Using Bundled Payments to Drive Quality Improvement

The 1965 implementation of Medicare has given American seniors a buttress against health and financial hardships but at the expense of uncontrolled costs that now threaten our nation's economic viability. In an effort to control costs and improve medical quality, Congress enacted the Patient Protection and Affordable Care Act  in 2010, certain provision of which promote the financial integration of hospitals and physicians through global budgeting.

Forces driving bundled payments
Highly integrated organizations such as Kaiser Permanente and clinic models, like Mayo, consistently document more effective and efficient medical outcomes as compared to less integrated provider groups. These integration successes, in part, stimulated the PPACA legislation provisions that seek to promote coordinated care across a broader spectrum of provider entities. In fact, CMS has already launched global reimbursement methods under acute care episodes, which it will expand through its Bundled Payments for Care Improvement initiative. CMS' Shared Savings Program also lays the groundwork for bundled payments through the accountable care organizations budgeting model. Commercial carriers will undoubtedly follow suit.  

Under global payments, hospitals receive a single payment that administrators will be compelled to share with physicians. Unless these financial distributions are objective, transparent and prospectively designed to reward physicians for high quality, cost efficient care, the potential for acrimonious hospital-physician relations are significant. However, when astute community hospitals, health systems and physician groups properly prepare themselves for global budgeting, their hospital-physician relations will actually be enhanced through financial rewards generated by effective clinical and operational efficiencies.

Regardless of  the specific integration models themselves, a single fundamental challenge is common to all global budgeting initiatives: How do health systems implement physician-directed, quality improvement activities that produce net-savings and then objectively and equitably distribute the dollars among the hospital and physicians who support the institution? Upon this potentially contentious distribution issue will rest the success or failure of most global budging initiatives.

Currently, hospital enterprises may or may not choose to participate in any one of several payment bundling models (e.g. , acute-care episode-only bundled payments, acute and post-acute bundled payments, ACO development). Although these payment models are often thought of in terms of reimbursement models for treating Medicare patients, they have taken on broader definitions and offerings. While multiple hospitals are now qualifying under the federal designation to manage defined groups of Medicare patients, provider groups are at the same time aligning and marketing themselves to commercial insurers and self-insured employers.

Linking payment models with quality
The goals of these various federal and commercial ACOs or other arrangements are to contain healthcare costs and improve quality. Medicare has defined quality using 33 specific indicators that each ACO must report in order to be eligible to receive additional reimbursements as shared net-savings. Whether these indicators will be sufficient to assist physicians in their efforts to improve clinical quality and cost efficiencies remains to be seen. Also unknown is the ability of the indicators to differentially quantify the various provider organizations' quality and cost-efficiency outcomes.

Several of the 33 indicators proposed by CMS can be described as covering specific experiences or conditions that may not apply to all patients within an ACO or covered by a bundled payment. For example, six of the 33 indicators apply only to patients at risk for diabetes. More comprehensive metrics of quality would both differentiate the provider groups and promote greater medical efficacies and efficiencies. Instead, metrics are derived from hospitals' medical record data, which are used by many organizations as the basis of physicians' quality and cost improvement initiatives, could improve quality even more. Measures such as risk-adjusted morbidity and mortality rates are certainly important, but statistically significant reductions in variation of care processes are the more reliable means of assuring continuous financial and quality improvements. While it may be too late for CMS to change its final ACO rule, hospitals that participate in other payment models, especially those developed with private insurers, should consider these more comprehensive quality measures. When clinicians and hospital personnel create reductions in variation and document appropriate utilization of resources, the hospital-physician enterprise can be assured there will be net-savings for sharing.

A winning hospital strategy: Physician-directed best practices
Hospitals' medical records data are powerful but often under utilized quality improvement resources. The patient-level data must be risk-adjusted and formatted for ease of physicians' use to assess the hospital's and clinical services' morbidity and morality rates. Financial (resource consumption) data must also be aggregated in an easily interpreted manner to demonstrate the wide variations that exist in physicians' care processes and outcomes. Charges are an excellent surrogate for the number of resources consumed since each hospital's charge master is the same for all resources and physicians. If costs are available, they should be used in place of charges. Ultimately, however, the data should be of sufficient granularity that the physicians can identify which specific resources demonstrate greater and lesser efficiencies. Length of stay should also be displayed along with charges to give a graphic display of the significant variations that exist within relatively homogeneous patient cohorts.

Drill-down techniques can be deployed to show each physician his/her own best-demonstrated performance. These best performances should then be compared to their own patients with inefficient outcomes, which documents their practice variations. Comparing every physician's performances using their own variations and outcomes with those of their hospital peers is a powerful way to rapidly effect behavior changes. The primary goal of these activities is to replicate the physicians' own best practices within homogeneous patient groups. But hospitals' processes must also be examined in a like manner because the same the drill-down techniques can target hospital induced inefficiencies that prevent physicians from reducing variations or effecting more expeditious patient throughput. Experience indicates that about half of the observed problems are secondary to hospital barriers and inefficiencies, the other half being physician induced.

These physician-directed best practices should be carried out using one-on-one, non-threatening physician education sessions. The vast majority of clinicians embrace these methods, but they are data-driven and need reliable clinical information with which to work. This desire to excel plus the financial incentives inherent in bundled payment methodologies are the basis for hospital and physician collaborations that can create continuous improvements and net savings.

Quality metrics for bundled-payments: The index of quality improvement
Physicians are often willing to adjust their own practices to fit best practices if data can be provided to support doing so will bring about improvements. However, some health systems fall into the trap of overwhelming physicians with data that they are unable to make sense of. In order to show quality improvement data in a straight-forward, easy-to-comprehend manner, Verras recently developed the Index of Quality Improvement 7 (IQI7).  The IQI7 consists of six, industry-standard measures that many hospitals and physicians use to objectively improve their quality and cost efficiency outcomes. The 33 ACO measures complete the IQI7. In addition to quality improvement, the IQI7 affords a means for the hospital to market itself to local employers and governmental agencies. Its metrics are excellent for comparing the efficacies and efficiencies of local hospital enterprises.

The 33 ACOs measures are specific for that use and must be manually abstracted from patients' charts. The other six metrics are represent standard, time-tested quality indicators that, for the most part, are readily available from all hospital medical records departments. The exception being the federally mandated National Hospital Quality Measures that, like the 33 ACO metrics, are manually abstracted from patients' charts. IQI7 utilizes a 1,000 total point score for three years of trended data that is presented as a stacked bar graph for easy interpretation.  

The seven IQI7 indicators of quality are:
1. Accountable care organization measures (33). These are federally mandated for hospitals that receive the ACO designation.
2. Financial (resource consumption) measures. Hospital inflation rates of charges trended over a three-year period (hospitals' internal costs can also be used).
3. Morbidity rates, Measured for top five DRGs and trended over three years.
4. Mortality rates. Measured for the top 10 major diagnostic categories over three years.
5. Reductions in variation. Measured for the top 10 DRGs, which constitute the majority of a hospital's patients.
6. Patient satisfaction. As reported to the federal government as a part of NHQM.
7. National Hospital Quality Measures. As reported to the federal government.

Health systems, hospital enterprises and physician groups that proactively integrate their financial incentives will prosper under all types of bundled payment scenarios. Their success will depend on utilizing physician-directed best practices that maximize efficiencies and net-savings. Equally important will be objective, transparent and equitable distributions of the net-saving between the hospital and physicians.  Good physicians, given reliable information, will consistently improve due to their inherent quest for excellence. Bundled-payments represent new financial incentives for physicians that will benefit their patients, hospitals, communities and themselves. It will take inspired leadership both at the hospital and physician levels to make bundled-payments operational, but the resultant clinical and financial outcomes will justify their efforts.

More Articles by Dr. Mohlenbrock:

The Role of Physician-Directed Best Practices in Creating Successful Accountable Care Organizations

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