Health Care Providers Often Face Financial Risk By Investing In Quality Improvements

Authors Of New Study Say Payment Policies Must Change To Create Incentives--Not Penalties--For Quality

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New York City, March 11, 2003—Many hospitals and health systems are trying their best to make quality improvement a priority, but the reality is they may lose financially by doing so. An analysis of case studies supported by The Commonwealth Fund and published in the journal Health Affairs shows that while programs such as smoking cessation and diabetes and cholesterol management unquestionably improve patients' lives, have a value to society, and may save health care dollars over the long run, the "business case" for these efforts is weak or nonexistent. "Business case" is defined as a positive return on investment within a reasonable period of time for the parties that invest in these improvements. The authors call for changes in health care payment policies to provide financial rewards to parties who pay for the development and implementation of improvements in health care. "Our health care payment system often is working at cross purposes with those on the front lines of health care, who want to provide the best-quality care to their patients," said Stephen C. Schoenbaum, M.D., senior vice president of The Commonwealth Fund. "Especially at a time of scarce resources we must reward quality health care, and not continue to accept the high rates of error and less-than-optimal care that are rampant in the U.S. health system." In "The Business Case for Quality: Case Studies and An Analysis," Sheila Leatherman, research professor at the School of Public Health, University of North Carolina at Chapel Hill, Donald Berwick, M.D., president and CEO of the Institute for Healthcare Improvement, and others analyze the investment and benefits for the key stakeholders—organizations, providers, payers, patients, and society—in the following cases:

  • Pharmaceutical management at Henry Ford Health System.
    This health system in Detroit created an intervention to monitor the use of statin drugs to control cholesterol levels. The percent of patients reaching the desired level of cholesterol control increased from 53 percent to 84 percent through close monitoring and adjustment of their treatment. Henry Ford Health System may not realize these financial benefits, however. Heart attacks that may be avoided through the program—and result in lower patient costs—will likely be a long-term benefit, when the patients may no longer be cared for by Henry Ford.
  • Diabetes Management (HealthPartners and Independent Health)
    Two programs in Minneapolis and Buffalo to manage treatment of diabetic patients included practice guidelines, patient screening and reminders, and other methods to control blood sugar level and therefore avoid many complications of the disease. For one of the health plans, the projected net benefit was $75 per patient over 10 years. Yet, start-up costs were relatively high, and savings would likely not be realized until near the end of the period—in year 10, the annual savings were predicted to exceed costs by an estimated $1,500 per patient. By that time, some patients may have moved on to other sources of care.
  • Smoking cessation (Group Health Cooperative of Puget Sound)
    This program in Seattle reduced smoking by 30 percent and lowered downstream costs of morbidity and disability in the long term, but the health plan was unable to realize a predictable, measurable return on its sizable investment. Hence the business case for such a program is weak.
Solutions Lie in Shifting Payment System Toward Quality
"One significant challenge is to change the payment system to reward quality, instead of paying the same for poor or even defective quality as we pay for optimal quality," said Berwick. "For example, Medicare, Medicaid, and public health programs could directly reimburse for programs that clearly benefit society. Policies could be designed to require quality improvements as common medical practice." The authors detail specific changes that could help to realign the payment system to reward investment in quality and improve care:
  • Providers should showcase their quality.
    This would require greater public availability of quality information. One example would be for Medicare to release hospital-specific mortality data, adjusted for complexity and other risk factors.
  • Adjust payment systems to align rewards with the quality activities that generate them.
    Medicare, Medicaid, and private insurers could reward higher quality with incentive payment systems. Health systems could be paid capitated, population-based payment or monthly case management fees. Paying bonuses for reduced hospitalization, bundling payments for care by diagnosis, and uniting payments of Part A and Part B of Medicare could also help keep chronically ill patients out of the hospital. Medicare, which ultimately could reap the gains from better health in later life, could pay for preventive services to younger people and management of chronic conditions such as diabetes and high cholesterol to middle-aged people.
  • Increase patient choice.
    Networks of hospitals, physicians, and health systems providing high-quality care could be made available as choices under Medicare, Medicaid, and private insurance. Providing information about care quality would allow patients to choose providers that meet certain standards of care as well as their own personal needs.
  • Improve information systems.
    Health care organizations must invest in the infrastructure needed to successfully implement quality improvements, such as information technology.
  • Educate consumers about quality.
    Government and private purchasers can create a climate for quality improvement by demanding excellent care, and providing information to beneficiaries about quality performance.

Publication Details

Publication Date:
March 11, 2003

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