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E-CareManagement News

January 28, 2002


Did you see the headline last week -- "Six California Health Plans Formally Announce Quality Initiative"?

Eight million people are served by these six plans--Aetna, Blue Cross of California, Blue Shield of California, CIGNA Healthcare of California, Health Net, and PacifiCare. They have agreed to develop a common scorecard of quality measures and to pay physicians for achieving better scores.
Is the California initiative of Pay for Performance-Quality (PFP-Quality) a trend? Our commentary discusses four main points:

1) The PFP-Quality trend is here to stay.
2) PFP-Quality is not the same as PFP-Cost.
3) There are challenges to creating the right scorecard for PFP-Quality.
4) PFP-Quality for chronic care is a great idea.


The Institute of Medicine's (IOMs) "Crossing the Quality Chasm" report outlines PRINCIPLES for payment policies to reward quality:

bullet Provide fair payment for good clinical management.
bullet opportunity for providers to share in the benefits of quality improvement.
bullet Provide...the opportunity for consumers and purchasers to recognize quality differences in health care and direct their decisions accordingly.
bullet Align financial incentives...based on best practices and the achievement of better patient outcomes.
bullet Reduce fragmentation of care.

The IOM's prescriptions are increasingly becoming recognized as THE BLUEPRINT for the American health care system. PFP-Quality is a significant trend, not just a blip on the radar screen.


Providing financial incentives to physicians is not a new idea. However, over the past decade most of the experiments with physician financial incentives have focused on pay for performance to reduce costs (PFP-Cost), rather than to improve quality (PFP-Quality). This difference is a profound shift.
PFP-Cost goes against the grain of most physicians. It raises the ethical and political landmine of denying needed care. 

A study cited in the Archives of Internal Medicine found that only 17% of physicians believed that financial incentives to limit services are ethically acceptable. It might be easier to convince doctors that Osama Bin Laden is just a guy with a naughty streak.


The California Pay for Performance system will utilize a common scorecard for the physician groups, representing a balance of prevention, chronic care management, and patient satisfaction measures. At least initially, the scorecard will NOT focus on clinical outcome measures.

If applied independently, each of these scorecard measures has major drawbacks: 

PREVENTION. A major challenge with rewarding prevention is that it tends to have primarily long-term benefits. The reality is that reducing cost in medical care remains a significant priority. Most preventive services provide benefits that are many years away. 

Do the math. The typical health plan has about 18% membership turnover each year. So, if your health plan has 1,000 members today, at the end of 1 year only 820 of those original members will still be with you. At the end of 10 years, only 168 of the original members remain, and at the end of 15 years only 62 of your 1,000 original members are still around.

Even the most rampant of do-gooders will have to admit that the economics of prevention are weak (under the current system).

Are there exceptions? Yes. For example, flu shots are one of a few preventive services documented to have a short-term economic payback. The $5 spent by an employer or health plan on a flu shot predictably will prevent a significant percentage of people from missing 5 days of work THIS YEAR (not 10 or 15 years from now). The math works here, but not for many preventive services.

PATIENT SATISFACTION. The problem with rewarding patient satisfaction is that it isn't necessarily linked to clinical quality. Consider two situations: 1) Incompetent clinician, great bedside manner, and 2) great clinician, lousy bedside manner. Who will get the higher patient satisfaction scores?

Medical care is a unique challenge for consumers --perceived quality (satisfaction) and actual quality don't necessarily go hand in hand.

CLINICAL OUTCOMES. The challenge with rewarding improvement in clinical outcomes is that we haven't agreed yet on WHAT to measure and HOW to measure it.

In theory, measuring improvement in clinical outcomes is the obvious and best place to focus. In practice, however, this is not an easy place to's like learning to swim in the deep end of the pool.

Two examples of multi-year attempts to measure clinical outcomes point out the methodological and political challenges. The first example is the multitude of studies examining mortality rates for open heart surgery (i.e., % of patients who die after surgery). Even after studying and refining this measure for a decade, researchers are still receiving criticisms--"It's the wrong thing to measure....your data is patients are sicker than your patients".

A second example--developing clinical guidelines for back surgery. The Agency for Health Care Policy and Research (AHCPR) took on this task in the mid 1990s, only to run into multiple political buzz saws. While the effort was aimed at improving quality, it raised the specter of reducing surgeries and of pitting physician against physician. This noble, but politically unwise, effort almost cost the agency its access to federal funding and its life.

AHCPR has been reincarnated into the Agency for Healthcare Research and Quality (AHRQ), and has refocused on primarily developing quality measures and guidelines.

The bottom line issue with metrics for clinical outcomes is one of timing. There are a number of initiatives under way developing standardized metrics for measuring clinical outcomes (for example, see the IOM's "Envisioning the National Health Care Quality Report".

In the long run, it makes great sense to incentivize improved outcomes....but only after we figure out WHAT to measure and HOW to measure it, and we ensure that needed cultural changes have begun.


Is focusing payment incentives for quality on chronic conditions a good idea? YES!!

Chronic care is becoming increasingly important. According to the National Health Care Purchasing Institute (a Robert Wood Johnson Foundation Initiative), "It seems natural to apply incentives to improve the quality of care provided to patients with chronic conditions. Why? Chronic conditions are prevalent, expensive, and the number of people afflicted by them is increasing. Chronic conditions are now the leading cause of illness, disability, and death in the United States." 

Just to be fair, there also are challenges associated with financial incentives for chronic care. These challenges include: improvements in chronic care depend on a wider local care system, with physicians being only one player in that system; many of today's chronic care scorecard measures focus primarily on process (e.g., HEDIS measures), rather than patient outcomes; factors beyond the scope of a physician's influence affect chronic care, e.g., patient lifestyle, patient adherence to treatment, etc.

However, rewarding improvements in chronic care doesn't have many of the drawbacks noted above:

bullet Unlike PFP-Cost, it doesn't raise the specter of denying care.
bullet Unlike prevention, there are many (not all) cases in which improving chronic care will have short-term economic benefits.
bullet Unlike patient satisfaction, chronic care improvement does have a high correlation with clinical improvement. The evidence to date from disease management programs shows both extremely high levels of patient satisfaction AND real clinical improvements.
bullet Unlike clinical outcomes, chronic care measures are "relatively" focused and "relatively" advanced. (The " " around relatively acknowledges that we still have a long way to go here.)

What a concept--paying physicians to improve performance! Makes perfect sense.


"The Growing Case for Using Physician Incentives to Improve Health Care Quality"
National Health Care Purchasing Institute, December 2001

"Provider Incentives in HMOs"
National Bureau of Economic Research, October 2001
Click here to see in pdf format

"Physicians More Likely to Face Quality Incentives than Incentives That May Restrain Care"
Center for Studying Health System Change, January 2002


The Center for Business Innovation (TCBI) presents
March 7-8, 2002, Hyatt Regency New Orleans, New Orleans, LA

The Premier Conference & Exhibition For Leaders and Key Decision-Makers From Hospitals, Health Systems, Physician Groups and Managed Care Organizations. For additional information click here

As an E-CareManagement News subscriber, you are entitled to $300 off the applicable registration fee (this discount cannot be combined with any other discounts). Please register by phone only (310-541-5932) to receive this special low rate and mention keycode BHT.


"Lynn Payer's Medicine & Culture Revisited"
Harris Interactive; Volume 1, Issue 34--December 20, 2001

This essay is a tribute to recently deceased author Lynn Payer, whose book "Medicine and Culture" compares and contrasts the practice of medicine in the U.S.A., Britain, Germany and France.

"The big picture which emerges from Medicine & Culture is that doctors in the four countries practice medicine very differently because their national culture, history and medical training are fundamentally different."


"E-Disease Management"
by First Consulting Group for the California HealthCare Foundation, November 2001

So far e-disease management is delivered in four operational models:
1) Patient self-directed
2) Patient support with electronic linkage to the case manager
3) Patient support with electronic linkage to the patient's physician
4) Clinician practice site

Recommended starting points include:

bullet Focus first on the disease management program--patients and their needs as well as its organizational structure--and then on the technology.
bullet Build the program with physicians in the lead and active participants in the design.
bullet Use e-disease management as a way to support the patient-physician relationship....
bullet Treat e-disease management as a serious project that needs assigned accountability and staff resources.
bullet Be sure to add value for physicians and their patients....

by First Consulting Group for the California HealthCare Foundation, November 2001

This report defines Web-based communications in health care and examines the value, operational models, technology, and attitudes of clinicians and patients. It also reviews implementation, case examples, best practices, and legal and regulatory issues. 


"Direct health plan contracting regains momentum"
Employee Benefit News, January 2002

Another trend revived from the 80s -- providers (hospitals and doctors) contracting directly with employers for health care services.

Will this trend evolve to include employers contracting with providers for disease management services? Stay tuned.


"Improving Care for Diabetes Patients Through Intensive Therapy and a Team Approach"
Agency for Healthcare Research and Quality (AHRQ), November 2001

Providers can help patients achieve good glycemic control and postpone major complications of the disease through a combination of intensive drug therapy and a team approach to care.


"Health Care Information Technology Market Update: 2002 and Beyond: It's Still a Clinical World"
US Bancorp Piper Jaffray, December 2001

"We believe that the industry response to these changes (reducing medical errors and improving clinical quality) has been epitomized by the adoption of clinical and workflow IT solutions. By acquiring these solutions and adopting the corresponding changes in workflow and productivity management, the industry, especially major hospitals in the United States, has shown its desire to reduce costs, improve profitability, and save patients' lives."

"Rx Health Care: Pharmacy Benefit Managers"
US Bancorp Piper Jaffray, December 2001

Most PBMs have several core business lines. Drug card (retail) and mail order are the original business lines that built the industry. Disease management, specialty distribution, and other segments are newer, less easily commoditized, and more profitable.


"Risk Adjustment for Asthma: Variations by Methodology and Implications for Providers"
Center for Healthcare Strategies, December 2001


"A Revolution in R&D: How Genomics and Genetics are Transforming the Biopharmaceutical Industry"
Boston Consulting Group, November 2001

Disclosure -- No clients were mentioned this issue.

E-CareManagement News is an e-newsletter that tracks a major change in health care and managed care—the paradigm shift from “managing cost” to “managing care”.  This e-newsletter is brought to you by Better Health Technologies, LLC (  BHT provides consulting and business development services relating to disease management, demand management, and patient health information technologies.

You may copy, reprint or forward this newsletter to friends, colleagues or customers, as long as the use is not for resale or profit and the following copyright notice is included intact. Copyright © 2002, Better Health Technologies, LLC. All rights reserved.

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