Rewarding Provider Performance: Aligning Incentives in Medicare Implications for Providers Institute of Medicine Audio-conference Stephanie Alexander, MBA Senior Vice President, Healthcare Informatics Premier, Inc. October 16, 2006 Hello, I am Stephanie Alexander, Sr. VP of Informatics at Premier. I was invited to speak with you about the implications of pay-for-performance, P4P, for providers, and specifically about how P4P can impact both quality and costs.

IOM Report: General reactions Overarching conclusions are ‘right-on’ in regards to P4P influence on better quality of care for patients Transparency (public reporting) is important part of operational conditions going forward Only the beginning of a long overdue need to change the Medicare financing system

IOM Report: Positives The phased-in approach Importance of rewarding all providers across all care settings through entire episodes of illness Rewarding both improvement and achievement of high levels of performance Importance of information technology use in the improvement of quality Learning environment promoting collaboration, to include more CMS demonstrations

CMS/Premier P4P Demonstration Over 260 hospitals participated in the CMS/Premier P4P Demonstration. The hypothesis posed that financial incentives improve quality performance. Hypothesis Financial Incentives improve hospital quality performance In 2003, Premier partnered with CMS to develop a pay for performance demonstration for hospitals – the first national demonstration of its kind. The hypothesis for the demonstration was that economic incentives for delivering higher quality care would drive not only quality improvements, but ultimately cost savings for Medicare. And another important factor in the demonstration is transparency, or public reporting. Quality scores for the top 50 percent of hospitals in each clinical category are posted on the CMS and Premier Web sites. Premier’s data warehouse, the Perspective™ database, was used as the infrastructure for the demonstration because 1) We had the leadership, meaning our hospital CEOs were willing to take risks to improve quality; and 2) The Perspective data had the depth and breadth, with the right analytical capabilities, to measure and monitor care processes and outcomes. Over 260 of our hospitals across 38 states volunteered to participate in the 3-year program. Premier used national quality measures across 5 clinical conditions to track hospital performance. Hospitals achieving quality scores in the top 20% of the participants were given financial “bonuses” from Medicare. In the first year of the project, almost $9 million dollars were awarded to top performers, small and large, rural and urban, teaching and non-teaching. The results from the project have been profound quality improvement across the board. What we’ve learned is that the demonstration created executive focus on quality improvement – elevating the discussion to hospital executives and the board, a critical success factor in performance improvement. We also discovered that the infrastructure we developed with IHI support for identifying top performers and rapidly disseminating best practices produced results. Findings Focus on Quality - The P4P Program financial incentives did focus hospital executive attention on measuring quality and refining care processes according to the study infrastructure. Premier is the Change Agent - The Premier Infrastructure and measurements were actually the change agents in focusing quality improvement efforts. The more hospitals were monitored, the better performance improved over time.

Dramatic and Sustained Improvement Composite Quality Score What we have seen among this group of pioneering hospitals is remarkable, sustained performance improvements across all 5 clinical conditions. Keep in mind that this bar chart represents the median improvement and, therefore, masks the truly outstanding improvement that some of the participant hospitals were able to achieve. 50% of the hospitals had quality scores above the median values.

IOM Report: Positives And the research agenda … Reduces Costs, For example, the recent Premier research as follow-up from the CMS demonstration concludes that improving patient care in clinical areas of pneumonia, heart bypass surgery, hip and knee surgery, and AMI in the acute care setting Reduces Costs, Avoids unnecessary deaths, Reduces Complications, Reduces Readmissions, and Shortens Length of Stay

The Cost/Quality Debate We all want to receive the best healthcare in the world. But at the same time consumers are concerned about the high cost of healthcare as well. Balancing cost and quality is a complex challenge for our nation’s hospitals. And we hold these truths to be self-evident that hospitals must deliver high quality care at a sustainable level of efficiency. Quality at any cost is unsustainable. Efficiency without quality is unthinkable.

Premier “Performance Pays” Study Over 77,000 Medicare Patients Studied High-volume Clinical Focus Areas Evidence-based Care Processes Studied Quality measures from CMS/Premier P4P demonstration Industry-supported, uncomplicated measures Cost and Outcome Elements Studied Total hospital cost for patient Mortalities Patient readmission and complications Patient length of stay in hospital The Centers for Medicare and Medicaid Services (CMS) and Premier joined forces in 2003 to launch the Hospital Quality Incentive Demonstration Project (HQID), the first national Pay-for-Performance demonstration of its kind. Building on early findings from the HQID project, which showed dramatic quality improvements across the board, Premier undertook an additional, extensive analysis to examine the relationship between quality and cost. The analysis, titled the “Performance Pays” study, used detailed cost and clinical data from Premier’s Perspective database. As Rick mentioned, five clinical conditions were studied: heart bypass (coronary artery bypass graft (CABG)), heart attack (acute myocardial infarction (AMI)), pneumonia, hip and knee replacement, and heart failure. The basis for this Performance Pays study are the patients in the CMS/Premier pay for performance demonstration that were treated for the five conditions in Year 1 of the project. The population totals just over 77,000 Medicare patients. The care processes analyzed in this Study are the industry-validated quality measures from the CMS demonstration project.

Finding 1: Reliable care cost less Finding 1 – Hospital Costs: As you can see, for AMI, Pneumonia, Heart Bypass, and Hip and Knee Surgery, the cost for highly reliable care is dramatically lower than low reliability care. For AMI Surgical patients, the study concludes the cost of delivering low reliable care is 38% higher than delivering high reliable care. For Heart Bypass patients, the study concludes the cost of delivering low reliable care is 28% higher than high reliable care. Premier Performance Pays Study, September, 2006

Finding 2: Reliable care avoids unnecessary deaths Finding 2 – Reliable Care Decreases Mortality Rates: When we examine lives saved, our finding is more significant. Heart Bypass Surgery patients receiving High reliable care were more than 6 times more likely to survive. AMI Surgery patients receiving High reliable care were more than 5 times more likely to survive. Knee Surgery patients receiving High reliable care were twice as likely to survive. We are not presenting mortality rates for pneumonia, because patients with pneumonia often have many other illnesses, or co-morbidities. The analysis is more complex and we are doing more research to uncover the true relationship between reliable care and mortality for pneumonia patients. Premier Performance Pays Study, September, 2006

Finding 3: Reliable care reduces complications Finding 3 - Reliable Care Reduces Complications. As with the quality measures, Premier uses industry-agreed upon standards to identify complications. For example, a complication for pneumonia patients is getting an infection in the IV site. An example of a complication for a heart bypass surgery patient is internal bleeding after surgery or getting a blood clot. AMI Medical patients receiving low reliability care experience more than twice as many complications as patients receiving high reliability care. Premier Performance Pays Study, September, 2006

Finding 4: Reliable care reduces readmissions Finding 4 ---- Reliable Care Reduces Readmissions ---- a benefit to patients, family members, hospitals, Medicare and private insurance. For AMI Surgical Patients, 17.2 percent of patients receiving low reliable care were readmitted, but only 12.7 percent of patient’s receiving low reliable care were readmitted – almost a 5 percent difference. Premier Performance Pays Study, September, 2006

Finding 5: Reliable care reduces length of stay While patients do not want to be readmitted to a hospital, they do want to be released as quickly as possible. The good news is, with reliable care, they can be. Notice that AMI Surgical Patients who receive high reliable care leave almost 5 days sooner, on average. Premier Performance Pays Study, September, 2006

IOM Report: Some opportunities Lack of emphasis on aligning physician and hospital payments Slow to include physicians (3-year lag) Stronger support to private organizations that contribute to the learning system (outside the QIO program) Payment options for the reward; in the hospital settings higher quality will bring cost savings to Medicare program Validation process

Key Messages for Hospital Providers Get Board involvement Expand quality measurement Dedicate appropriate resources to include IT, in the collection of quality measures, decision support and benchmarking tools Align incentives of executive and leadership teams Physician reporting and collaboration