1. Provider Pay for Performance: Is it Crazy to Pay More
Provider Pay for Performance: Is it Crazy to Pay More? When Does it Make Sense?
March 7, 2005
Arnie Milstein MD, MPH
Pacific Business Group on Health
Mercer Human Resource Consulting
A. Milstein  2005
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2. Time to Reward Clinical IT Adoption and Other Performance Leaps?
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3. Our Urgent Need to Produce Health “Better, Faster, and Cheaper”
Annual Percent Changes per Capita in Health Care Expenditures and in Average Hourly Wages for Workers in All Industries, 2000 through 2003
With the exception of the mid-1990s, health insurance premium increases have generally exceeded the rate of increase in the Consumer Price Index, as well as worker earnings.
This also reflects the health insurance underwriting cycle in that health plans that suffered losses by underpricing competitors in a highly competitive market now seek to restore profitability. Furthermore, the consolidation of health plans has significantly reduced competition.
Data are from Strunk and Ginsburg, Dental work by Dr. Milstein.
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4. Initiation of new navigational tools and incentives
Actual Reduction in Spending Trend Without Quality Compromises: Outswimming the Shark in Nevada
vs. 12% trend
Per Capita Health Care Spending (Low Wage Hotel Workers in Nevada)
Initiation of new navigational tools and incentives

5. Success Required Two New MD Performance Measurements (a real MD distribution from a comparatively efficient city; also applies to care management & treatment options)
50th %ile
Low Longit. Efficiency
High Quality
High Longit. Efficiency
High Quality
(Dream Suppliers)
MD Quality Index (outcomes or % adherence to EBM)
Lower Higher
50th %ile
Low Longit. Efficiency
Low Quality
(Nightmare Suppliers)
High Longit. Efficiency
Low Quality
Lower Longit. Efficiency/ Higher Cost
Higher Longit. Efficiency/ Lower Cost
MD Longitudinal Cost Efficiency Index AKA “TCO”
(average total cost per acute episode or year of chronic care)
Adapted from Regence Blue Shield
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6. Inducing Rapid and Continuous IT-enabled Re-Engineering of Health “Production” is the only Alternative to Social Divisiveness
50th %ile
Continuous Efficiency Gains Offset Cost of Medical Miracles
Low Longit. Efficiency
High Quality
High Longit. Efficiency
High Quality
(Best)
MD Quality Index (outcomes or % adherence to EBM)
50th %ile
Lower Higher
Low Longit. Efficiency
Low Quality
(Worst)
High Longit. Efficiency
Low Quality
Lower Longit. Efficiency/ Higher Cost
Higher Longit. Efficiency/ Lower Cost
MD Longitudinal Cost Efficiency Index
(total cost per case mix-adjusted treatment episode)
Adapted from Regence Blue Shield
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7. A Purchaser and Consumer Near-Term Vision: High “PPSI” (PPSI=Provider Performance Sensitivity Index)
Americans
High
Q ppts
$ ppts
Chasm Crossing
Consumerism (Tiered Plans w or w/o Spending Accounts) & P4P “PRN”
Clinical re-engineering by MDs, hospitals & hlth risk reductn programs
Value from Health Benefits Spending (Health Gain / $)
Performance Transparency (Quality & Cost Efficiency)
 Market sensitivity to hospital & MD performance
Performance comparisons for hospitals, MDs & treatments
Q = % adherence to evidence-based rules
$ = Per capita health care spending. Includes new investment in IT / industrial engineering capability. Excludes impact of inflation, aging and biomedical innovation
Low
2002
Evolutionary Path
2012
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8. A Nearly Identical IOM Vision
EMPLOYERS
CARE SYSTEM
OUTCOMES
Supportive market environment
Organizations that facilitate the work of patient-centered teams
High performing patient-centered teams
Safe
Effective
Efficient
Personalized
Timely
Equitable
GOVT & PLANS
CARE SYSTEM RE-DESIGN IMPERATIVES
Redesigned care processes
Effective use of information technologies
Knowledge and skills management
Development of effective teams
Coordination of care across patient conditions, services, and settings over time
Use of performance and outcome measurement for continuous quality improvement and accountability


Adapted from Crossing the Quality Chasm, IOM, 2001.

9. When is Paying Extra Not Crazy?
To jumpstart provider prioritization of performance management & required infrastructure (industrial engineers & IT)
To motivate provider oligopolists
To overcome the practical, psychological & ethical limits of health care consumerism
To help form a critical mass of regional purchasers
(Per Deming, utilize P4P a last resort)
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10. A Provider IT Reward Contingency Sequence That Makes Sense to Purchasers (In Partnership with CMS)
2003: Meets AHRQ/CMS/Leapfrog PODS/CPOE leaps or NCQA PPC certification
2004: Achieves additional locally-specified e-health capabilities (eg IHA, BTE, insurers)
2006: Uses CCHIT certified product
2006: Uses CCHIT certified product and achieves highest level of CSI specified connectivity
2006: Passes Leapfrog/AHRQ CPOE challenge test
2007: Performs in top quartile on aggregate measures of quality and longitudinal cost efficiency
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11. How Soon Can We Reduce P4P? How Soon Will Congress…
Speed universal provider performance transparency via exchange of CMS claims data with private sector plans, subject to strict patient privacy protection?
Encourage all U.S. health benefits plans to tailor consumer cost-sharing to the “TCO” and quality of individual physicians, hospitals, and treatment options (via CMS, tax and/or competition policy)?
Increase the sensitivity of all U.S. plans’ cost-sharing to provider performance (especially individual MDs) until America steadily outswims the shark?
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