Report

White Paper: Performance Program

Executive Summary

The transition to “value-based care” is real and is impacting how health care is reimbursed and delivered.  Health systems and individual providers are no longer paid solely on the volume of the care delivered.  Providers are now increasingly paid on the “value” of the care delivered. 

How “value” is measured and the definition of “value” has for many years been the subject of much debate.  Recently the “how” and the “what” have started to come into greater focus as the Center for Medicare and Medicaid (CMS) has established a series of programs including the Comprehensive Joint Replacement (CJR) program and Medicare Access and CHIP Reauthorization Act (MACRA) that help define value.  As performance parameters have become more defined, data across key measures is increasingly more available and reliable. 

As the transition to “value” has accelerated in recent years there is a growing acknowledgment on the need to integrate non-traditional metrics into both payer reimbursement and provider compensation models.  CMS, with the development and launch of CJR, MACRA and other like programs, has established a firm set of parameters for how non-volume metrics will influence provider payments moving forward.  In all cases, CMS has expanded the traditional view of performance to include measures that extend beyond clinical quality (e.g., Hemoglobin A1C).   The scope of performance now includes items such as cost, resource efficiency, technology use, patient connectivity and care model design.

The need to align internal care and incentive programs to meet external demand has never been higher and will only increase in the future.  Health Care Futures has drafted a short white paper to profile the following: 

  • The working definition of “value” and “pay-for-performance” 
  • Implications, Rational and Guiding Principles
  • Funding Mechanisms
  • Considerations Related to Compensation Plan Integration 
  • Practical Application:  Methodology
  • Illustrative Example

Key Terms 

Value:  The patient and providers  perception of the overall access, experience, efficacy and cost of the care provider

Pay-for-Performance:  Pay for performance is a catch-all term for initiatives aimed at improving the quality, efficiency and overall value of health care.  The arrangements provide financial incentives to hospitals, physicians and other health care providers to carry out such improvements and achieve optimal outcomes for patients. 

Outcome Measure: Metric based on the achievement of an agreed to performance target. Examples include mortality, infection and re-admission rates. 

Process Measure: Activity or process that directly impacts a particular outcome measure. Examples include: Developing a care pathway for COPD patients. 

The Definition of Value and Pay-for-Performance

The definition of value in its strictest is the perceived importance, worth, or usefulness of an object or service.  How consumers or patients generally define value is the most important consideration for health care providers to consider when contemplating care delivery.  Generally, patients consider the following attributes:

  • Access – Am I able to receive or acquire the necessary service from you in a timely fashion? 
  • Experience – Was the personal interaction with the facility, staff and providers rewarding? 
  • Efficacy – Did the treatment address the issue? Was I satisfied with outcome? 
  • Cost – What are the out-of-pocket costs for the service? 

What is “pay-for-performance” and how does it influence care model and provider compensation moving forward?  Pay-for-performance, or P4P for short, is commonly defined as an all-encompassing term for initiatives aimed at improving the quality, efficiency, and overall value of health care.  These arrangements provide financial incentives to hospitals, physicians, and other health care providers to carry out such improvements and achieve optimal outcomes for patients. 

Inside provider contracts with insurers (including Medicare), P4P can range from defined programs such as MACRA, it can be tied to future inflationary increases, or it can be foundational to the overall contract if any capitation methodology is utilized for a specific population. 

Implications, Guiding Principles and Rationale

A pay-for-performance or value program can align the interests of the patients, physician and the health system in ways not possible in a payment system consisting only of work RVUs, encounters, surgeries or time.  That said the need for agreement on the definition of performance and how it is measured, tracked, managed and shared across the organization require thoughtful dialogue among providers and administrators. 

Generally there are a few basic guidelines to consider when developing the framework of a compensable performance program. Guiding principles include the following: 

  • The measures must be developed with input by physicians
  • The measures must be “real” and measurable (e.g., in most if not all cases outcomes measures need to commonly used or referenced by other organizations)
  • The measures must not be diluted.  They should consist of 4 to 6 measures across multiple dimensions (e.g., quality, service, supply chain, care pathway) 
  • The performance incentive compensation must be based on performance improvement
  • The measures are aligned with the overall strategic plan of the organization

It’s critically important for all parties involved to have a clear understanding of the rationale for including a performance or value program in their compensation structure.  Commonly referenced benefits and reasons for inclusion: 

  • Engages physicians in the operation, management and performance of a clinical specialty and service line. 
  • Allows the physicians to be compensated for being more directly involved in protocol development, operational improvement, and other strategic initiatives. 
  • Improves patient outcomes, care efficiency satisfaction, and safety.
  • Provides benefit to the hospital, physicians and patients. 
  • Strengthens group interdependency

Funding Methodology

Health System (HS) is moving to a market-based approach for compensation.  The organization is leveraging three external physician compensation surveys, Medical Group Management Association (MGMA), American Medical Group Association (AMGA) and Sullivan Cotter to determine what target compensation should be for a given amount of work RVU production or shifts/hours worked.  Physician compensation for all specialties will be based on a weighted average of the three external surveys and adjusted to account for local and specialty specific factors.  

Approximately 90 percent of total physician compensation will be based on traditional measures such as time or work RVUs.  The remaining 10 percent target compensation will be allocated for non-traditional work measures such as call responsibilities and clinical quality.  An additional 10 percent will be linked to performance across an agreed to set of value measures compensation.  

The magnitude of the value payments will be directly linked to the magnitude of the perceived opportunity (e.g., the larger the opportunity the larger the value opportunity can be). See illustrations. 

Case Study: Orthopedics 

Health Care Futures outlined a performance program for orthopedics to give administration and physicians a better sense for how it would be operationalized.  The value of the performance program for each respective specialty will vary based on the magnitude of the opportunity for improvement and the availability of performance data.  Inside of orthopedics a key consideration is resource efficiency and how it varies by individual physician.  The following chart illustrates the variability by physician.  Reducing variability through standardizing care pathways could markedly improve service line performance across key cost, quality and patient experience indicators.

Total Hip Replacement: Charges by Physician by Service Type

Source: White Cloud Analytics

Based on the aforementioned charge data by physician there is a sizeable opportunity to improve resource efficiency by reducing practice variance.  Preliminary estimates provided by White Cloud suggest the opportunity for select orthopedic services exceeds $5M.  Note:  The projected opportunity is based the variance between current costs and threshold targets based on national standards. 

Source: White Cloud Analytics, May 2016 – April 2017.

The following illustration summarizes how a performance program could work for orthopedics.  It is important to recognize that although the measures selected would be different the construction and methodology of payment would be consistent across specialty. 

***Value payment would be subject to achieving agreed to quality and service thresholds in 3 of 4 areas.  This “gate” assures outcomes are not adversely impacted by the value incentive program.

Measure Description Payment
Performance: Quality bundle: 

  • 30 Day Readmission Rate
  • Surgical Site Infection
  • Unplanned Return to Surgery 
  • Patient satisfaction
  1. 30 day orthopedic readmission rate defined as the percentage of cases that are readmitted to the hospital within 30 days of the surgery for cases that are directly related to the procedure. 
  2. Surgical site rate infection rate defined as the percentage of cases where an infection occurs after surgery in the part of the body where the surgery took place.
  3. Unplanned return to surgery rate defined as the percent of cases requiring any secondary procedure for a complication resulting directly or indirectly from the initial total joint procedure.  
  4. Defined as percent of patients who report their surgeon “Always” treated them with courtesy, listened carefully, and explained things in a way they understood (aggregate measure in COMM W/DOCTORS domain)
  • Up to 5 percent of Aggregate Clinical Compensation for Orthopedics (or $25,000 for a physician earning $500,000)
  • Payment based on achievement or exceeding historical performance or national benchmarks
  • 0 Achieved – No Payment
  • 1 Achieved – 25 % Payment
  • 2 Achieved – 50 % Payment
  • 3 Achieved – 75 % Payment
  • 4 Achieved– 100% Payment 
Performance: Other/Call
  • Payment for incremental call (e.g., call exceeds expected levels for a given specialty) or additional performance measures
  • Determined by the call scorecard. (~5%)
Value: Resource efficiency

  • Prospective expense budget

Note: To Be Eligible for Value Opportunity The Group Must Meet or Exceed at Least 3 out of 4 Quality Targets. 

SEE ILLUSTRATION BELOW FOR CALCULATON METHODOLOGY

  • Develop a prospective “expense budget” including for the following conditions:
  • Single, total knee replacements (Note: Defined by CMS procedure cohort and limited to activity inside of HS excluding outliers and revisions)
  • Single, total hip replacements (Note: Defined by CMS procedure cohort limited to activity inside of HS excluding outliers, partial hips, resurfacing and revisions)
  • Rotator cuff replacement (Note: Defined by CMS procedure cohort limited to activity inside of HS excluding outliers, partial hips, resurfacing and revisions)
  • Isolated Anterior cruciate ligament repair. (Note: Defined by CMS procedure cohort excludes ACL repairs with additional procedures (e.g., meniscal repair)
  • Isolated meniscal repair. (Note: Defined by CMS procedure cohort excludes meniscal repairs with additional procedures (e.g., ACL repair)
  • ACL and meniscal repair. (Note: Defined by CMS procedure)
  • Up to 5 percent of Aggregate Clinical Compensation for Orthopedics (or $25,000 for a physician earning $500,000). 
  • Payment based on achieving agreed to expense targets
  • <50% of cases performed at less than the target cost – 0 percent of payment
  • 50-70% of case performed at less than the target cost – 25 percent payment (1.25%)
  • 70-90% of cases performed at less than the target cost – 50 percent payment (3.75%) 
  • >90% of cases performed at less than the target cost – 100 percent payment (5%)
Value: Supply Chain Initiatives The objective of this measure is to encourage utilization of approved vendors for the following populations:                                  

  1. Hemi-hip arthroplasty
  2. Total hip replacement
  3. Total knee replacement
  4. Arthroscopic surgery patients.

Utilization percentage to be calculated based on eligible cases only. Example exclusions may include (i) medical necessity (e.g., approved vendor does not have an implant the meets the needs of the patient) (ii) patient preference

  • Up to 5 percent of Aggregate Clinical Compensation for Orthopedics (or $25,000 for a physician earning $500,000)
  • Payment based on achieving agreed to expense targets
  • <60% of cases performed with preferred vendor– 0 percent of payment
  • 60-90% of cases performed with preferred vendor – 50 percent payment (2.5%)
  • >90% of cases performed at less than the target cost – 100 percent payment (5.0%) 

All qualifying cases for an agreed to set of conditions will be monitored to assess whether target performance costs were achieved.  Note:  Cases where medical necessity or patient preference impacts cost profile will be excluded from the qualifying volumes.  Payment based on group performance across all metrics with individuals qualifying for payment based on their “Individual” quality scores.  

Illustrative Example: Orthopedics 

The following exhibits illustrate how a performance program fits with the compensation plan design.  The illustration assumes the following:

  • Compensation Standard @ median levels of production = $606,600
    • wRVU compensation = 90%
    • Performance/Other = 10%  (5% percent clinical quality; 5% other performance/call) 
    • Value (Bonus Opportunity) = 10%
  • Production = 7,866 wRVUs
  • Compensation per wRVU = $69.29
  • Performance Program – Achieved 75% (e.g., met targets across on 3 of 4 measures) and 100% of resource efficiency incentive
  • Value Program – Achieved 10% (e.g., met target price goals on 90 percent of the cases and met vendor standardization goals)

Performance Illustration: 

Measure CY 2016 Performance Target Payment
Quality Bundle

  • 30 Day Readmission Rate
  • Surgical Site Infection
  • Unplanned Return to Surgery 
  • Patient satisfaction
  • 0.75%
  • 0.56%
  • 0.50%
  • 91.6%
  • <5.0%
  • <2.0%
  • <3.2%
  • >92.1%
  • Achieved 3 of 4 Metrics = 3.75% Incentive Payment (of 5 percent maximum incentive paid)
Other

  • Other/Call
  • TBD
  • TBD
  • TBD (~5%)
Value

  • Prospective Expense Budget
  • 89.7%
  • >85%
  • Fully Achieved = 5% Incentive Payment
  • Supply Chain (Vendor Selection)
  • TBD
  • Tier 1 < 60 percent                          
  • Tier 2 Between 60 – 90 percent     
  • Tier 3 > 90.0 percent                     

Note: Targets will be based on vendor contract language

  • Fully Achieved = 5% Incentive Payment

Value: Resource Efficiency Calculation Methodology

Illustrative Compensation: 

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