ASQ s Healthcare Update: published in collaboration with the ASQ Healthcare Division

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1 Guest Essays Opportunities for Quality Professionals in the Accountable Care World by Donald E. Lighter, M.D., corporate medical director for healthcare quality and safety, Shriners Hospitals for Children Probably no issue in healthcare has received more attention or press coverage than the Patient Protection and Accountable Care Act (PPACA) of Congress has directed the Centers for Medicare and Medicaid Services (CMS) to create a value-based purchasing (VBP) system for hospitals and a framework for accountable care organizations (ACOs) for physicians. The VBP program draft rule was announced in mid-january, and as of this writing, the rules and regulations for ACOs are just about ready. This new approach requiring quality rather than just volume for optimizing payment is likely to revolutionize medical practice and the business focus of providers across the industry. Regardless of the vagaries of the political process that threaten some components of PPACA, the increased concentration on quality performance will undoubtedly persist in the Medicare and Medicaid programs and has already spread to many commercial payer plans. Quality has been an issue in U.S. healthcare for nearly two decades. The seminal report To Err is Human, published in 1999 by the Institute of Medicine, punctured the inflated performance balloon in the U.S. healthcare system. 1 More recent data indicates the United States lags behind many other industrialized countries in quality and access (see Figure 1, below). This disparity between cost per capita and performance has put tremendous pressure on health policy experts to design a system that preserves the central tenets of American healthcare for example, an emphasis on the free enterprise system while improving value through lowering costs and improving quality and access. New opportunities Therein lies the opportunity for quality professionals. No longer is the focus of healthcare delivery simply on the volume of services. Now, providers must also demonstrate high performance or at least salient trends in ensuring patient safety, access and quality of care. The need for performance improvement professionals has never been greater. The CMS released the draft standards for VBP for hospitals in January. The standards require hospitals to report and improve a subset of the metrics that have been collected and displayed on the CMS Hospital Compare website for the past several years. VBP is an

2 approach the federal government and many businesses are promoting to reform the healthcare delivery system at the community level as well as industrywide. It is generally considered to be a demand-side strategy, involving payer initiatives to provide incentives for improved performance and lower cost. Incentives include recognition of performance through public reporting, enhanced payments based on performance and improved market share through customer selection of higher performing providers. VBP is designed to provoke a provider response to reduce costs and improve quality to optimize reimbursement and market share. CMS has targeted a number of diseases such as acute myocardial infarction, congestive heart failure and community acquired pneumonia that create a heavy cost burden for the payment system or have quality gaps. These clinical conditions have associated process and outcome metrics that have been reported for several years that will become the way in which hospital payments will be modified in the VBP environment. Hospital performance on these measures will be compared with benchmarks and peers. Through a scoring system based on those comparisons, hospital payments will be adjusted with higher-performing hospitals receiving bonuses and lower-performing institutions having their payments decreased. These financial consequences will be manifest in 2013, based on data from ACO details Physicians will face similar challenges starting in 2012 with the advent of ACOs, which are local healthcare organizations with a related set of providers at a minimum, primary care physicians, specialists and hospitals that can be held accountable for the cost and quality of care delivered to a defined population. These entities have captured the attention of providers and payers alike because they have ramifications for both. ACOs have evolutionary and revolutionary components, but one of the most dramatic changes in emphasis is the new focus on a concept that dates back to the early 1990s: the patient-centered medical home (PCMH). In short, the PCMH ensures every patient has a primary care provider (PCP) for example, a pediatrician, internist or family physician who provides the bulk of medical care and coordinates each person s care as more complex treatments and diagnostic modalities are required. Effective primary care has been shown to improve quality and reduce cost by emphasizing preventive care and early interventions to reduce the need for higher cost secondary and tertiary care. For example, early prenatal care for pregnant women can detect

3 complications of pregnancy and reduce the likelihood that a baby is born prematurely, which would require high-cost care in a neonatal intensive care unit. Similarly, early treatment of hypertension can prevent a number of costly complications and improve quality of life. Many similar examples exist, and health planners clearly incorporated that thinking into the ACO concept. Medicare and Medicaid-based ACOs will be paid in a manner that will promote quality care by aligning financial incentives with measurable quality performance. Each ACO will be accountable for the care of a cohort of at least 5,000 patients, and actuaries will evaluate each population s disease burden and usage patterns to provide three-year cost projections. The contract the ACO has with CMS or a state Medicaid program will set a lower targeted cost, and the difference between the target and the projected costs is considered the gain based on the ACO s efficiency in providing care (see Figure 2, below). The new wrinkle in this model, however, is the introduction of quality measures in the determination of how much of the gain the ACO will share with the payer (CMS or Medicaid). The contract will specify a number of quality metrics with targets, and those ACOs that meet their quality targets will get a bigger share of the savings than those that fail to meet quality targets. Thus, providers must improve the quality of patient care at the same time that they reduce the cost another example of VBP. To achieve these targets, ACOs must be well organized and able to perform many of the functions that have traditionally been reserved for payer organizations, such as care management, case management and quality management. The care that is provided through ACOs must be based on evidence from medical studies and best practices (evidence-based medicine). Effective implementation of these scientific principles will require a culture of accountability that is foreign to many providers. Thus, the VBP concept will necessitate input from quality professionals who are well versed in advanced quality improvement techniques such as lean and Six Sigma, as well as the intricacies of change management and systems thinking from programs such as the Baldrige Performance Excellence Program. The techniques that have changed the face of other U.S. industries are now being applied in healthcare, and healthcare quality professionals have learned enormous lessons from their colleagues in a number of other industries. And there s the opportunity healthcare quality improvement is manifestly similar to the approaches taken in other industries, and professionals

4 from all segments of the U.S. business world can contribute to these newly refined efforts. The horizon is in sight, but skilled navigators are needed to get to the goal a more effective and efficient healthcare delivery system. Reference 1. Institute of Medicine, To Err is Human: Building a Safer Health System, Nov. 1, 1999, Donald Lighter, M.D. is the corporate medical director for healthcare quality and safety at Shriners Hospitals for Children. Lighter has more than 30 years of experience in healthcare, including academic and private practice in pediatrics, managed care leadership roles, Medicaid and Medicare quality management programs and medical missionary work. In addition to these medical leadership positions, Lighter has served as professor and a member of the core faculty for the Physicians Executive MBA program at the University of Tennessee-Knoxville and has authored two widely used text books on healthcare quality improvement: Principles and Methods of Quality Management in Health Care and Advanced Performance Improvement in Health Care: Principles and Methods. He can be reached at dlighter@cyberce.net. ***Lighter will be speaking about ACOs at the upcoming Quality Institute for Healthcare (QIHC) in Pittsburgh. Lighter will present Quality and Financial Framework for ACO, a QIHC workshop, from 12:15-2:30 on Monday, May 16. ***See Figures 1 and 2 below***

5 Figure 1: Comparison of U.S. performance with several other countries performance Note: * Estimate. Expenditures shown in $US PPP (purchasing power parity). Source: Calculated by The Commonwealth Fund based on 2007 International Health Policy Survey; 2008 International Health Policy Survey of Sicker Adults; 2009 International Health Policy Survey of Primary Care Physicians; Commonwealth Fund Commission on a High Performance Health System National Scorecard; and Organization for Economic Cooperation and Development, OECD Health Data, 2009 (Paris: OECD, Nov. 2009).

6 Figure 2: Gain-sharing model Total Gain Current Trend Payer share Potential provider share Year 1 Year 2 Year 3 Year 4