“We are what we repeatedly do. Excellence, therefore, is not an act but a habit.”
Aristotle
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The largest P4P program is run by California’s Integrated Healthcare Associates (IHA). A 2006 report (“Advancing quality through collaboration“) chronicles IHA’s progress in working with the California Association of Physician Groups as well as Dr. Stephen Shortell to establish a P4P measures. The report has two very interesting summary tables: one describes how the IHA P4P measures have evolved over time, the other how payment methodologies vary by participating health plan.
Total payments to California physician groups for P4P programs totaled $37.4m in 2003 and $54m in 2004. Of the $54m, $26m went towards P4P clinical measures, $22m went to P4P based on patient experience, and the remaining $6m went for improvements in information technology. “Payments to individual physician groups ranged from 0 to $4.50 pmpm (per member per month). On average, the incentive payment was only about 1.5% of physician group income.
Through these efforts, the report finds that measured quality dimensions are improving but “‘breakthrough improvement’ has not been achieved.” Further, the report believes that much of the quality improvement is likely due to better data collection and record keeping rather than actual changes in care.
Where will IHA move P4P in the future? Recommendations include:
- increasing incentive payments up to 10% of total physician compensation by 2010 (if P4P payments are trivial, then there will likely be no behavioral change)
- incorporating better measures of risk adjustment into capitation payments (this will discourage physicians from refusing care to sicker patients for fear of reducing quality score measures)
- addition of an efficiency domain, including appropriate resource use measures (quality does not mean quality at unlimited cost to the payers)
- avoiding incentivizing physicians to ‘teach to the test’ (physicians may decrease quality care in dimensions not measured by the IHA’s P4P program).
The popularity of specialty medical facilities (SMF) has increased over the years. The number of Medicare-certified ambulatory surgery centers (ASCs) has doubled to 3,371 during the past decade. A question remains: are these “Focused Factories” good for society?
In an article by Casalino, Devers and Brewster, (“Focused Factories…“) the authors try to answer this question.
What are SMFs?
At this point there are 2 types of SMFs: specialty hospitals and ambulatory surgical centers (ASCs).
- Specialty hospitals – According to the Community Tracking Study, most specialty hospitals are either “heart hospitals” or hospitals specializing in orthopedic surgery. They are generally joint ventures between physicians and national specialty firms or local hospitals, but a few are wholly owned by either physicians or by local hospitals.
- ASCs – Most ASCs are small and have four or fewer operating rooms. The most common services provided at ASCs are ophthalmology and gastroenterology.
Are they specialized medical facilities (SMFs) good for society?
Physicians who work at or own the SMFs claim that this type of care increases quality and reduces cost. Proponents of SMFs claim productivity increases due to specialization and the fact that there is less down time between procedures. Some hospitals say that these facilities engage in competition that is ‘unfair’, but if lowering cost and increasing quality is ‘unfair’ competition, mark me down as a fan of the unfair. The hospitals also argue that the SMFs are formed around the most profitable services and thus the hospital can not subsidize money-losing departments (e.g.: ERs, burn units, trauma centers). If the hospital is losing money on certain procedures, this does not mean that they should be making excess profits on other procedures, only that health plan compensation schedules should be altered.
The hospitals, however, are not all in the wrong. The SMFs have been accused of ‘cherry picking’ healthy patients. For instance, if physicians are reimbursed $5000 for a surgical procedure, the cost of preforming the surgery may be $2000 for a (relatively) healthier patient and $4000 for a relatively sicker patient due to increased likelihood of complications during surgery for the sicker patient. Thus, the hospital is shouldered with caring for the sicker patients and it may be more difficult for them to turn a profit. This solution to this is of course to make surgery payment in a risk-adjusted manner. In reality, risk adjustment is a delicate process which depends on many unobserved health variables so this solution may not be as easy to implement as it would seem in theory.
Another issue is whether SMFs create incentives for excess medical care. This is related to the problem of integrating the diagnostician of a problem and the treater of a problem (see 10 April 2007 post). If physicians own the SMFs, there may be an even larger incentive for them to recommend that their patients have invasive medical procedures since the physicians themselves often will profit not only from the labor compensation they will receive from preforming the procedure, but will receive additional income as return on capital from their investment in the SMF. Even physicians who do not treat patients and only diagnose them will have an incentive to recommend surgeries if they own a share of the SMF where the surgery would be preformed.
To counteract this problem, some politicians are considering bills which would “prohibit physicians from referring Medicare
and Medicaid patients to specialty hospitals in which the physicians have an investment.” While this is certainly a problem, the authors wise note that the negative aspect of these types of laws “…is that it would cause society to lose any advantages that might come from physician ownership and management of such facilities.”
So are SMFs good for society? At this stage it is difficult to say with certainty whether they are or not. Further investigation on this topic is certainly merited in the future. Any comments on your opinions regarding specialized medical facilities would be greatly appreciated.
- Casalino; Devers; Brewster (2003) “Focused Factories? Physician-Owned Specialty Facilities” Health Affairs, 22, no. 6, pp. 56-67.
Dr. Richard N. Fogoros has a very interesting website named, the Grand Unification Theory of Healthcare, which relates his views about health care. His analysis is systematic. One is able to understand the health care system from the point of view of physicians, patients, health plans, the government, and employers. His “Pathway # 2 to Enlightenment” is very long, but merits a read. While the author’s website certainly won’t win him any awards for modesty, it does offer some very insightful commentary. Below I give a brief summary of some of the points which I find particularly, well, enlightening.
Rationing is unavoidable
When a resource is scarce, such as health care, it must be rationed in some way. In a typical market, goods are rationed by a pricing mechanism. Only those with a willingness to pay above $3/gallon can buy a gallon of gas. Other rationing mechanisms include queuing and refusing to give individuals products or services based on some guidelines. Dr. Fogoros’ comment that rationing is unavoidable is best understood in his mind as that third party rationing is inevitable.
Wonkonians vs. Gekkonians
Dr. Fogoros divides the world into two halves: the Wonkonian School and the Gekkonian school. The Wonkonians consist of liberals, government regulators, politicians, and public health officials who want government to strictly regulate the health care industry. Gekkonians, modeled after Gordon Gekko, include healthcare executives, many physicians, and most political conservatives. This group believes in a free market system. Where the Wonkonian School wants health care run by large government, the Gekkonians would prefer it to be run by large corporations.
Benefits of both world views
- Wonkonians: These wonks have pushed through legislation to help reduce physician fraud.
- Gekkonians: The large managed care companies have increased efficiency and standardized care (when possible). The concept of critical pathways was introduced by the Gekkonian school.
Drawbacks of both world views
- Wonkonians: The wonks attempt to regulate the healthcare market has created a morass of legislation. Physicians have less freedom to use their professional judgment since if they do not abide by the standard of care and decide to bill Medicare, they may be prosecuted for fraud. The government can turn an earnest billing mistake into a large fraud case. For instance, the University of Pennsylvania had to pay a $30m fine in 1995 after a PATH (Physicians at Teaching Hospitals) investigation found that the university was billing Medicare for services where the attending physician was not present. Yet having an attending physician present at every service provided is an inefficient use of physician time and also reduces the learning experience of the trainee. Also, compliance with government regulation costs the health care industry millions (if not billions) of dollars per year.
- Gekkonians: Insurance companies make money by signing up more people for their plan. They lose money, whenever they have to pay out money for medical costs. Early on, the health plans realized to retain healthy patients and compel ill patients to drop their plan, they needed to “let the system bog down in red tape for the ill, while, at the same time, to work hard to keep the system squeaky clean for healthy subscribers.” For example, “providers can strategically locate and number specific services to make them easy (e.g., primary care) or difficult (e.g., specialists) to utilize.” Also, some health plans began to pay physicians on a capitation basis, which encourages them to withhold care, especially from the sickest patients.
Other interesting Points
Finally, I will mention a few other interesting points that Dr. Fogoros brings up.
- The Erosion of the fiduciary relationship between physicians and patients. Doctors now must abide by standards of care in order to now run afoul of the law, even if a non-standard form of care would be beneficial for the patient. They must abide by the cost rationing of their managed care bosses in order to reduce cost. Thus, the physician is longer the person who will advocate for the patient to get adequate care, but instead is constrained by government and corporate rules. In Dr. Fogoros opinion: “the traditional doctor-patient relationship is vital to the professional survival of the physician, and to the physical survival of the patient. If we lose this relationship, we lose everything.”
- Non-profit hospitals. The article also discusses how non-profit community hospitals were bought up by private health care corporations in the late 1990s.
- Health plan customers. Who are a health plan’s customers? Most people would say that it is the patients. However, most patients do not actually choose their health plan directly; a human resources employee or benefit manager from their company generally chooses the health plans which are offered to the patients. Thus, health plans must try to market their services to these HR managers. But don’t the HR managers want high quality medical care for their employees at a reasonable price?
“My own eyes were opened on this issue several years ago when I attended a retreat, sponsored by my hospital, that featured a panel discussion by a group of prominent local employers. When asked how they go about assuring themselves that the health coverage they buy for their employees provides high-quality care, the captains of industry responded thusly: ‘We make widgets, we don’t assess healthcare quality. We don’t know how, and we don’t want to know how. So we’ve got to be practical about it. To us, quality means quiet. As long as we don’t hear more than the average number of complaints from our employees, the health coverage we provide is, by definition, good enough.’”
As my colleague Mike Ewens wrote to me: “Monopolists hate competitors and have to use the government to keep them away.”
An example that takes center stage can be found in a recent Chicago Tribune article (“AMA takes on Retail Clinics“) . Some doctors have asked the AMA to ban on in-store clinics currently being opened by companies such as Wal-Mart and Walgreens.
Why would doctors want to do this? Likely this is to protect their ability to charge high prices to their patients. How can they justify their demands to the public? They claim in-store clinics put patient’s health at risk.
The article concludes:
“We would be disappointed if the AMA adopted a policy that is counter to what patients are demanding, which is more accessible and affordable health care that reduces overall costs,” Walgreens spokesman Michael Polzin said in a statement. “It would be hard to argue against those principles. The bottom line is, retail clinics are improving health-care access and health outcomes while keeping the patient’s doctor informed as the patient desires.”
I see no reason to outlaw in-store clinics. Giving consumers more choice is always a good thing.
The 106th Carnival of Personal Finance has been posted at The Digerati Life blog.
In Norway, each primary physician assumes medical responsibility for a well-defined population of patients. Norwegian physicians receive approximately NOK 300 (~$50 USD) per patient on their list so their income is largely determined by list size. This capitated payment is supposed to make up 30% of primary physician income with the remainder coming from FFS payments for medical services rendered.
A paper by Grytten and Sørenson (JHE 2007) hypothesizes that physicians with longer lists will make more money, but will ration consultations. Those with a short list are hypothesized to increase service production in order to increase FFS payments. The hypothesis that physicians with short lists will increase medical care service provision is named the inducement hypothesis. This logic can be justified in a number of ways. Income targeting and profit maximizing all could justify this behavior. Similarly, an altruistic doctor may decide to shorten his list if his patient case-mix is sicker than average and each patient needs more of his time. Thus, the exact vehicle driving this prediction is not clear.
The authors end up finding that: “…long lists do not lead to rationing, and short lists do not increase service production per consultation.” The authors claim that this finding may explained if “…physicians are guided by professional ethical and medical norms, and that they do not allow self-interest to influence their service production.”
Could the explanation be that simple? The authors have data on the length of the patient consultation, but not the quality of care given during the visit. Without information regarding the quality of care, coming to a convincing conclusion about the inducement hypothesis will be difficult.
What’s does a DDD mean for a PBM? What is a QALY? What is the difference between ‘face validity’ and ‘construct validity’?
The Pharmacoeconomics journal has a Glossary of Terms used in Health Economics which are very useful for anyone who wishes to disentangle to the jargon used in this field.
Giving corporate executives bonuses based on the performance metrics of the company they manage is one way to incentivize managers to increase profits, sales, company stock price or any other financial measure. But is this the best way to run a company?
In 1985, Paul Healy wrote prescient paper of how corporate executives can alter accounting practices to maximize their bonus payments. Unlike prior articles, Healy claimed that executives will have incentives to both increase and decrease stated earnings by choosing the timing of discretionary accruals.
Let us look at a bonus compensation scheme where executives receive a bonus based on the pre-tax earnings of the company, whenever they exceed a specified lower bound L. Further, bonus payments are also assumed to be capped at an upper limit of earnings U. Thus we have that bonus payments are equal to:
- B=p{min[U, max(E-L,0)]}
Thus when earnings, E, are below L, the executive receives no bonus. When earnings are between L and U, the executive receives a payment of p(E-L). If earnings are greater than or equal to U, the bonus is capped at pU.
Healy found that one easy way to change earnings between different time periods is to alter the timing of discretionary accruals. For instance, if accountants believe there is a non-preforming asset that they will need to write off in the six-month period, managers can instruct accountants whether to write off the asset in the current quarter or the subsequent quarter. When I worked at GE, managers would alter sales and inventory accruals in order to meet their quarterly goals. While these changes were not illegal (when to charge an accrual is a subjective decision), the timing was heavily influenced by middle manager incentives.
In the Healy paper, the author showed that when earnings, E, are below the lower limit L, managers have an incentive “to take a bath” by charging income-decreasing accruals in the current period. This way, income in the subsequent period will be higher and they will not be losing any bonus income in the current period since they are already below the lower bound, L. Managers with earnings well above the upper limit U, also have an incentive to shift earnings from the current period to subsequent periods. Those with earnings between the upper and lower limits do have an incentive to use income-increasing accruals in the current period in order to maximize their bonus.
- Healy, Paul M. “The effect of bonus schemes on accounting decisions,” Journal of Accounting and Economics, vol 7, pp. 85-107.
Monetary incentives improve performance. This statement is almost gospel in the economics field. For instance, if I pay all my blog readers $1 for each time they visit this website, it is likely that the traffic on Healthcare Economist will increase dramatically. Sales staff compensated on a 100% commission basis often sell more items than sales individuals paid on a salaried basis.
Uri Gneezy (currently at UCSD’s Rady School of Management) and Aldo Rustichini conducted 2 experiments to show that paying more does not always improve outcomes. Below are a description of the two experiments and their results.
Experiment 1: University of Haifa Test
Undergraduates at the University of Haifa were asked to answer 50 questions from an IQ test. The students were separated into 4 groups, each of whom was paid 60 shekels (about $15) to participate .
- Group 1: This group was asked to answer as many questions as they could.
- Group 2: This group was paid 0.10 shekels (about 0.025 USD) for each question answered correctly
- Group 3: This group was paid 1 shekel (about 0.25 USD) for each question answered correctly
- Group 4: This group was paid 10 shekels (about $2.50 USD) for each question answered correctly.
Unsurprisingly, groups 3 and 4 preformed the best. It was found, however, that group 1 scored better than did group 2. This finding holds even when the 4 groups were compared based on the top and bottom quintiles.
Experiment 2: Charity Work
One hundred eighty high school students were divided into 3 groups during their annual charity drive. Students went door to door to solicit contributions for various chartitable organizations.
- Group 1: This group was was given a motivational speech about the importance of the activity.
- Group 2: This group received the speech as well as a payment of 1% of donations collected.
- Group 3: This group received the speech as well as a payment of 10% of donations collected.
Surprisingly, group 1 preformed the best, while group 2 preformed the worst.
Authors’ explanation
The authors believe that their are two types of motivation: intrinsic and financial. Offering small financial rewards will reduce intrinsic motivation and only offer mild financial motivation. Offering large financial rewards will also decrease intrinsic motivation, but will strongly stimulate financial motivation. The authors state:
“The main conclusions of these studies were that positive rewards, in particular monetary rewards, have a negative effect on intrinsic motivation. If a person is rewarded for performing an interesting activity, his intrinsic motivation decreases. The negative effect is significant only if the reward is contingent on the performance; subjects who are paid a fixed positive amount, independent of their performance, do not display reduction in intrinsic motivation.”
- Gneezy and Rustichini (2000) “Pay enough or don’t pay at all” QJE, 115:3, pp. 791-810.
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