De­fec­tive re­wards

How de­sign flaws have hob­bled Medi­care’s in­cen­tive pro­grams

Modern Healthcare - - NEWS - By Me­lanie Evans

He­brew Home at Riverdale in New York City ea­gerly joined Medi­care’s 2009 test of cash in­cen­tives for nurs­ing home qual­ity and quickly spot­ted a way to avoid un­nec­es­sary hos­pi­tal vis­its for frail res­i­dents. Five years later, the num­ber of He­brew Home res­i­dents who land in the hos­pi­tal for ane­mia has plunged 74%.

Un­der the three-year demon­stra­tion that ended in 2012, He­brew Home be­gan to rou­tinely iden­tify ane­mic res­i­dents who could skip the hos­pi­tal and in­stead get out­pa­tient blood trans­fu­sions. Frag­ile res­i­dents ben­e­fited by avoid­ing risky hos­pi­tal stays. And Medi­care saved, pay­ing an av­er­age of $567 for care that would have cost about $10,000 if all the costs of a hos­pi­tal stay were fac­tored in.

Yet He­brew Home did not re­ceive a dime in Medi­care in­cen­tive bonuses, de­spite suc­cess re­duc­ing un­nec­es­sary med­i­cal costs and strong per­for­mance on qual­ity. That’s be­cause the demon­stra­tion re­quired all 78 par­tic­i­pat­ing New York state nurs­ing homes to col­lec­tively save at least $9.6 mil­lion or none re­ceived re­wards. The New York nurs­ing homes did not achieve that com­bined sav­ings tar­get.

This il­lus­trates the prob­lem of poorly de­signed fi­nan­cial in­cen­tive pro­grams. The ba­sic prob­lem with the de­sign was that He­brew Home could not con­trol whether its ef­fort would pro­duce a re­ward.

The demon­stra­tion also found that nurs­ing home qual­ity largely did not im­prove when com­pared with nurs­ing homes that did not get in­cen­tives. The num­ber of avoid­able hos­pi­tal vis­its and the num­ber of safety vi­o­la­tions were no bet­ter. Nurs­ing homes showed no im­prove­ment in re­mov­ing catheters on time. Pa­tients were just as likely to get bed sores, which are al­most al­ways pre­ventable.

The re­sults, though dis­ap­point­ing to those who hope to see gains in nurs­ing home qual­ity, did not sur­prise re­searchers who study fi­nan­cial in­cen­tive pro­grams. The demon­stra­tion did not in­cor­po­rate many of the lessons that have been learned about how to struc­ture in­cen­tives, said David Grabowski, a Har­vard Univer­sity pro­fes­sor of healthcare pol­icy who eval­u­ated the pro­gram for fed­eral of­fi­cials. “They broke a lot of the rules,” he said.

The CMS, pri­vate pay­ers, pol­i­cy­mak­ers and provider sys­tems are plac­ing heavy re­liance on us­ing fi­nan­cial in­cen­tives to change provider be­hav­ior to im­prove qual­ity of care and re­duce costs. In Jan­uary, Obama ad­min­is­tra­tion of­fi­cials said the CMS would sig­nif­i­cantly ex­pand use of fi­nan­cial in­cen­tives in the next three years. Half of what the tra­di­tional Medi­care pro­gram spends will be tied to re­wards for qual­ity and cost con­trol by 2018. That will mean con­tin­ued growth of ac­count­able care and bun­dled-pay­ment con­tracts. Other in­cen­tives that pe­nal­ize or re­ward hos­pi­tals for qual­ity and safety, known as val­ue­based pur­chas­ing, will be linked to 90% of Medi­care spend­ing by 2018.

But re­searchers say much de­pends on prop­erly struc­tur­ing the in­cen­tive pro­grams to achieve the de­sired re­sults. Public pol­icy in­side and out­side healthcare is strewn with in­cen­tive pro­grams that have fallen short of pro­duc­ing the de­sired re­sults. The con­se­quences of poorly de­signed in­cen­tives can be higher spend­ing and lower qual­ity care. For ev­i­dence, look no fur­ther than Medi­care’s fee-for-ser­vice pay­ment model, which has been widely blamed for en­cour­ag­ing greater vol­ume of ser­vices, caus­ing higher spend­ing and ex­pos­ing pa­tients to the risks of un­nec­es­sary and dis­jointed care.

The CMS did not pro­vide a com­ment for this ar­ti­cle.

A fi­nan­cial in­cen­tive pro­gram works best when there is a strong re­la­tion­ship be­tween ef­fort, per­for­mance and

re­ward, said An­drew Ryan, an as­so­ciate pro­fes­sor of health man­age­ment and pol­icy at the Univer­sity of Michigan. “When you look at the in­cen­tive pro­grams out there, so many of them fail this ba­sic idea,” Ryan said. In­cen­tives also must be large enough to make peo­ple take no­tice, but not so big that in­cen­tives over­shadow other pri­or­i­ties. In ad­di­tion, pro­grams must mea­sure the qual­ity and out­come fac­tors that mat­ter most.

In the case of the nurs­ing home demon­stra­tion, the re­la­tion­ship be­tween ef­fort, re­sults and re­ward was too ten­u­ous, Grabowski said.

The de­sign flaws in the Medi­care in­cen­tive pro­grams aren’t en­tirely the CMS’ fault. Ryan said the flaws can be at­trib­uted in part to the le­gal re­quire­ment that CMS demon­stra­tions ei­ther re­duce fed­eral costs or at least curb spend­ing growth. The link be­tween ef­fort and re­ward is weak­ened be­cause re­wards and penal­ties must be bud­get-neu­tral. Thus, par­tic­i­pants don’t know un­til all re­sults are in what their per­for­mance will be worth fi­nan­cially.

Now, the CMS is pre­par­ing to im­ple­ment new Medi­care fi­nan­cial in­cen­tives for skilled-nurs­ing fa­cil­i­ties na­tion­ally. That pro­gram will take ef­fect in 2019. The pro­posal for val­ue­based pur­chas­ing at nurs­ing homes is dif­fer­ent from Medi­care’s prior nurs­ing home ini­tia­tive in key ways. Medi­care will with­hold a per­cent­age of pay­ments from SNFs that can be earned back based on each fa­cil­ity’s per­for­mance rel­a­tive to other fa­cil­i­ties’ scores. The pro­gram will put 2% of pay­ment on the line.

But some ex­perts say that ini­tia­tive has a po­ten­tially fa­tal de­sign flaw—the fi­nan­cial in­cen­tive may be too small. How much of an in­cen­tive to of­fer has proven tricky for Medi­care’s re­cent ef­forts. Too lit­tle and no one pays at­ten­tion. Too much and the po­ten­tial for un­in­tended con­se­quences in­creases. “No­body knows where that sweet spot is,” said Dr. Rachel Werner, an in­ves­ti­ga­tor for the Vet­er­ans Health Ad­min­is­tra­tion’s Cen­ter for Health Eq­uity Re­search and Pro­mo­tion who stud­ies in­cen­tives and provider be­hav­ior.

The amount Medi­care has re­lied on for var­i­ous in­cen­tives prob­a­bly isn’t right, Werner said. “Two per­cent is prob­a­bly too low,” she said. “We have lots of ex­pe­ri­ence with 2% and it doesn’t work.”

Dr. David Gif­ford, se­nior vice pres­i­dent of qual­ity and reg­u­la­tory af­fairs for the Amer­i­can Health Care As­so­ci­a­tion, a trade group for post-acute providers, agreed that 2% might not be enough to get nurs­ing homes’ at­ten­tion.

The size of the fi­nan­cial in­cen­tive was an is­sue in Medi­care’s Premier Hos­pi­tal Qual­ity In­cen­tive Demon­stra­tion, which ran from 2003 to 2009. Hos­pi­tals in the Premier test were el­i­gi­ble for in­cen­tives of 1% to 2%. Qual­ity im­proved at first when com­pared with hos­pi­tals not el­i­gi­ble for in­cen­tives. But af­ter five years, the two groups’ scores were vir­tu­ally iden­ti­cal, ac­cord­ing to Werner and her col­leagues who stud­ied the pro­gram.

Medi­care’s sub­se­quent manda­tory ef­fort, the hos­pi­tal value-based pur­chas­ing pro­gram that’s been un­der­way since 2012, grad­u­ally in­creases the in­cen­tive from 1% to 2% by 2017. One study found no change in qual­ity or pa­tient ex­pe­ri­ence in the early months of the in­cen­tives com­pared with the five years ear­lier. Trea­sure Val­ley Hos­pi­tal in Boise, Idaho, re­ceived the largest award mea­sured by per­cent­age in 2013—a to­tal of $6,424, amount­ing to 0.8% of its Medi­care rev­enue.

The de­sign­ers of the hos­pi­tal val­ue­based pur­chas­ing pro­gram have faced another tough chal­lenge—how to se­lect the best mea­sures for per­for­mance. Too of­ten, in­cen­tives for qual­ity are tied to per­for­mance on ir­rel­e­vant mea­sures. The mea­sures se­lected of­ten are those that are eas­i­est to com­pile, said Dr. Ashish Jha, a Har­vard Univer­sity health pol­icy pro­fes­sor who stud­ies qual­ity im­prove­ment. “We of­ten don’t pay at­ten­tion to qual­ity,” he said. “And when we do, we don’t mea­sure the right thing.”

Jha’s re­search mea­sured mor­tal­ity rates for hos­pi­tals in­side and out­side the Premier test of qual­ity in­cen­tives and found no dif­fer­ence among pa­tients hos­pi­tal­ized for pneu­mo­nia, con­ges­tive heart fail­ure, heart by­pass surgery or acute my­ocar­dial in­farc­tion. Nev­er­the­less, the CMS ex­panded the ef­fort na­tion­ally.

Sim­i­larly, Jha said Medi­care’s test of ac­count­able care does not mea­sure the re­sults that mat­ter most to pa­tients, such as how well pa­tients func­tion in their daily lives af­ter treat­ment. That’s also true for the CMS in­cen­tive ef­fort us­ing bun­dled pay­ments for hip and knee surgery. “They want to be able to re­turn to the things they used to do,” he said. “We shouldn’t have a bun­dled pay­ment pro­gram un­less we mea­sure what mat­ters.”

In the past, Medi­care has had more po­tent and suc­cess­ful pro­grams chang­ing fi­nan­cial in­cen­tives. Un­til the early 1980s, Medi­care paid hos­pi­tals based on their costs, giv­ing providers lit­tle in­cen­tive to im­prove ef­fi­ciency. In 1983, Medi­care shifted to pay­ing hos­pi­tals fixed prices through di­ag­no­sis-re­lated groups, which later were ad­justed for pa­tients’ sever­ity of ill­ness.

Hos­pi­tals re­sponded. The length of hos­pi­tal vis­its dropped. “The de­ci­sion of how we treat peo­ple is in­cred­i­bly re­spon­sive to price,” said David Cut­ler, a Har­vard Univer­sity eco­nom­ics pro­fes­sor and health pol­icy ex­pert.

De­spite a suc­cess­ful pro­gram to treat ane­mia pa­tients out­side the hos­pi­tal, the He­brew Home at Riverdale, left, earned no bonus in the in­cen­tive pro­gram.

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