Getting paid more for doing worse…only in healthcare. Entry 15 – 2007

Imagine paying your lawyer more for losing a case than winning it. Imagine paying your realtor a higher commission for not selling your house than he or she might earn when it sells. Imagine returning a new bicycle that doesn’t work and being charged extra for its flaws. Such a system would seem objectionable, unfair, and perhaps even criminal.

Yet, that is essentially how the medical payment system works.

If you enter a hospital to have a procedure, the hospital charges one fee. But if you experience complications, need to stay longer, or need to return to repair a problem, the hospital will receive higher fees. The “fee-for-service” (FFS) system is pay-as-you-go, offers no refunds, and allows no discounts for poor quality (although health plans do get discounts based on quantity). How is it that the system we most rely upon to deliver health services makes more money when we stay sick?

One reason patients accept such a contrary arrangement is a general perception that medicine is a very technical and complex field and medical expertise is infallible. We assign such high regard to trained physicians as the people who “know best” that, when something does go wrong, it cannot be their fault. Another reason is that, once a problem becomes expensive, the insurance company pays the bill rather than the patient. At that point, cost is no longer the patient’s problem (1). Whatever the reasons, our healthcare delivery system has evolved with little (and sometimes inverse!) connection between size of payment and effectiveness of treatment. Essentially, poor outcomes will likely cost more than good outcomes.

Should we expect more? Here is an example that suggests we can, when the payment system rewards positive outcomes.

A hospital system in Pennsylvania(2) tested the consequences of providing heart surgery plus 90 days of follow up care for a set price (3). To support their efforts, the surgeons implemented a quality process called, “ProvenCare,” which consists of 40 specific policies and procedures known to improve outcomes. The ProvenCare process includes pre-surgery preparation, surgical standards, and post-operation care. The result: better outcomes, drastically fewer complications, fewer readmissions, and an impressive rise in adherence to quality standards from 60% to almost 100% (2). In fact, surgeons reported that their approach became much more uniform—rather than each following a different method of providing care as was the case prior to implementing the new process (4).

In this example, the facility devised a system that, instead of rewarding the number of services, rewarded the healthy recovery of the patient, which led to better outcomes, lower overall cost, and a demonstration of unusual consistency in delivery of care. It proves first, that many potential problems associated with a serious procedure ARE avoidable and second, that methods for doing so can be identified. Finally, it reinforces the economic reality that aligned financial incentives influence behavior.

Perhaps the most promising part of this experiment is that it was developed and implemented proactively by the health system, rather than being imposed by purchasers, as are so many pay-for-performance initiatives. Further, it rewards the health system if and only if the person does well, rather than rewarding them for following guidelines (regardless of whether the person does poorly or dies).

What about procedures that are not covered by insurance and completely subject to the discretion of the patient? These types of arrangements can shed light on how a direct patient and provider exchange can influence both cost and quality. A facility called the 20/20 Institute in Denver offers a full money-back guarantee if Lasik surgery fails to provide 20-20 vision or better. When we talked to their business manager, he said that historically they know 95% of these procedures achieve 20-20 or better, and patients should expect nothing less. He pointed out that this is more of a shift in philosophy than anything else: “We had to start to think like the Ritz. Customer satisfaction needs to be our primary goal.”


What if consumers had to pay directly for the full price of all services? Wouldn’t we demand better care, at a guaranteed price, with no extra fees if something unexpected goes wrong? Yes, we probably would, especially for common procedures like knee replacement, hip replacement, gallbladder removal, and many more. Perhaps we would consider asking for a refund if the problem isn’t fixed.

Since the money for healthcare comes from us anyway (either as taxes or lower wages). . . perhaps we should demand the same deal for price and quality right now.



_______________________________________________________________

1. Indeed, a hospital billing representative I spoke to about a large, uninterpretable bill said “Ma’am, you don’t need to question this bill, you aren’t the one who has to pay it.”

2. Casale, A.S., et. al. "ProvenCareSM": A Provider Driven Pay For Performance Program for Acute Episodic Cardiac Surgical Care. American Surgical Association 127th Annual Meeting, April 26-28, Colorado Springs, Co.: http://www.americansurgical.info/abstracts/2007/20.cgi (accessed July 10, 2007).

3. The price included the average surgery price plus the historical "average" cost for care over the following 3 months. We will point out that, based on our research, the average cost may still be an inflated number, since it will likely be higher than 80% of all cases. However, it is better than having no price ceiling.

4. Abelson, R. “In Bid for Better Care, Surgery with a Warranty.” New York Times, May 17, 2007, http://www.nytimes.com/2007/05/17/business/17quality.html?ei=5088&en=3d8a549fa8ccb22c&ex=1337054400&pagewanted=print (accessed July 10, 2007).

5. 20/20 Institute, http://www.2020institute.com/guarantee.htm (accessed July 10, 2007).