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Paying for Quality in Integrated Health Systems: Concepts, Empirical Evidence, and Lessons from the

Douglas A. Conrad, PhD, University of Washington
Barry Saver, MD, University of Washington
Beverly Court, MHA, PhD Candidate, University of Washington
Sarah Heath, MA, Project Research Manager, University of Washington

The effect of incentives—from the health plan/purchaser to the provider organization and from the organization to the individual physician—is the focus of a project that surveyed and interviewed key medical and professional staff within ten integrated health systems.

To assist executives and clinical leaders craft new quality-based contracting arrangements between and within organizations, Dr. Conrad and his team conducted key informant interviews of twenty-two medical group practices and nine hospitals.  They also surveyed by mail thirty-six medical group practice administrators, twenty-three group practice medical directors, and eighty-four individual physicians in medical group practices.  The investigators’ questions focused on the effect of financial incentives on the development and implementation of quality improvement initiatives and care management systems in medical group practices as well as the effect of financial incentives on the adoption of specific care management practices by individual physicians.  The study also assessed the impact of incentives at the organization level versus incentives at the level of the individual physician as a motivator for individual physicians to adopt quality-related care management practices.

Some of the study’s preliminary findings regarding plan payment (external) incentives and physician compensation (individual-level) in medical group practices revealed that:

  • The average proportion of group practice revenues from health plans based on fee-for-service without added incentive features was 63%; fee for service with an incentive feature was 3%; and any form of capitation was 34%.
  • Ten of fourteen groups had the potential to receive bonus payments from health plans, of which six were based on quality performance measures and four on patient satisfaction.
  • For established primary care physicians in those groups, the average share of compensation based on individual productivity was 77%; guaranteed salary, 9%; equal shares, 3%; and resource management, 8%.  Other arrangements, including incentive compensation, accounted for under 3% of compensation.
  • For established specialists, the average share was even more heavily weighted toward individual productivity, 84%; guaranteed salary, 5%; equal share, 5%; and resource management, 5%.

Although the numbers available for analysis are small, the study also suggests a possible correlation between the financial incentives offered to a medical group practice and the group’s care management practices.  For example, groups with potential bonus incentives from health plans based on patient satisfaction were more likely to conduct regular assessments of patient access to urgent care.

Also among the researchers’ findings were some significant, subjective viewpoints on incentives that emerged from interviews with key informants:

  • Trickle down:  Before applying quality incentives directly to physicians, at least three of the ten integrated health systems had implemented clinical quality and/or patient satisfaction incentives as part of their internal executive compensation.  This “top-down, trickle-down” phased implementation was viewed as an effective means of establishing the credibility and significance of clinical quality within the organization.
  • Alignment:  Although quality incentives from health plans and other purchasers were embryonic in most of the study markets, the importance of these external motivators was acknowledged by several executives.  At a minimum, they felt that external incentives had to be aligned with the quality improvement goals of the medical groups and hospitals.
  • Clarity:  Clinicians responded more positively to incentives that were clear, transparent, and immediate.  Several medical groups noted that the criteria for quality bonuses from major health plans were often unclear; the episode grouping methodology was typically a “black box;” and incentive payments frequently lagged the performance period by up to a year.
  • Tiered Networks:  Another theoretically promising incentive for quality is health plans’ designation of tiered networks of medical groups and hospitals, whereby plan subscribers are offered lower co-payments and coinsurance as inducements to choose high-performing providers.  However, such networks are typically based on cost rather than quality.

In their entirety, the study’s findings are intended to assist administrators and clinical leaders:

  • choose contracting and payment arrangements between health plans and provider organizations;
  • design quality measures and specific forms of incentive-contracting between health plans and provider organizations;
  • determine the form and pacing implementation of quality incentives between plans and providers and within provider organizations

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