The Challenge of Value Creation and Value Capture in an Era of Accountability and Consumer Driven Health Care

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1 What Physicians Need to Understand About Their Clinical Performance and Ways of Influencing Health Policy New Methodologies for Measuring and Evaluating Clinical Quality and Clinical Efficiency Jon Chilingerian, Ph.D. Heller School Brandeis University January 2009

2 Outline The Challenge of Value Creation and Value Capture in an Era of Accountability and Consumer Driven Health Care Difference between Finding Best Practices versus Average Performance Understanding Data Envelopment Analysis: A New, Powerful Quantitative Tool for Evaluating Clinical Performance Applying Data Envelopment Analysis to Massachusetts Data A look at the Comparative Effectiveness of Surgeon s Performance: CABG Questions and Answers

3 Effects of Global Recession Health is a superior good, when the economy shrinks 2%, health shrink less 'Health tends to get worse in a recession. The most obvious way is the effect of unemployment on health. At the extreme, it doubles the risk of suicide, depression and attempted suicide. (Professor Danning University of Sheffield) Fewer self-employed employed patients would see their primary care physicians for preventive care. Possibly decrease in admissions to hospitals and demand for related medical supplies, drugs and services

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8 The Efficient Frontier: finding best results observed in practice Clinical efficiency means achieving satisfactory outcomes using the least resources

9 Physicians fees represent about 20% of health care costs in most countries, however as much as 80% of the expenditures for medical care are the results of doctor s decisions

10 Physicians not only are the principle provider of medical care They decide on visits, consultations, hospital admissions, tests, surgeries, drugs, and so on They organize and direct the entire production process

11 Physician Decisions and the Costs of Care Office Visit No. 1 X-ray Lab Test Office Visit No. 2 Referral to Neurology Inpatient Stay/Tests Surgical procedure Hospital Discharge Follow-up visit Drug Prescription Primary Care and Diagnostic Services Hospital Services Physician-Controlled Decision Making

12 Pharmacy Department Department of Nursing Radiology Charge Nurse Physician i Decision Making Medications Patient Care Diagnostic Tests Street-level View of the Hospital

13 Macro-Structure of the Hospital: A System of Temporary-Firms Inputs 1. Total patients admitted 2Daysof 2. nursing care 3. Quantity of ancillary services 4. Other resources T-firm 1 T-firm 2 T-firm n Outputs 1. Patients discharged with satisfactory outcomes 2. Patients discharged with unsatisfactory outcomes Chilingerian and Glavin, 1994

14 The Organization of the Hospital As a System of Temporary Firms From Chilingerian 1990

15 Clinical Work as A Complex Production Process Hospital involves two part production: managerially controlled organization dozens of temporary firms organized around each physician s s patient caseloads Attending physicians are principal decision-makers and general managers of T-firms Physicians steer patients through various phases on acute care

16 Clinical Work as A Complex Production Process Physicians steer the patient on a course of treatment Radiology, MRI, Operating Room, ICU, Labs T-firms draws on talents of a hidden network of provider teams in transient relations Performing complicated tasks in limited time spans using temporary work groups is a process prone to error Solution: promote stability and primary nursing

17 C a r e P r o g r a m Physician Services Operating Strategies: Alignment of Activities/Functions Types of Activity Centers Labs Radiology Cardiovascular Disease Transplantation Orthopaedic disease Patient Management O.R. SICU Practice Management Nurse Beds...

18 Health Care Organizations The most complex organizations New technology = tools of production requiring more labor So how do we create and manage value?

19 Adding Value What is Hospital success? And How is it measured? A key measure of success is the difference between (comprehensively accounted) value of your clinical output and the (comprehensively accounted) cost of your clinical inputs.

20 Value Innovation Value innovation is a new way to think about clinical strategy It is created in a region where physicians and hospitals can improve efficiency (and lower cost structure) and improve its value proposition ii for patients. Simply eliminate i those things that patients (& families) do not care about and the industry competes on. Buyer value is lifted by raising and creating elements never offered. Costs are reduced as scale economies kick in.

21 Clinical Costs Value innovation Patient Value

22 Professional Norms & Clinical Efficiency Wennberg et al. discovered a bell curve physicians have a wide range of practice behaviors Some of these behaviors leaves a surgical signature on a population Physicians adopt a style of practice and controlling for case mix, are more or less efficient within that style

23 THE BELL CURVE 18.5% 18.5% 68% Average Physicians Way Below Average Best Practice

24 Learning from Outliers

25 What can we learn from outliers? An outlier is an observation whose value deviates from other values in a random sample from a population. Outliers appear to have obtained an abnormal distance from the rest. Consequently, the researcher must decide if this is an abnormal deviation. Before abnormal observations can be singled out, it is necessary to characterize normal observations. In the study of performance, are outliers mistakes or the most important observations such as worst or best practices?

26 What do you notice about these Professional Hockey Players? Roster 2007 Medicine Hat Tigers Player No. Last Name Birthdate 9 BOSCH 2/14/ Wasden 1/4/ Grant 3/20/89 14 Helm 1/ Dorsett 12/20/ Todd 1/10/ Swystun 1/15/ Lowry 4/12/ Undershute 4/12/1987 Payer No. Last Name Birthdate 23 Hickmott 4/11/ Rumpel 1/27/ Cameron 1/26/ Stevens 8/20/ Baldwin 3/1/ Schlemko 5/7/ Glass 1/22/ Russell 5/2/ Sauer 8/7/1987

27 With respect to any elite group of hockey players 40% will be born January to March 30% between April and June 20% between July and September 10% between October and December. Why such a skewed age distribution? The eligibility cutoff for age-class hockey is January 1, so if you turn 10 on January 2, you play with children who might turn 10 in November or December. A huge physical maturity differential, that makes a child born Jan-March more likely for travelling and all-star teams, getting more attention from better coaches. M. Gladwell, Outliers, pp 20-25

28 Data Envelopment Analysis* Developed in the late 1970 s DEA is a methodology directed to estimate best practices rather than central tendencies Handles multiple inputs/multiple outputs Single measure of performance Estimates sources and amounts of inefficiency AHRQ recent made available a report based on a RAND study identified DEA as the leading methodology for translating frontiers into practice (RAND, 2008)

29 Data Envelopment Analysis Linear programming based Proceeds with a series of optimizations Defines empirical best practice frontier Groups and decision making unit: clinicians, hospitals, nursing homes, academic medical centres, operating rooms, surgeons, etc. into homogeneous sub-groups Differentiates practice style from efficiency

30 DEA Averaging performance across observed population of decision making units (organizations, departments, individuals) will not explain the behaviour of teams or individual units Instead of fitting a regression plane through the center of the data, DEA floats a line to rest on top of the observations DEA leads to grounded theory discover relationships that remain hidden from measures of central tendency Focus is on learning how to improve

31 By observing how hospitals and physicians utilize clinical resources to care for patients we can identify best practices. A scatter plot of actual clinical inputs and outputs reveals best practices. Output Data Envelopment Analysis C best practice frontier D B A Set of all feasible inputoutput correspondences below and to the right of ABCD Input

32 Output Data Envelopment Analysis C G E D Output Efficiency of E: FE/FG B Output benchmarks for E: Units C and D A F Input Scope for output augmentation at E: EG Returns to scale (increasing, decreasing, constant): Revealed by the intercepts of the segments of the efficient boundary.

33 Output H B Data Envelopment Analysis I C G E D Input Efficiency of E: HI/HE Scope for resource conservation at E: IE A F Input Input conservation benchmarks for E: Units B and C.

34 Production Model for Evaluating DRG Clinical Inputs 2 Clinical Outputs Length of Stay Ancillary Services Clinical i l care program for DRG 209 (hip replacement) Low Severity DRG 209 High Severity DRG 209

35 Benchmarking Hip Replacements (DRG 209) H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H Mean = 86%

36 DEA IDENTIFIES PEER* HOSPITALS & AMOUNTS OF IMPROVEMENT DRG 209 HIGH SEVERITY * H8 WAS RATED 66.4% & PRACTICED LIKE H27, H31, H47 Actual Clinical Program TO GAIN (100%) DRG 209 LOW SEVERITY 94 PATIENTS PATIENTS 34 Total Days TotalAncCHrgs $3,605,720 $2,391,140 Peer Hospitals are strategic groups

37 ANCILLARY SERVICES $1,214,580 fewer ancillary charges H27 (100%) H31(100%) H8 (66.4%) H47 (100%) 276 fewer days LENGTH OF STAY

38 Benchmarking Vaginal Deliveries w & w/o Complications (DRG ) H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H Mean = 95%

39 Benchmarking Heart Failure & Shock (DRG 127) H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H H Mean = 83%

40 Potential Mass. Initiative Each hospital would identify their 5-10 most common diagnoses and procedures Then (as in the 3 previous charts) they would benchmark themselves against every other hospital They would evaluate their performance and begin over the next 2 years to improving their patient value

41 Clinical Costs Value innovation Patient Value

42 DEA Study of Cardiac Surgery Heart disease is a global health issue Worldwide more than 700,000 heart by-pass surgeries Two-year study of outcomes and decision making efficiency of 39 hospitals and 123 cardiac surgeons, and 38,577 patient discharges in the USA (Pennsylvania) Two surgical procedures studied: coronary bypass grafts with catheterization and coronary bypass grafts without catheterization Software: (1) General DEA (Excel Solver) (2) Malmquist: PIM DEAsoft V1

43 Research Questions How stable are surgeon s DEA scores? How much of the short-term term change in productive efficiency is due to professional norms versus technical competence? Do general hospitals that t focus on cardiac admissions outperform those who do not? What organizational factors are associated with superior performance? What explains variations in clinical efficiency of individual cardiac surgeons?

44 Production Model for Evaluating CABG Surgery 2 Clinical Inputs 4 Clinical Outputs Length of Stay Ancillary Services Clinical i l Production Process of CABG Care Low Severity CABG w/cath High Severity CABG w/cath Low Severity CABG wo/cath High Severity CABG wo/cath

45 Plot of 15 Cardiac Surgeons: Coronary Artery Bypass Grafting w/o Catheterization Length of Stay S S1 S9 S11 S4 S7 S5 S12 S14 S3 S6 S15 S8 S10 Best Practice Less Efficient Ancillary Services

46 Plot of 15 Cardiac Surgeons: Coronary Artery Bypass Grafting w/o Catheterization Length of Stay S S1 S9 S11 S4 S7 S5 S12 S14 S3 S6 S15 S8 S10 Best Practice Less Efficient Ancillary Services

47 Findings 23 Cardiac Surgeons were on the best practice frontier The median efficiency score for the 123 physicians was 90% This means that 10% fewer days and 10% ancillary services could have been used The least efficient physician was 64% efficient and could have used 36% fewer resources and gotten the same results

48 Table 3 -- Paired Samples Test for Surgeon DEA Scores 95% Confidence Standard Interval Degrees of Signif. Paired Differences Mean Deviation Lower Upper t Freedom (2-tailed) Theta 04-Theta

49 Productive Efficiency Over time, a hospital or surgeon s productive efficiency may be a due to a combination of changing professional norms and/or the technical competence of individual surgeons Work by Fare and Grosskopf and Thanassoulis, and others, has demonstrated how Malmquist index can be decomposed into boundary shifts (professional norms) and efficiency improvements

50 USING DEA TO MEASURE PRODUCTIVITY CHANGE OVER TIME BY MALMQUIST INDICES- A GRAPHICAL INTRODUCTION

51 Measuring surgeon 14 s productive efficiency over two years: malmquist approach Length of Stay Best practice frontier year S14 Y2 S14 Y1 Year 1 Best Practice Less Efficient S4 S4 S12 S12 Year 2 Best Practice Ancillary Services

52 Hospital Two-Year Performance Change Two-Year Clinical Efficiency Change Two-Year Technical Change (Prof. Norms) Two-Year Clinical Efficiency Growth H H H H H H H H H H H H H H H H H H H H

53 Hospital Two-Year Performance Change Two-Year Clinical Two-Year Technical Two-Year Clinical H H H H H H H H H H H H H H H H H H H Increase Decrease No Change

54 Summary Statistics for Hospitals Clinical Efficiency Technical Change Malmquist Index Change (Professional Norms) Mean Median Mode N Summary Statistics for 123 Cardiac Surgeons Clinical Efficiency Technical Change Malmquist Index Change (Professional Norms) Mean Median Mode

55 Efficient Surgeons And Their Effect on Clinical Productivity Surgeon Y1 Y2 Change in Setting New Malmquist Efficiency Norms Index MD011497E MD014913E MD017403E MD019843E MD020111E MD023770E MD030242E MD031068L MD035160E MD035325E MD039395L MD044287L MD047191L MD049070L OS005793L

56 Sample of Surgeon s DEA Score By Hospital (Over Two Years) Stronger Hospital Surgeon DEA Y1 DEA Y2 55 MD031068L MD038192E MD047191L MD011497E MD023770E MD035325E MD035835L MD044287L Weaker Hospitals Surgeon DEA Y1 DEA Y2 22 MD047516L MD040212E MD005345E MD016254E MD034581E MD022217E MD033474E MD012068E MD019722E MD030954E MD034626E OS003742L

57 Resources & Capabilities Hamel & Prahalad (1994) hypothesize that organizations that mobilize and leverage resources and capabilities can achieve competitive advantages by: Strategic focus or specialization Develop talent pool Conserving or recovering resources Operational excellence

58 prior socialization financial incentives patient needs & requests colleagues malpractice costs training & CME Professional Behavior verbal requests norms protocols SOPs care teams

59 Figure i: Factors Influencing Patient Management Outcomes Patient Characteristics Physician Background & Practice Organization Environmental Factors Practice Management Behavior Physician Performance

60 Hypotheses* Theory Effect on Productive Efficiency H1: Volume of cases (+) H2: Years of Experience (+) H3: Complete more than 50 Hrs. of Continuing Medical Education each year (+) H4: Percent of HMO Patients (+) H5: Hospital Specializes in Open Heart (+) H6: Surgeons who perform surgeries at many hospitals (-) H7: Teaching Hospitals (-) H8: Surgeon average efficiency in prior year (+) * Controlling for case mix: age, severity, race, etc.

61 Table 5 -- Pearson Correlations among Factors Affecting Surgeon Efficiency (# of observations = 123) Variables Case Mix Factors: 1. AVGAGE ***** ** PCTMALE ***** * * 3. PCTWHITE ***** ** PCTHMO ***** ** Surgeon Factors: 5. OPHTOT ***** ** 6. YRSPRA ***** CME ***** HOSPCT ***** Hospital Factors for Surgeon's Primary Hospital: 9. TEACH ***** 0.265** 10. HMIX ***** ** = Correlation significant at p < 0.01 (2-tailed) * = Correlation significant at p < 0.05 (2-tailed)

62 Table 6 -- Estimation Results for Tobit Model of Surgeon Efficiency Explanatory & Control Variables Coefficient Std. Error t-statistic Constant AVGAGE PCTMALE PCTWHT PCTHMO OPHTOT YRSPRA * CME * HOSPCT TEACH HMIX * Chi-square^ 19.18* Total observations: n = 123 * Indicates significance at p < 0.05 ^ The chi-square statistic is based on a likelihood ratio which tests the joint significance of the independent variables. The likelihood ratio is computed as -2log(LO/LI), where LI is the value of the likelihood function for the full model as fitted and LO is the maximum value if all coefficients except the intercept are zero

63 Profile of Efficient Surgeons Tended to have been in practice a shorter time Completed 50+ hours of continuing medical education that year Practiced in hospitals where open heart surgery represented a much larger percent of admissions

64 Table 8 -- Estimation Results for Tobit Model of Hospital Cardiac Efficiency Explanatory & Control Variables Coefficient Std. Error t-statistic Constant AVGAGE PCTMALE PCTWHT * PCTHMO TEACH HMIX * SURGDEA * Chi-square^ 19.71* Total observations: n = 39 * Indicates significance at p < 0.05 ^ The chi-square statistic is based on a likelihood ratio which tests the joint significance of the independent variables. The likelihood ratio is computed as -2log(LO/LI), where LI is the value of the likelihood function for the full model as fitted and LO is the maximum value if all coefficients except the

65 Plot of Mortality Rates and Decision-Making Efficiency Overall Mortality Rates High 1 Quality in Best Practices Region Decision Making Efficiency Scores High Efficiency

66 Plot of Mortality Rates and Decision-Making Efficiency Overall Mortality Rates High 1 Quality Hospitals in Best Practices Region Decision Making Efficiency Scores High Efficiency

67 Final Thoughts Surgeon DEA scores were stable over 2 years Evidence of short-term term productive efficiency Conformance to changing professional norms More efficient hospitals followed two strategies: They attracted a talent pool a higher proportion of best practicing surgeons; They developed the talent by supporting more than 50 hours of CME They targeted cardiac services for a larger proportion of their patient mix Surgeons and surgical units can develop internal resources & capabilities associated w/efficiency

68 Hospitals that can identify and market their best practicing providers (departments, physicians, nurses etc.) will achieve a competitive advantage there must be able to substantiate this with strong evidence.

69 Thank you! Questions?