Pay-for-performance as a method to establish the business case for quality

Journal of Health Care Finance

Volumn 33, Issue 4, 2007, Pages 17-30

  Wheeler, John R C ^a   White, Bert ^b   Rauscher, Simone ^a   Nahra, Tammie A ^a   Reiter, Kristin L ^c   Curtin, Kathleen M ^d   Damberg, Cheryl L ^e  

^a UNIVERSITY OF MICHIGAN SCHOOL OF PUBLIC HEALTH   (United States)

^b BOSTON UNIVERSITY   (United States)

^c UNIVERSITY OF NORTH CAROLINA   (United States)

^d MedVentive   (United States)

^e RAND CORPORATION   (United States)

Author keywords

Cash flow; Quality enhancing interventions (QEIS)

Indexed keywords

COMMERCIAL PHENOMENA; DECISION MAKING; ECONOMIC ASPECT; EVALUATION; FINANCIAL MANAGEMENT; HEALTH CARE QUALITY; HEALTH CARE UTILIZATION; HEALTH INSURANCE; HUMAN; MONEY; PAY FOR PERFORMANCE; PROFIT; PROSPECTIVE PAYMENT; QUALITY CONTROL; QUALITY ENHANCING INTERVENTION; REVIEW; TIME;

COMMERCE; DELIVERY OF HEALTH CARE; PERSUASIVE COMMUNICATION; QUALITY ASSURANCE, HEALTH CARE; REIMBURSEMENT, INCENTIVE; UNITED STATES;

EID: 34447535531     PISSN: 10786767     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (29)

1. McGlynn, E.A., Asch, S.M., Adams, J., Keesey, J., Hicks, J., DeCristofaro, A., and Kerr, E.A., "The Quality of Health Care Delivered to Adults in the United States," New England Journal of Medicine, Vol. 348(26): 2635-2645 (2003).
2. Kilpatrick, K.E., Lohr, K.N., Leatherman, S., Pink, G., Buckel, J.M., Legarde, C., and Whitener, L., "The Insufficiency of Evidence to Establish the Business Case for Quality," International Journal for Quality in Health Care, Vol. 17(4): 347-355 (2005).
3. Leatherman, S., Berwick, D., Iles, D., Lewin, L.S., Davidoff, F., Nolan, T., and Bisognano, M., "The Business Case for Quality: Case Studies and an Analysis," Health Affairs, Vol. 22(2): 17-30 (2003);
4. Urbina, I., "In the Treatment of Diabetes, Success Often Does Not Pay," New York Times Online Edition, January 11, 2006.
5. See Leatherman, et al., supra n.3.
6. See Leatherman, et al., supra n.3.
7. Purchaser and payer are not always distinct stakeholders. Some purchasers of health care simultaneously assume the role of the payer, such as patients paying out-of-pocket for services (patient-as-purchasers). In other cases, the payer is only the means through which a purchaser organizes and pays for services, such as self-funded employers contracting with a payer for Administrative Services Only (ASO) and stop-loss products. Finally, purchaser and payer can represent distinct stakeholders whereby the payer not only pays for services on behalf of the purchaser but also actively manages the provision of health care for its enrollees. As a result of the different roles purchasers and payers of health care can assume we argue that some purchasers such as the patient-as-purchaser consider both the business and the economic cases for quality when making health care decisions. However, other purchasers such as employers and payers of health care only allow for a business case. A third-party purchaser or a payer will invest in a QEI only if its business case is positive. For these actors, non-monetary values do not represent benefits per se but are only relevant if they translate into readily measurable monetary values, such as reduced absenteeism or increased productivity of an employee group.
8. See Leatherman, et al., supra n.3.
9. See Leatherman, et al., supra n.3.
10. See Urbina, I. supra n.3.
11. A detailed model for tracking the cash flows of a provider implementing a QEI and for calculating a return on investment can be found in Pink, G., "The Business Case for Quality: Tracking the Cash Flows," Progress report, University of North Carolina at Chapel Hill (2005).
12. Choosing an appropriate discount rate for NPV calculations is critical and depends on the perspective taken (for a discussion see Kilpatrick, 2005). For many cost-benefit studies from a social perspective, analysts choose a rate approximating the social rate of time preference, such as a 3 percent real rate. For investments by private firms and individuals, a rate reflecting the firm's or individual's cost of capital (for example, borrowing cost) is more appropriate. Moreover, analysts have to make an assumption about the time horizon of the intervention to determine how far into the future operating costs as well as cost savings and revenue effects should be taken into account.
13. Pink, G., "The Business Case for Quality: Tracking the Cash Flows," Progress report, University of North Carolina at Chapel Hill (2005).
14. Mozurkewich, Naglie, Krahn, and Hayashi, "Predicting Pre-Term Birth: A Cost-Effectiveness Analysis," American Journal of Obstetrics and Gynecology, Vol. 182(6): 1589-1598 (2000).
15. Shine, K.I., "Health Care Quality and How to Achieve It," Academic Medicine 77(1): 91-99 (2002).
16. See Leatherman, et al., supra n.3.
17. Curtin, K., Beckmann, H., Pankow, G., Milillo, Y. and Greene, R.A., "Return on Investment in Pay-for-Performance: A Diabetes Case Study," Journal of Healthcare Management, 51(6): 365-376 (2006).
18. Nahra T.A., Reiter K.L., Hirth R.A., Shermer J.E., Wheeler J.R.C., "Cost-Effectiveness of Hospital Pay-For-Performance Incentives," Medical Care Research and Review 63 (1 supplement): 49S-72S (2006).
19. There is some lack of clarity about the extent to which incentive payments consisted of additional payments to hospitals versus a redistribution of funds withheld from hospitals to create an incentive pool. The assessment of ROI for the two parties is highly dependent on whether the incentive payments are new money or not. The example presented assumes all incentive payments represent new revenues to hospitals. If some of the incentive payments are redistributed funds, a positive business case for the payer is possible. However, if incentives come mainly or completely from redistributed funds, the business case for the provider can turn negative. This example highlights the importance of considering the distribution of potential gains in setting up P4P programs.
20. See Nahra, T.A., et al., supra n.17.
21. Vijan, S., Hofer T.P., and Hayward, R.A., "Estimated Benefits of Glycemic Control in Microvascular Complications in Type 2 Diabetes," Annals of Internal Medicine, Vol. 127 (9): 788-795 (1997);
22. Vijan, S., Hofer, T.P., and Hayward, R.A., "Cost-Utility Analysis of Screening Intervals for Diabetic Retinopathy in Patients with Type 2 Diabetes Mellitus," Journal of American Medical Association, Vol. 283 (7): 889-896 (2000);
23. Stratton, I.M., Adler, A.I., Neil, A.W.H., Matthews, D.R., Manley, S.E., Cull, C.A., Hadden, D. Turner, R.C., Holman, R.R., "Association of Glycaemia with Macrovascular and Microvascular Complications of Type 2 Diabetes," British Medical Journal, Vol. 321 (8): 405-412 (2000).
24. Blue Cross Blue Shield Michigan, "Value Partnerships," BCBSM News Fact Sheet, June 2006.
25. Bodenheimer, T., May, J.H., Berenson, R.A. and Coughlan, J., "Can Money Buy Quality? Physician Response to Pay for Performance, Center for Studying Health System Change, Issue Brief No. 102, December 2005.
26. Rosenthal, M.B. and Frank, R.G., "What Is the Empirical Basis for Paying for Quality in Health Care?," Medical Care Research and Review, Vol. 63(2): 135-157 (2006).
27. Sautter, K.M., Bokhour, B.G., White, B., Young, G., Burgess, J.F., Berlowitz, D., Wheeler, J.R.C., "Early Experiences of a Hospital-Based Pay-for-Performance Program," Journal of Healthcare Management (in press 2007).
28. See Pink, G. supra n.12 and Kilpatrick, K.E., "A Primer on the Business Case for Quality," unpublished draft, University of North Carolina at Chapel Hill (2005).
29. See Kilpatrick, K.E., supra n.25.