults Receive Half of Recommended
Care, and Quality Varies Significantly by Medical
Condition
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) 26352645.
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Composite Diabetes Screening Measure
Four Measures HbAIC,LDL,Eye ExamRenal Screen
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Quality Is Not Proportional To Cost
Katherine Baicker and Amitabh Chandra Medicare
Spending, The Physician Workforce, And
Beneficiaries Quality Of Care Health Affairs Web
Exclusive, April 7, 2004
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Bostons health insurance spending increased by
92 over the past six years while all other
operating spending excluding health insurance
increased by 18
Source Boston Municipal Research Bureau, 11/06
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Initially published in 1992
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Fragmentation of Physician Practices In the US
Source http//www.gao.gov/new.items/d0865.pdf
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Levers

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

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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
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Correlation between perceived loss or gain and
actual loss or gain
Prospect Theory, Kahneman and Tversky,
Econometria 1979
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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

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• There is nothing more difficult to carry
  outthan 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
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Loss Aversion Fee For Service Vs. Capitation
Incremental Cap Payment
Incremental FFS Payment
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Loss Aversion Fee For Service Vs. Capitation
FFS Denial OR Capitation Resource Utilized
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Loss Aversion Value-Added Tax vs. Payroll
Deduction
VAT
Baggage fee vs. fuel surcharge?
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Withhold vs Bonus

• Scenario One 90 initial payment with 5 bonus
• Scenario Two 100 payment with 10 withhold,
  half of which is returned

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Loss Aversion Scenario 1Bonus vs. Withhold
Bonus Payment

This assumes that bonus is bundled into regular
payment, which lowers its emotional impact
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Loss Aversion Scenario 1 (version b)Bonus vs.
Withhold

Bonus Payment
Bonus, if paid separately, more likely to look
like a new small payment rather than an increment
atop a large initial payment.
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Loss AversionScenario 2 Bonus vs. Withhold
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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

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Behavioral Economics Heuristics That Help
Explain Apparently Irrational Decisions

• Anchoring
• Start with a known comparison and adjust from
  there
• Population of Milwaukee
• Availability
• How readily an example comes to mind
• Airplane crash
• Representativeness
• Underestimate randomness
• Hot Hand or Cancer Cluster

Thaler and Sunstein Nudge Yale U Press, 2008 New
Haven p 23
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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)

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Considerations for P4P Arrangements
Considerations for Contract Financing

• Provide adequate reimbursement to sustain the
  delivery system
• Dont overpay for overutilized procedures
• Dont underpay for underutilized procedures

• 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

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Treating a DiabeticCurrent Approach
Registry ShowsDefect
Phone Intervention
Process Measures Achieved by 12/31
OV Diabetes
OV Diabetes
OV Diabetes
OV Diabetes
OV Diabetes
OV Unrelated
OV Preventive
OV Unrelated
Jan Feb Mar Apr May Jun Jul Aug Sept Oct
Nov Dec
Future Approach
OV Diabetes
OV Diabetes
OV Diabetes
OV Diabetes
OV Diabetes
OV Unrelated
OV Preventive
OV Unrelated
All process and outcome measures addressed
regularly. Patients have access to their own lab
values and report card throughout the year.
Jan Feb Mar Apr May Jun Jul Aug Sept Oct
Nov Dec
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1976 Ford Crown Victoria
1990 Toyota Camry
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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

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Case Study Destruction of Value
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
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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 practices bottom line by 6

Numbers are illustrative only
(1) Source US Census Bureau demographic
estimates, Massachusetts, 2008
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EMR Data vs. Claims Data
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Jeffs 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

• 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

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Payer and Provider Point of View
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
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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)

42
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