Fine-Tuning Pay for Performance

By Jeremy Smerd

Aug. 7, 2007

At first glance, the Dow Chemical Co.’s effort to use the lure of money to improve patients’ health and reduce costs seemed like a roaring success. When the three-year pilot program in South Charleston, West Virginia, ended in 2004, the company calculated that preventing illnesses from spiraling out of control saved it $1 million.

    But no sooner had the company distributed the money—a quarter-million dollars each spread among participating employees, doctors, a health management company and Dow Chemical itself—than the firm decided to cancel the program.

    “There were difficulties in the whole system,” says Gary Billotti, leader of the Midland, Michigan-based corporation’s health and human performance management initiative. “We couldn’t expand it at that point, given other priorities and other projects.”

    Chief among the problems was communicating with employees in the program—who numbered 1,000 at the time—their dependents and retirees. Many of them did not use the Internet, where most of the program’s information was located.

    Dow ran into problems getting doctors accurate and timely information about their patients because the level of health information technology varied among doctors. The company also downsized in the state, thereby diminishing the power it had as a health care purchaser to change physician behavior.

    All told, the failure of the Dow effort to go from pilot project to prime time reflects the challenges individual employers face trying to create sustainable change in a fragmented health care market.

    Dow’s program also provides lessons to other employers interested in getting involved with pay-for-performance projects under way today. The most notable efforts are being coordinated by Bridges to Excellence, a nonprofit organization supported by employers, health insurers and doctors.

    The goal of pay-for-performance programs is to change the health care system so that doctors get paid not for the services they provide but for the outcomes they produce—healthy patients.

    Some employers feel pay for performance is deeply flawed in principal.

    “From the purchaser perspective there has historically been resistance to paying [doctors] to do something you thought you were paying them to do anyway,” says John Miller, executive director of the Mid-Atlantic Business Group on Health. “But companies are becoming more pragmatic and they understand that it will take some investment to reform the payment method that has historically been used.”

    What they want is a program that is easy to administer. That was the main hurdle with Dow.

    “Logistically and administratively, it takes effort,” Billotti says. “And it took more effort than we had originally anticipated.”

    The appeal of a program like Bridges to Excellence is that employers don’t have to get bogged down in defining the rules of the game. The group has four areas of focus right now: diabetes management, heart disease, chronic back pain and promoting the use of health information systems.

    More than 3,000 doctors in 12 states have been paid $7.6 million for improving the health of their patients. Though there are other pay-for-performance programs being run by health insurers, one of the advantages of Bridges to Excellence, participants say, is that it offers a widely accepted standard for assessing patient care and one way to report their patients’ health status.

    “We hear from the physician community that there’s too much clutter out there. They can’t maintain the administrative burden of reporting if there are five different methodologies of assessing performance and rewarding results,” Miller says. “Bridges to Excellence makes it easier for doctors.”

    One of the major differences between Dow’s effort and those using the Bridges to Excellence model is that payments are made only to doctors. And unlike with Dow, payments are based on the health improvement of patients.

    In the Bridges to Excellence diabetes program, for example, patients must meet five measures to be counted toward a doctor’s overall score. Patients must have a blood sugar count that indicates their diabetes is under control; LDL—or “bad” cholesterol—level must be below 100; blood pressure must be less than 130 over 80; patients must not smoke; and patients who are 40 or older must take an aspirin every day. Twenty percent of a doctor’s diabetes patients must meet the criteria in order to receive a cash reward.

    In the Washington, D.C., area, the Bridges to Excellence program, “Physician Office Link,” focuses on the use of information systems to improve patient care.

    The program aims at introducing electronic medical records and electronic prescribing. It encourages doctors to use systems to track patients with chronic illnesses, health risk assessments and disease management programs to help patients navigate the health care system.

    The payments so far have totaled $2.6 million. They max out at $20,000 per physician and are meant to offset the cost of purchasing a medical records system. But it remains to be seen whether electronic records improve people’s health.

    “On a personal level, I feel that it works,” says Ann Doyle, a nurse who is helping to administer the Bridges to Excellence program for CareFirst Blue Cross Blue Shield, which represents the Mid-Atlantic region and is funding the effort. “We’re waiting to see whether the data verifies that.”

    Local employers are waiting too. So far none of the employers in the Mid-Atlantic Business Group on Health have funded the CareFirst-sponsored program, even though they may benefit from it.

    One reason, Miller says, is that each of his member companies represents a small slice of the overall market, which is a problem Dow faced when it downsized in Charleston. This makes it hard to convince a CEO that the company’s investment would be money well spent.

    “For that reason we think it makes more sense for this stuff to be implemented by the managed care organization,” Miller says.

    Together, the Mid-Atlantic Business Group on Health may make a difference. On June 21, 18 of its largest employers, representing 400,000 insured lives, met to consider funding the program.

    Dow, meanwhile, has taken the lessons from West Virginia and moved on. The company is developing a consumer-driven health care plan that covers an expanded array of preventive medicine that is expected to be available in 2009. The company is also involved in efforts to promote the use of health information technology in Michigan.

    Those supporting employer efforts still believe purchasers have the power to change the market, even if much of the return on investment has not yet been measured.

    “They are doing it on faith, but there will be an ROI,” says Linda Davis, a consultant for the Bridges to Excellence program run by the Buyers Health Care Action Group, a local business group in Minneapolis. “Employers need to start stepping up to the plate and being involved in changing the focus to quality of care rather than quantity.”

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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