Quality and Incentives: Value-Based Purchasing, Pay for Performance and Transparency Tom Williams Executive Director Integrated Healthcare Association The Quality Colloquium August 20, 2008

National Leadership HHS Secretary Leavitt inspired Executive Order Four cornerstone goals - Interoperable Health IT - Transparency of Quality Measurements - Transparency of Pricing Information - Promoting Quality & Efficiency of Care Ultimate Goal: “A Change in Culture”

3 Source: The New Yorker, March 17, 2008

IHA Sponsored California Pay for Performance (P4P) Program Health Plans: Aetna Blue Cross Blue Shield Western Health Advantage Medical Group and IPAs: 230 groups 35,000 physicians * Kaiser participates in the public reporting only 12 million HMO commercial enrollees CIGNA Health Net of CA Kaiser* Pacificare/United 4

5 California Pay for Performance: Summary of Performance Results Clinical: continued modest improvement on most measures − 5.1 to 12.4 percentage point increases since inception of measure Patient experience: scores remain stable but show no improvement IT-Enabled Systemness: most IT measures are improving − Almost two-thirds of physician groups demonstrated some IT capability − Almost one-third of physician groups demonstrated robust care management processes Continued performance improvements but “breakthrough” point not achieved yet.

6 Lesson Wide variation across regions exists; contributes to overall “mediocre” statewide performance Big gains possible with focused attention on certain regions P4P Response Pay for and recognize improvement (20% of payment for 2007) More fundamental change in calculus of payment for improvement for 2008/09 California Pay for Performance: Regional Variability in Quality

7 California Pay for Performance: Clinical Performance Variation MY 2006 Results by Region Top Performing Groups

California Pay for Performance: A Tale of Two Regions Inland Empire Bay Area PCPs/100K Pop % Pop. Medi-Cal17% 12% % Hispanic43% 21% Per Capita Income $ 21,733 $ 39,048

P4P Performance Score Clinical Performance California Pay for Performance: A Tale of Two Regions

Are Quality Variations Correlated with Physician Reimbursement Disparities? The data and subjective experience suggest: Physicians in geographies with low socioeconomics receive disproportionately lower reimbursement across their practice, resulting in diminished physician and organizational capacity, reducing both access and quality of healthcare, even in a uniformly, well-insured population.

P4P Quality Payment Incentives Fundamental reimbursement disparities appear to be the main culprit; however P4P should at a minimum not increase reimbursement disparities Payment for absolute and relative performance should be balanced with payment for improvement

Paying for Improvement Survey Response: What % of total bonus payments by health plans should be allocated to improvement vs. relative performance? (n=200, IHA Stakeholders meeting, 10/4/07)

Paying for Performance & Improvement Excerpt from CMS Hospital Value-Based Purchasing Listening Session #2, April 12, 2007

Transparency – Public Reporting 14

California General Public Survey, conducted by Harris Interactive (12/07) HospitalsHealth Plans Physicians Saw Rating Information 23% 26% 22% Based on these ratings, considered a change 2% 4% 5% Based on these ratings, actually made a change 1% 2% Transparency – Public Reporting

Rates for Hip Revisions Total hip revision rates (2006): − National average: 18% − Kaiser Permanente: 12.8% − Sweden: 7% Does this reflect more aggressive treatment, or less effective care? Slide attributed to Thomas Barber, MD, Permanente Medical Group, presented at the CAHP conference, October Transparency – Quality Improvement

Countries with National Joint Replacement Registries 1975: Sweden- Knees 1975: Sweden-Hips 1980: Finland 1987: Norway 1995: Denmark 1997: Germany 1999: New Zealand, Australia 2001: Canada, Romania 2003: England, Wales, Slovakia 2004: Switzerland Transparency – Quality Improvement

Why doesn’t the U.S. have mandatory device registries? Transparency – Quality Improvement

Healthcare as Percentage of GDP 60%+ of NME passes through public sector budgets (CMS, public employees, tax breaks, etc.) Healthcare at 16.3% of GDP (2007) Therefore, about 10% of GDP is healthcare spend passing through public sector budgets (.6 x 16.3% = 9.8%) Cost and Quality

Total tax revenues in U.S. (federal, state, local) equals about 28% of GDP So, healthcare uses about 1/3 of public sector budgets (.098/28% = 35%) and growing! Healthcare at 20% of GDP = 43% of public sector budgets Healthcare as Percentage of GDP Cost and Quality

Example: Michigan “Checklist”: Over 18 months, reduced infections in ICU by 66% Estimated 1,500 lives saved Estimated $100 million saved Cost and Quality

22 California Pay for Performance For more information: (510) Pay for Performance has been supported by major grants from the California Health Care Foundation