Incentives Empower Providers to Improve Care

June 26, 2015 / By Norbert Goldfield, MD, Richard Fuller, MS

For the last decade, we have been fortunate enough to work with many state Medicaid programs and commercial payers on reform efforts incorporating outcomes targets for health care providers. The outcomes targets we establish are collectively termed potentially preventable events (PPEs) and provide a direct link between the cost of adverse outcomes and provider payments. The big difference in using an outcome-based approach to incentivize healthcare improvements is that provider engagement requires a demonstrated improvement in the actual health of patients. As part of our ongoing engagement to support these initiatives, we provide counsel, not always taken but always provided, and receive feedback in three significant areas: 1) how our tools are used to fairly compute penalties and rewards; 2) the creation and operation of the clinical logic serving as the basis of the reform initiative; and 3) educating providers in how to interpret and work with their results, not just how the penalty or reward was calculated, but the comparative provider performance on the specific outcome identified as being potentially preventable.

It is understandable that those affected by reforms look to shape them in ways more favorable to themselves, which in turn creates a tension between payers and providers as the initiative evolves. Most frequently this tension surfaces in the financial impact of initiatives upon sensitive providers (e.g. safety net hospitals) and underserved disease cohorts (e.g. those associated with mental illness). Typically, the argument goes, sensitive providers and cohorts should be excluded from reform efforts lest we “make things worse.” While we believe that these concerns should be reviewed sympathetically, and on occasion treated creatively within the design, ultimately we believe that it is imperative for sensitive providers and populations to remain within the framework of a reform initiative. Retaining sensitive populations is not only an avenue through which vulnerable patient populations may hope to receive equality of attention but also an opportunity for those that care for them to receive support for their efforts. Take for example the recurring dialogue surrounding whether patients with mental health conditions should be excluded from a readmission reduction program.

It is evident that mental health issues drive increased utilization and, particularly within Medicaid programs, increase the likelihood of readmission¹. Poorly constructed penalties, apparent in many earlier health management efforts, look at the frequency of readmission at an institution, typically a hospital, and conclude that the hospital patient population as a whole has high rates and therefore the hospital performance merits a penalty. The result is a push to exclude and dilute the impact of patient populations that generate this loss, while the providers that treat them are seen as “loss centers.” The resulting mindset is a pervasive fear in which complex, high-needs patients that require more resources will uniformly experience higher rates of adverse outcomes, leading to them being identified as a problem. But, with better crafted policies this need not be the case – in fact the reverse is true.

With ongoing feedback on improvement in the clinical logic underpinning PPEs as well as risk-adjustment and direct accounting for relative PPE rates, no patient cohort taken as a whole is a loss and no set of providers caring for them uniformly assessed as a loss center. If there is no variation in readmission rates by patient type, then no penalty is applied. Conversely, where similar patients have widely divergent experience across providers, penalties are applied with both good and poor performance clearly identifiable. More often than not, providers recognize that they can improve the care being delivered within their system if not necessarily their own performance. This is where they become empowered by an incentive framework.

The reality of healthcare financing is that services receive investment where they obtain a return. The argument that things can be done better may receive sympathetic consideration but, understandably, is prioritized behind those things that keep the enterprise afloat. By injecting a cost for relatively poorer performance into the equation, or better still a complementary reward for relatively better performance, providers can demonstrate a return on investment for projects that improve outcomes (reduce penalties or receive a reward) as well as those that generate new revenue. This is a critical point for clinicians and administrators treating complex patients to internalize. Incentive programs around outcomes empower them not only to demand appropriate resources on behalf of their patients to improve their lives, but require them to deliver on that investment. Exclusion from incentive programs may remove patient populations from the radar of cost-cutting administrators but will also ensure that attempts to improve their care will not be a top priority.

Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.

Norbert Goldfield, MD, is medical director for 3M Clinical and Economic Research.

New metrics are helping hospitals improve care and reduce complications.  Read our latest case study to find out how.


¹Fuller RL, Atkinson G, McCullough EC, Hughes JS. Hospital readmission rates: the impacts of age, payer, and mental health diagnoses. J Ambul Care Manage. 2013;36(2):147-155. doi:10.1097/JAC.0b013e3182866c1c.