Lead, Follow or Get Out of the Way: Incentives to Increase the

Quality of Health Care

Catherine Eikel, Director, Leapfrog Hospital Rewards ProgramP4P Web Summit

May 1-3, 2006

The Purchaser’s Perspective

Employer-Based Health Care System

in Trouble• Rapid escalation in cost (9-20+%/yr)

• Companies unable to absorb growing medical cost through product price increases

• Individual companies have limited purchasing power to effect change in system

14.0%

8.5%

12.0%

18.0%

9.2% *

0.8%

11.2% *

5.3% *

8.2% *

10.9% *

12.9% *

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Health Insurance PremiumsOverall InflationWorkers Earnings

Increases in Health Insurance Premiums Compared to Other

Indicators, 1988-2005

* Estimate is statistically different from the previous year shown at p<0.05. No statistical tests were conducted for years prior to 1999.† Estimate is statistically different from the previous year shown at p<0.1. No statistical tests were conducted for years prior to 1999.

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.

Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, 1999-2005; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), 1988-2005; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2005.

13.9%†

Next Act!

Managed Care

Gridlock in the Health Care System

Everyone Responsible, No One Accountable

New Thinking is Needed to “Leapfrog” the Gridlock

Health PlansNot Letting Provider Value Show Through

ProvidersNot Seeing Case for

Reengineering

PurchasersNot Buying Right,

Toxic Payment System

ConsumersNot In the

Quality Game

The Impact of Bad Health Care Purchasing

Malfunctioning Market

• Purchasers don’t use same standards in health care procurement as with other supply chains

• Lay versus expert, lack of public information leads to distortion in the market

• Hospital margins are improving while individual health care consumer and group purchasers’ costs are rising

Failures in the Quality and Safety of Care

• Patients receive recommended health care only 55% of the time1

• 30% of all direct health care costs are due to poor care – Misuse, under-use, overuse, and waste2

– Poor quality care costs between $1,900 and $2,250 per covered employee year2

• Poor quality means lives lost and mistakes made– Up to 98,000 deaths/year due to medical mistakes3

1McGlynn et al. 20032Midwest Business Group on Health/Juran Institute 20033Institute of Medicine 1999

The Leapfrog Movement

Pillars for Improving QualityStandard

Measurements & Practices

TransparencyIncentives & Rewards

Inform & Educate

Enrollees

Compare Providers

Rewarding & Creating

Incentives for Quality & Efficiency

Member Support & Activation

The Leapfrog Operating System

Improved Value

Multipliers: Health plan

products

CMS & state purchasers

Other distribution channels &

partners

Standard Measurements & Practices

We must ‘speak the same language’ when asking hospitals & doctors to report – national standards

are essential

Transparency Make reporting results routine and use results to

make health care purchasing decisions

Incentives & RewardsEncourage better quality of care through incentives

and rewards

Growing Efforts to Buy Right

• Public reporting and recognition

• Financial rewards to providers

• Financial incentives for consumers

• More than 90 programs nationwide (1 in 4 use Leapfrog criteria) creating a lot of noise

Leapfrog Hospital Rewards Program™:

A tool for value-based purchasing• National Incentive & Reward (P4P) program that is customizable

to fit local markets• Motivates hospital performance improvement in both quality and

efficiency through incentives and rewards: improved patient care• Potential for purchaser/payer savings as hospital performance

improves• Additional hospital performance information available to

consumers: purchasers & patients• Adapts the CMS-Premier Hospital Quality Incentive

Demonstration program for the commercial sector

What does the Program do?: Measures

• Measures hospital performance on two areas that matter to value-based purchasing: quality and efficiency

• Five clinical areas: – 20% of commercial inpatient spending– 33% of commercial inpatient admissions

• Coronary Artery Bypass Graft

• Percutaneous Coronary Intervention

• Acute Myocardial Infarction

• Community Acquired Pneumonia

• Deliveries / Newborn care

What does the Program do?: Measures, cont’d

• Uses nationally standardized measures:– JCAHO, Leapfrog Survey, National Quality Forum– Efficiency: first nationally collected/calculated

efficiency measure

• Leverage existing relationships & quality activities:– Data reported through JCAHO core measure vendors– Overlapping measurement with JCAHO & CMS’

Hospital Quality Alliance

What does the Program do?: Transparency

• Additional hospital performance data available to be used in educating and activating consumers

Additional hospital performance data for purchasers and consumers, publicly available on the Leapfrog web site

Additional hospital performance data to be used by health plans, data vendors, etc.

As a customizable hospital incentive and reward program

How is the Program Used?

1

2

3

Locally customizable incentive & reward program

• Leapfrog Hospital Rewards Program™– Savings Calculation– National Rewards Principles

• Customizable by implementers based on market dynamics and goals for the Program– Partner with The Leapfrog Group to implement – Use LHRP quality and efficiency data as basis for rewarding

hospitals– Work with Leapfrog to determine savings calculation and rewards

payment methodologies, in line with national Program guidelines– Collaborate with Leapfrog to engage stakeholders, hospitals, etc.– Use the Leapfrog name and brand

Incentive & Reward Program Design and Goals

• To improve patient care and help consumers make informed health care decisions

• To motivate hospital quality improvement through recognition and rewards

• To use documented savings as the basis of direct financial rewards: limited amount of new money on the table

• Win-win for payers & providers• Opportunity for multiple types of rewards

– Financial (direct & indirect)– Non-financial

Step 1 – Defining Savings

• Analysis of hospital data tells us how much is saved when hospital efficiency improves

• Example: Each 1 unit reduction in Adj ALOS for AMI saves about $3,300 per admission

2004 A to 2004 B

-$20,000

-$15,000

-$10,000

-$5,000

$0

$5,000

$10,000

$15,000

-3 -2 -1 0 1 2 3

D Adj ALOS

D

Step 2 – Allocating Rewards:National Program Rewards

PrinciplesPrinciple 1: Bonuses to hospitals must be based on

shared savings that accrue to the purchaser/payerPrinciple 2: All top LHRP Performance Group hospitals

should receive bonus payments Principle 3: Hospitals demonstrating sustained

improvement should receive bonus paymentsPrinciple 4: Patients should be encouraged to go to

Performance Group 1 & Performance Group 2 hospitals through benefit design

Principle 5: Performance Group 1 hospitals and hospitals showing sustained improvement should be publicly recognized as well as financially rewarded

Principle 6: Rewards should be calculated every 6 months

Specific rewards methodologies can be tailored to local market needs.

Payer Value

• No rewards are paid if no savings are generated

• If savings are generated, payer shares at least 50% with hospital

• Positive ROI is designed into program

• Hospital quality improvements motivated by Program implementation

Hospital Value

• The Rewards Package:– Direct rewards– Patient shift– Public recognition

• Costs are kept low by use of existing data reporting systems and processes

• Data feedback & benchmarking reports catalyze performance improvements

Market-specific Implementation

• Tailor LHRP Rewards Principles based on the market:– Goals of program implementation– Current reimbursement mechanism in the market– Analysis of historic reimbursement information– Other recognition & rewards as part of “total

rewards package”

Getting Started: Estimating Implementer ROI

• Inputs– Number and demographics of covered lives:

• Number of admissions for each of the five LHRP conditions

– Local hospital costs– Administrative costs– Assumptions about program adoption rates

and influence

Estimating ROI, cont’d

Year 1 Year 2 Year 3 Year 4 Year 5

Savings for AMI $0 $8,546 $17,782 $27,765 $38,554

Savings for CABG $0 $5,576 $11,614 $18,153 $25,231

Savings for CAP $0 $1,433 $2,976 $4,637 $6,428

Savings for PCI $0 $5,980 $12,476 $19,524 $27,163

Savings for OB $0 $8,137 $16,873 $26,254 $36,334

Total Savings $0 $29,672 $61,720 $96,333 $133,710

Reward Payments $0 $14,836 $30,860 $48,167 $66,855

Administrative Costs $15,000 $15,000 $15,000 $15,000 $15,000

Total Costs $15,000 $29,836 $45,860 $63,167 $81,855

Net Benefit($15,000

) ($164) $15,860 $33,167 $51,855

Cumulative Net Benefit

($15,000)

($15,164) $696 $33,863 $85,718

w These outputs are an only an estimate of future results.

Cumulative Net Benefit

($40,000)

($20,000)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

1 2 3 4 5

Year

Getting Started: Market Success Factors

• Active employer and/or health plan leadership • Market champion: political will• Willingness to work through the details of creating

an effective Rewards Package for the market• Willingness to engage stakeholders and develop

partnerships• High-level of awareness of Leapfrog and quality

improvement goals among provider community• Engagement of hospitals in market area

Leapfrog Hospital Rewards ProgramTM

Program Implementation Case Study: Memphis

Why LHRP?

• Considers both effectiveness & efficiency– Meets both MBGH mission provisions

• Clear opportunity for improvement– History told us something had to be done

• Extension of existing transparency initiative– Builds on hospital-based focus– Builds on Leapfrog survey & JCAHO core measures

• Expansion of existing transparency initiative– Adds more clinical & efficiency information in public database

• Shared savings rewards methodology limits risk– If you don’t save, you don’t pay

Example of LHRP in Memphis• Which hospitals will participate?

– Pilot with Methodist Healthcare for MBGH members that access the Methodist network

– Collect, report & use data separately for each Methodist Healthcare general, acute care hospital

• How will baseline & progress be measured?– Use national benchmarks to rank each hospital separately for

baseline & incremental improvement

• Will benefit designs steer toward higher performance groups?– Benefit designs will not change initially due to single hospital

system focus– Benefit designs may change in future years, if significant

differences identified among system facilities

Coalition Role

• Assess market readiness– Program design & development – Employer & hospital recruitment

• Facilitate decisions on program specifics– Ranking level (e.g., national, regional, local)– Rewards methodologies

• Convene & manage local regional team meetings & activities– Monitor program performance across employers

• Serve as liaison with hospitals and health plans• Represent program publicly to the media & community • Participate in national user group meetings & bring national

developments to the local market

Market Readiness

• Design the program by:– Working closely with Leapfrog– Identifying what’s possible

• Keeping it small if you need to

– Engaging champions/supporters • Key employers

• Key hospitals

– Building on prior activities

Market Readiness• Recruit Employers by:

– Laying foundation • Compare performance

– LF Hospital Quality and Safety Survey– JCAHO Core Measure

• Establish general business case– Leapfrog Hospital Rewards Program ROI Estimator

– Gaining commitment • Analyze local data

– Work with The Leapfrog Group• Provide administrative structure/support• Appeal to corporate culture

Market Readiness

• Recruit hospitals by:– Using already collected data & relationships

• LF/JCAHO effectiveness measures

• JCAHO Core Measure vendor

– Providing transparency • Give backup material for key program elements

– Bringing employers to table– Creating a win-win

Challenges

• Readiness of employers– Comfortable with “transparency”

• Isn’t that enough?

– Significant change in philosophy• Aren’t we already paying for quality?

– Inherent complexity of program design• Will hospitals “game the system”?

– Additional program administration requirements

Challenges

• Readiness of hospitals– Reporting requirements

• Don’t I have enough programs I am reporting to now?

– Lack of physician engagement• What is in this for the doctor?

• Rewards methodology– Changes in reimbursement methodologies

Observations• For both employers & hospitals:

– It isn’t (only) about the money, it is about• Improvement• Transparency• Recognition• Partnership

• Change takes time– Education (repeat, repeat, repeat)– Internal review & approval process

• It’s easier if there is data– Historical transparency initiatives– Run local data through the model