Monday, December 08, 2008

Win-Win-Win Solutions in Healthcare Quality Improvement

It’s obvious that in any environment where there are multiple stakeholders, “win-win” solutions are more likely to be successful than “win-lose” approaches.   In healthcare, there are three key categories of stakeholders — patients, payers (e.g., health insurance plans), and providers (hospitals, doctors, etc.).  So an important question about any healthcare quality improvement effort is whether it’s a “win-win-win” for all three groups.

All efforts to improve healthcare quality are presumably “wins” for the consumer/patient, assuming that quality is measured appropriately in terms of patient outcomes.   (Sometimes simply providing more healthcare services is represented as “higher quality,” but that is marketing, rather than true quality.)

However, not all quality improvements are “wins” for both payers and providers.   In many cases, providers argue that they need more money to improve quality, with no assurance to payers that costs will be reduced elsewhere.   Such initiatives may be win-wins for the patients and providers, but losers from the viewpoint of the payers.  For example, the challenge that many initiatives to implement the patient-centered medical home are facing is that they are framed as asking payers to spend more money for primary care delivery in order to improve quality for patients.  From the payer’s perspective, it’s win-win-lose, not win-win-win.  (As noted in a previous post, it doesn’t need to be that way.)

At the other end of the spectrum, there are quality improvements that are clear wins for both patients and payers.  For example, reducing hospital-acquired infections is good for the patient, and often avoids extra payments to cover complications.   However, in many cases, because of the way current payment systems are structured, hospitals lose money by preventing infections — they don’t just lose revenue, but since their revenues go down more than their costs go down, their operating margins also get worse.   (The new policies prohibiting Medicare payments for infections won’t solve this — more on that in a future post.)   So these are also win-win-lose propositions, but this time from the provider’s perspective.

Are there win-win-win solutions?  Yes, but only if the right kinds of changes in payment systems are made.  For example, a hospital that reduces infections and other adverse events should be paid more for the successful cases than it is today, but nothing for the cases with adverse events.  Under that kind of payment structure, it has both a financial incentive and a quality incentive to reduce the adverse events.   Why does it have to be paid more for the successful cases?  Because before, the failures were actually subsidizing the successes.  With better quality, the hospital’s fixed costs will be spread over a smaller number of cases, increasing the average costs of care.   That’s why the hospital can be worse off financially if it reduces infections — the payments it receives would go down more than its costs would decrease.

But won’t higher payment for the successful cases increase healthcare spending?  No, not as long as the higher payment rate for the successful cases is offset by the reduction in spending for the unsuccessful cases (since they will no longer receive additional payment).   The payer can still spend less than it did before (just not as much less as it would have if the infections were reduced under the current payment system), but the provider’s losses are reduced or eliminated.  That enables a win-win-win solution for all three.

The importance of finding win-win-win solutions is why quality improvement needs to be coupled with reforms in healthcare payment systems.

 

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