It's Time to Fix How Hospitals Are Rewarded

July 8, 2016

This article originally appeared at on April 12, 2016.


Apr 12, 2016 11:26 am ET

Susan DeVore is president and CEO of Premier Inc., a health-care performance improvement alliance of 3,600 U.S. community hospitals and 120,000 other providers.

After the Affordable Care Act was passed six years ago, hospitals were pioneers, becoming the first to be subject to pay-for-quality programs under Medicare. Under this system, payment depends on not just the number and complexity of services, but also the quality of care. This intricate web of policies includes penalties for excess readmissions, hospital-acquired conditions, and the continued use of inefficient paper health records, for example.

Admittedly, these programs have improved the transparency of provider performance and incentivized a stronger focus on quality. But they were structured in a hodgepodge fashion, with substantial overlap and contradictory methodologies for calculating performance across payers. For example, one study found thathospitals spend 1% of their revenue navigating and staying in compliance with competing, redundant reporting systems.

Because of legislation passed last year, physicians will participate in a unified pay-for-quality program, starting in 2019. Called the Medicare Incentive Payment System this new system is intended to simplify and consolidate programs by creating one organized pay-for-performance system for physicians. However, hospitals are still using five other quality programs with very little overlap across providers, let alone payers.

Right now is our opportunity to hit the reset button on how these pay-for-quality programs are implemented for hospitals, and to learn from what the physicians’ system gets right,
before the inclusion of the new layer creates even more bureaucracy.

Here are six principles that regulators should embrace for a new, holistic, pay-for-quality program for hospitals.

1) Streamline and align
Without an effort to consolidate and align pay-for-quality programs across providers and payers, we risk measures proliferation. To date,of more than 500 state and federal measures, only 20% were used by more than one program. In addition, a study of 29 private health plans identified approximately 550 distinct measures, which overlapped little with the measures used by public programs. These disparate measures will only keep growing unless moves are made to rationalize them.

2) Keep rewards for improvement
Some of the pay-for-quality programs in the Affordable Care Act reward hospitals only for attaining quality-of-care goals. From our experience as a hospital alliance, we’ve learned that quality improves faster when providers earn payment for making significant gains, as well as for attaining those goals. In recognizing improvement, lower performers become aware of the possibility of bonuses, and have an incentive that prevents them from stagnating. In fact, some of the lowest performers in these programs have been able to become high performers in a short period of time. Improvement scores should be included in the next-generation programs.

3) Incorporate more of what the patient thinks
To encourage patient involvement, we need to ensure that providers are held accountable for outcomes that matter most to patients and families. Patient experience and patient-reported outcomes not only engage the patients but are indicators of high-quality care. We aren’t talking about how fluffy the pillows are, but rather the patient’s range of motion or other restored functioning key to daily living.

4) Embrace electronic, rather than manual reporting
Manual collection and reporting of outcomes data is time-consuming and difficult, pulling providers away from patient care to cover administrative duties. As more measures and data points are identified as relevant to patient care, there should be a bias in favor of those new measures which can automatically be collected and reported, on a real-time basis, to eliminate staff and time burdens. Moreover, moving measures into electronic reporting can further assist providers in becoming meaningful users of health information technology, and help integrate these technologies into clinical workflow.

5) Use only open measures that are field-tested and endorsed by stakeholders
Broad stakeholder groups such as the National Quality Forum exist to evaluate provider measures before they become integrated into payment programs. This process is essential to ensure new measures are field-tested, capturing useful information for evaluating performance, and based on the consensus of experts. When this process is circumvented, and measures are moved forward prematurely or without broad support, we end up with programs that can lead to unintended consequences or unfair payments to subsections of the provider community. Core measures within quality programs must be publicly available and have prior National Quality Forum endorsement before being used to determine payment.

6) Incorporate new, progressive methods for risk adjustment
Regulators have been unwilling to adjust policies for factors such as the income and education level of the population served, arguing that doing so will “mask” disparities. While it’s important to track disparities, the argument falls down with payment, where hospitals located in underserved or poorer areas are penalized at a higher rate – not because they provide lesser quality, but because of the economic and social conditions of the population. Rather than penalizing providers treating these populations, we should adjust the measures so that penalties are limited to those that may indicate a lapse in quality.

In applying these principles, we will go far toward improving today’s pay-for-quality program by simplifying the programs, reducing duplication and burden, better utilizing modern technology, and better engaging with patients.

Let’s not miss this chance to step back, do some spring cleaning and rework these programs. We’ve got six years of experience and accumulation of measurements. Let’s prune the ones no longer yielding value, and align what is left to ensure all providers are headed toward a common goal: the best possible outcome for patients.

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