The most commonly heard comment in healthcare these days is that we have to move from paying for volume to paying for value.  While it may sound trite, it also turns out to be pretty true.  Right now, most healthcare services are paid for on a fee-for-service basis – with little regard for the quality of that service.  We clearly need to move towards value-based payments (sometimes referred to as pay-for-performance or P4P).

Although a few folks remain skeptical about whether VBP/P4P can work (as though our pay for volume strategy is working out so well), asking whether we should pay for volume versus pay for quality no longer seems like a particularly interesting question.  The far more compelling and difficult question is how best to pay-for-performance? As I have written before, we need bold experiments with new payment models that employ three key principles: putting real money on the table, focusing on outcomes, and keeping the reward system simple (i.e. the better you do, the more you should get).

One such new payment model is the value-based purchasing (VBP) program from CMS, the largest payer of hospital care in America.  It’s a modest program but an immensely important one.  It is modeled after the Premier Hospital Quality Incentives Demonstration (HQID), which ran for 6 years and had modest effects on hospital performance on process measures and no effect on patient outcomes.  Despite these disappointing findings, the U.S. Congress, in crafting the Affordable Care Act, modeled VBP closely on HQID.  The incentives in the program are small (currently at 1.25% of total Medicare payments) and still more heavily weighted towards process measures than outcomes.

The key question for VBP is whether it will work – whether patients will be better off because of it.  We don’t know and realistically, we won’t for another year or so.  But what we do know is that 2 years into the program, certain hospitals seem to be doing well and others, not so much.  Yes, the incentives are small and my guess is that any impact will be very modest as well.  But, it’s still worth taking a look at how different types of hospitals are faring under VBP.  So we ran some numbers.

What we did (Methods)

We took the latest release of the CMS data on how much each hospital is penalized.  We linked these data to the American Hospital Association annual survey, which provides us with a series of hospital characteristics and the Medicare Impact File, which tells us a hospital’s Disproportionate Share Hospital (DSH) Index.  The DSH Index is widely used to measure the percentage of patients who are poor and high DSH Index hospitals are often referred to as safety-net institutions.  We then examined “bivariate” relationships –like whether size of the hospital, ownership, or DSH Index was associated with a higher or lower VBP penalty.  Finally, we built a multivariable model to see if, holding other characteristics constant, certain types of hospitals seem to do better than others.

What we found (Results)

Interestingly, we found that some things don’t matter that much — hospital size and teaching status just don’t have much of an effect.  Small hospitals did about as well as large ones and major teaching hospitals showed up in each of the performance quartiles about equally often.  There seem to be moderate regional differences:  hospitals in the Northeast and West do not do as well as Midwestern hospitals.

What’s interesting, and possibly most challenging, is that public hospitals and safety-net hospitals – those in the highest quartile of DSH index, tend to do worse.  They are losing money on VBP (see first column of results in table).  Because many of these hospital characteristics are overlapping (major teaching hospitals are usually large, public hospitals often have high DSH index, etc), the table also displays results from a multivariable model.  The story is similar: hospitals in the Northeast and West get bigger penalties, as do public hospitals and those in the highest quartile of DSH.  Its additive.  A large urban public hospital in the Northeast with a high DSH index gets an average penalty of about 0.30% of their Medicare payments.  Is that a lot?  No – but it’s not irrelevant for a safety-net hospital that may be operating with razor thin financial margins.

Table: Average total penalty, unadjusted and adjusted for VBP 2014

* Adjusted for all other variables in the table.  For example, public hospitals will get an additional 0.10% penalty, holding size, teaching, urban, region, DSH Index and proportion of Medicare patients constant.

So how do we interpret this?  Is the VBP program disproportionately penalizing safety-net hospitals?  Yes.  Is it unfair?  We don’t know.  We don’t know why public, safety-net hospitals do worse on VBP.  My suspicion is that much of the difference is driven by differences in patient experience scores.  The challenge for all of us is to understand why safety-net hospitals generally have worse patient experience scores.  Is it that poorer or minority patients are just less likely to give high scores on patient experience? Or are safety-net hospitals not doing as good of a job on patient-centered care?  Until we know, we must be careful declaring that this is an unfair playing field.  This is in contrast to the medical readmissions measure, where we know that so much of what drives a readmission is about what happens after the patient leaves the hospital (resources at home, access to effective primary care, etc).  If you have more poor patients, your readmission rate will likely be higher.  In the readmissions program, creating a more even playing field, as MedPAC has suggested, is a good idea.  For VBP, the jury is still out.

So – VBP is heading into year 2 – and we can see that some hospitals are doing well while others are struggling.  What we don’t know is if this program is fundamentally changing the way hospitals are working on quality.  Over the past few years, I’ve spoken to a lot of hospital leaders.  For most, the VBP measures remain a “checkbox” item – something they invest just enough time and energy to hit their marks, but not much more.  As more outcomes measures are included in VBP, I hope that mentality changes and VBP becomes part of a broader agenda to make quality and value central to how we pay for healthcare.

In my previous blog, I made the argument that whatever strategy we use to improve care in hospitals will not be implemented and executed well without proper focus by hospital leadership.  So, it is in this context, that we recently published some pretty disappointing findings that are worth reflecting on.

We examined the pay of CEOs across U.S. hospitals and found that some CEOs got paid a lot more than others.  This was not surprising.  CEOs of larger, urban, teaching hospitals get paid a lot more than CEOs of small, rural, non-teaching institutions.  But the disappointment was around quality:  we found no relationship between a hospital’s quality performance and the pay of the CEO.  Holding size, teaching, and other factors constant, what was the pay of CEOs of hospitals with high mortality rates?  About the same as CEOs of hospitals with low mortality rates.  What about other quality measures?  Most of them didn’t really seem to matter, with the exception of patient experience, which correlated nicely with CEO compensation.  It seems that when setting CEO compensation, patient outcomes are not a big part of the discussion.  How could this be, and why does it matter?

How you set incentives for senior managers says a lot about your priorities.  Boards generally set the salary for their CEOs and they clearly reward patient satisfaction scores.  That’s good.  They also seem to reward the things that build hospital reputations: having the latest technology such as a PET scanner or academic status.  But are boards rewarding CEOs based on mortality rates or adherence to basic quality metrics?  Not so much.  Why not?  I’ve spoken to a lot of board chairpersons over the years and the answer is not that they don’t care.  Most boards want to reward quality and believe that they do.  The problem is that most board members lack sufficient expertise on quality metrics and can’t decipher, from the large number of quality metrics, which ones are important (like mortality rates) and which ones are not.  Hamstrung, they focus on satisfaction but also end up rewarding things that feel like proxies for quality, such as having the latest technology.  And here’s the part that’s frustrating – our national efforts on quality measurement and improvement are not helping.  We seem to have done very little to prioritize what’s really important, and shine a light on them.

So what do we do to move forward?  Some states have started requiring that boards undergo training in quality.  Medicare, as a condition of participation, could certainly require that boards (or at least some members thereof) show a degree of expertise with quality.  I like these ideas but worry that training programs would themselves be of variable quality, and for some boards it would become an onerous requirement without achieving real gains in expertise.

Of course, if we really want to help boards be more effective and engage healthcare leaders, the biggest thing that we could do is actually reward hospitals, in a meaningful way, based on quality.  Yes, we have the value-based purchasing program, and it is well-intentioned.  But, as I’ve written before, it has several big problems.  First and foremost:  the incentives are very weak and there is little reason to believe it will have a meaningful impact on patient outcomes.  Second, the measures are diffuse – we have too many of them, some of which matter (mortality) and many which don’t in the absence of the appropriate clinical context (checking the ejection fraction on a heart failure patient).  It’s hard for hospital boards to really get a clear signal on what matters if they aren’t seeing it clearly and consistently from national leaders on quality.

So how might we move forward?  I’d like to see, from CMS and other payers, strong incentives tied to patient safety, such as low hospital-acquired infection rates and patient outcomes (i.e. low mortality).  That would send clear signals to boards that their chief executives need to be focused on what matters to patients.  If the incentives are sizeable enough, and the metrics clear enough, boards will take notice and have clearer guidance for where to focus their efforts to hold management accountable.

The bottom line is that leadership matters enormously.  Leaders set priorities, create the culture, and define what constitutes success for the organization.  Currently, as I often hear Don Berwick say, we have a system that is perfectly designed to give us the results that it does.  We can do better.  Too often, we look to the Virginia Masons and the Intermountains of the world and say that if they can do it, anyone can.  That’s fundamentally not right – they do it despite the fact that the incentives are stacked against them.  We need to build a system for the ordinary, and not the extraordinary CEO – those leaders –who, despite commitment and the best of intentions, prioritize things that their incentive structure tells them to prioritize.  And remember, these organizations, run by ordinary CEOs, care for a vast majority of Americans.  And the job of boards and policy leaders should be simple: align the incentives so that hospitals and their leaders can really focus on doing what’s good for patients.

I was recently chastised by a colleague for being too negative in one of my pieces on hospital care. His is a remarkable story of what happens when things go well, and it has made me think a lot about why, in some places, things seem to work while in others, not so much.

He told me how a few months ago, soon after returning to Boston from a trip to China, he had started feeling short of breath. When his cardiologist convinced him to be evaluated, he found himself at the Beth Israel Deaconess Medical Center (BIDMC), arriving in the ER late one evening.  He was triaged within minutes, had an EKG within 15 minutes, at which time comparisons were made to previous EKGs.  After ruling out a heart attack, his ER physicians quickly ordered a CT Angiogram.  That test, completed within an hour of his initial arrival to the ER, revealed the reason for his shortness of breath:  he had a large saddle pulmonary embolus.  He was started immediately on IV heparin and sent quickly to the ICU, experiencing essentially no delay in care.  He spent three days there and reports receiving care that was attentive, expert, and consistently of the highest quality.  Even after discharge, he received two nursing visits at home to ensure he was doing OK.  In discussing his experience, he repeatedly emphasized the fantastic communication and teamwork that he witnessed.  Weeks after discharge, he continues to get better and feels the benefits of the excellent care he received.

This is the story we all hope for.  And when I heard it, I have to say that I wasn’t surprised.  There’s something about the BIDMC that’s unusual.  Of the 4,500 hospitals that report their mortality rates to Medicare’s Hospital Compare website, only 22 (less than 0.5%) have better than predicted  mortality rates for all three reported conditions:  heart attack, congestive heart failure, and pneumonia.  And, we know that the combined performance on these three conditions is remarkably good at predicting hospital-wide outcomes, including outcomes for pulmonary embolism.  If you are a patient and care deeply about good outcomes, BIDMC seems to be a good place for you.

So what’s so special about them?  What do they do that’s different?  I don’t know, specifically, all of their tactics, but I have some guesses about what seems to differentiate high performing institutions from the rest.  And in a word, it’s leadership.  BIDMC has had two CEOs over the past few years, and both of them have been unusually committed to achieving high quality care.  That commitment translates into real activities that make a big difference.  Let me divert us with a story of what this might actually mean.

A few years ago, I was working on a strategy for improving the quality and safety of VA healthcare.  As part of this effort, I called up senior quality leaders of major healthcare organizations across the nation.  One call is particularly memorable.  Because I promised anonymity, I will not name names but this clinical leader was very clear about his responsibility: every month, he met with his CEO, who began the meetings with three simple questions: “How many patients did we hurt last month? How many patients did we fail to help? And did we do better than the month before?” The CEO and the entire hospital took responsibility for every preventable injury and death that occurred and the culture of the place was focused on one thing: getting better.  When I looked them up on Hospital Compare, they too had excellent outcomes and they regularly get “A” ratings for patient safety from the Leapfrog Group.

How do the BIDMCs and these other super-high performers pull it off?  How do they build a culture of quality when so many organizations seem to struggle?  High performance is complex, of course, and I won’t try to be overly simplistic.  But a few things seem common among many high performing institutions. They seem to be focused on three things:  timely, clinically relevant outcomes data; transparency within (and usually outside) the organization; and a constant focus on getting better.  You can see the kinds of data that BIDMC posts on its website – it’s not just the standard Hospital Compare stuff (which everyone has to do) but other data on a series of outcomes which are not required.   When I hear Kevin Tabb, their current CEO talk about quality – it’s obvious that quality is not a platitude.  He is genuinely focused on getting better.

So what’s the lesson from BIDMC, Mayo and other high performing institutions? There is no substitute for great leadership.  Each of them seems to have been blessed with leaders who, despite all the wrong incentives in the healthcare system, prioritize patient care and drive their organizations to great performance.  They are internally motivated and do all the things I describe above, despite the fact that our primary payment systems incentivize them to do more, not better.  They are extraordinary leaders- with not only great vision but also the ability to execute that vision.

But here’s the risk:  too many policymakers believe that all we need to do is figure out what BIDMC or Mayo or Kaiser does and just get everyone else to do it. Such an approach, while seemingly perfectly good on paper, fails to account for the human element.  The strategies that they have used have been executed by individuals unusually focused on improving care.  Barring substantial improvements in cloning technology, we can’t expect that each hospital will have a great leader.  We don’t expect that every technology company will have a Steve Jobs.  In every industry, there are a few visionary leaders, but the rest of the organizations?  They are run by mortals – and mortals respond to incentives.  And here lies the problem:  the incentives in the system are not motivating the typical CEO to improve care.  Whatever strategy we employ around timely data, transparency, etc. won’t work until the leadership is properly motivated and focused on quality.  And while that happens in pockets, it’s not happening across the entire healthcare system.  And this is where we will pick up in my next blog: how to get the rest of the organizations to make quality a real priority.