1. Arnie Milstein MD, MPH The Leapfrog Group Pacific Business Group on Health Mercer Human Resource Consulting arnold.milstein@mercer.com Contracting for Quality and Efficiency in the U.S. June 7, 2004

2. 2 Motivating Forces Biomedical tech-fueled health insurance cost acceleration Scientific evidence of widespread performance failure due to antiquated clinical work methods and inadequate provider incentives for major improvement Consumer indifference to efficiency, misplaced faith in quality, and backlash against insurer utilization management

3. 3 Consensus Among Frogs Fully transparent provider performance boosts improvement Individual MD performance must also be measured Measurement must be comprehensive Performance measurement is difficult Incentives must address both efficiency and quality Incentive potential must reach 10% of provider income Performance-insensitive consumers can block progress

4. 4 Our Path Forward, Refined by HSR Evidence What Standardize and publicly report provider performance measures Start with imperfect performance measures Structural measures OK, esp. key measurement enablers, e.g. interoperable EHR use How Expand billing data to improve precision of measures, e.g. UB04 Obtain private sector access to the CMS claims data base Assure robust provider performance incentives by most insurers Coordinate insurer incentives for shared providers, e.g. “PPSI” now under development by Leapfrog and NCQA Engage consumers as performance-sensitive “micro-contractors”, especially via tiered network plans

5. 5 Diagrammatic Summary Performance comparisons for hospitals, MDs & Tx  Market sensitivity to performance Clinical re- engineering by MDs, hospitals Q 50 ppts $ 40 ppts Value of Health Benefits Key Evolutionary Steps High Low 2002 2012 Performance Disclosure P4P & Consumerism Chasm Crossing Performance Breakthrough

6. 6 Frog Dilemmas The “invisibility” of performance failure Accommodating insurers’ need for differentiation Balancing immediate efficiency gains and investment needed for performance breakthrough Diverting incentives from improvement to improved performance measurement and structural gains Titrating to a functional level of multi-lateral discontent