1. QualityIncentivesJune-7-2004 Paying for Quality in Integrated Health Systems Douglas Conrad, PhD Barry Saver, MD, MPH Beverly Court, MHA Sarah Heath, MA University of Washington Funded by the Center for Health Management Research

2. QualityIncentivesJune-7-2004 Participating CHMR Study Systems Catholic Health Initiatives Exempla Healthcare Sharp Healthcare Summa Health System Sutter Health Swedish Health System Trinity Health System Veterans Health Administration (VISN 23) Virginia Mason Health System Washington Hospital Healthcare System

3. QualityIncentivesJune-7-2004 Surveys & Key Informant Interviews 22 medical groups 6 IPAs 10 major system hospitals Interviews included: –medical group administrator and medical director –IPA administrator and medical director –Hospital CEO, CNO, & CMO Interviews focused on environmental and market forces, quality incentives, and QI initiatives

4. QualityIncentivesJune-7-2004 Findings – Experience with Quality Measures & Incentives Little incentive experience (median bonus income [quality and other] <1% of total revenue); P4P just starting in CA, no $ received yet Past/current incentive programs generally ineffective - small incentives, often “black box” quality measures, no consistency across plans Current public (e.g., web-based) reports viewed skeptically – often black box measures, data sources often unknown or inaccurate Organizations debate whether to publicize or ignore when get good ratings

5. QualityIncentivesJune-7-2004 Findings – Views about External Quality Measures Quality measures must be transparent – clear, measurable, meaningful Quality measures need to fit organizational priorities for quality Need to be consistent across plans – even P4P consistency may not be enough External incentives must align with internal incentives

6. QualityIncentivesJune-7-2004 Findings – Views about External Financial Incentives If substantial resources needed to measure or achieve goals, incentives have to be “big enough” Some question the appropriateness of financial incentives for quality – “We aren’t paying you to deliver poor quality, so why should we have to pay you more to do it the right way?” Financial stability a prerequisite for considering major changes, particularly large investments such as an EMR

7. QualityIncentivesJune-7-2004 Findings – Views about Internal Financial Incentives Cultures of most large organizations rely on intrinsic motivation – many leaders question need for/appropriateness of large provider incentives Small groups (e.g., IPA members) tend to feel significant financial incentives needed to change provider behavior Productivity payment a barrier to quality incentives Internal measures/incentives must be transparent, data accurate and timely

8. QualityIncentivesJune-7-2004 Findings – Organizational Factors Leadership is critical Teamwork & collaboration drive quality Affiliation with a large organization facilitates quality improvement – “deep pockets” for infrastructure investments, organizational culture Some IPAs trying to function as large groups – e.g., create culture, centralize QI – but significant barriers exist Hospital and medical group efforts often not coordinated, even where incentives are aligned

9. QualityIncentivesJune-7-2004 Implications: “Design Principles” for Quality Incentives 1)Transparency (measurability, legitimacy and clinical coherence) of quality metrics is crucial to success 2)Consider where to use relative vs. absolute measures 3)Align rewards on multiple dimensions: structure, process, and outcome 4)Emphasize processes under provider control

10. QualityIncentivesJune-7-2004 Incentive Design Principles (concluding) 5)Design incentives to reward teamwork Quality is a “team sport” 6)Balance financial incentives as “extrinsic” motivators with attention to “intrinsic” motivators 7)Use “channeling” mechanisms to enhance quality competition & quality- elasticity of demand