CMS releases proposed rules for Accountable Care Organizations

The shift from today’s volume-based payment system to tomorrow’s value-based methodologies took a major step forward yesterday. The Centers for Medicare & Medicaid Services (CMS) released  proposed rules for the new Accountable Care Organization (ACO) program.  Although the proposed regulations will be the subject of extensive comment and will undoubtedly be changed before final adoption, the coming transformation in Medicare reimbursement is so profound that the rules command the attention of governing boards and other healthcare leaders now.

Rather than read the entire 429 pages, board members would be wise to read an article in March 31 issue of the New England Journal of Medicine by CMS Director Donald M. Berwick, MD, MPP.  It lays out the rationale and essential principles for ACOs. Key points include:

  • “Because in many settings no single group of participants — physicians, hospitals, public or private payers, or employers — takes full responsibility for guiding the health of a patient or community, care is distributed across many sites, and integration among them may be deficient. Fragmentation leads to waste and duplication — and unnecessarily high costs.”
  • Under the Affordable Care (ACA) Act, ACOs are designed “to foster change in patient care so as to accelerate progress toward a three-part aim: better care
    for individuals, better health for populations, and slower growth in costs through improvements in care.”
  • “Under the law, an ACO will assume responsibility for the care of a clearly defined population of Medicare beneficiaries attributed to it on the basis of their patterns of use of primary care. If an ACO succeeds in both delivering high-quality care and reducing the cost of that care to a level below what would otherwise
    have been expected, it will share in the Medicare savings it achieves.”

The article summarizes the proposed rule’s provisions regarding who can form and lead ACOs, including: physician groups; physician practice networks; hospitals that employ physicians; and partnerships among these entities.  It describes how ACO should be governed –by providers, but with the voices of patients and community involved too.  CMS is proposing to offer two models for ACOs to share financial rewards and risks with Medicare, one low risk, the other higher risk but also high potential return. The article also articulates 65 quality performance measures for judging ACO performance.

The shared savings program is not the end point for ACOs, Berwick stresses, but rather, it is designed to first of many “delivery-reform efforts such as expanded use of medical homes, bundled payments, value-based purchasing, adoption of information technology, and payment reforms are under way or under consideration.” 

Thus, an ACO is really a structure for carrying out a cultural transformation in healthcare delivery from incentivizing volume to rewarding peformance in in improving individual and population health and controlling costs. Boards should be asking how ready their organization is to work in collaboration with physicians to measure and manage both the costs and quality of patient care — to individual patients and to targeted populations groups such as those with diabetes, heart disease, hypertension, and the frail elderly.

Berwick concludes: “Whatever form ACOs eventually take, one thing is certain: the era of fragmented care delivery should draw to a close. Too many Medicare beneficiaries — like many other patients — have suffered at the hands of wasteful, ineffective, and poorly coordinated systems of care, with consequent costs that are proving unsustainable. CMS believes that with enhanced cooperation among beneficiaries, hospitals, physicians, and other health care providers, ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need, and deserve.”


Culture didn’t match BP’s commitments

This week’s Wall Street Journal contains a chilling account of how oil giant BP PLC pursued profits and efficiency while giving lip service to the safety of its drilling operations. Hospitals and health systems can take away some lessons for their board oversight practices.

BP had an accident prone history when Tony Hayward took over as CEO in May 2007. According to the Journal, Mr. Hayward repeatedly said “he was slaying two dragons at once: safety lapses that led to major accidents, including a deadly 2005 Texas refinery explosion; and bloated costs that left BP lagging rivals Royal Dutch Shell PLC and Exxon Mobil Corp.”

Hayward said he would focus “like a laser” on safety and simultaneously improve BP’s operations. In October 2007, he created a management system designed to enforce safety standards consistently across the organization. Yet, the Journal’s in-depth examination of BP “shows a record that doesn’t always match Mr. Hayward’s reports of safety improvements.”

The article quotes Jordan Barab, deputy assistant secretary at the Occupational Safety and Health Administration: “They claim to be very much focused on safety, I think sincerely. But somehow their sincerity and their programs don’t always get translated well into the refinery floor.”

BP’s own documents and outside evaluations documented concerns that BPs culture put safety second. An internal BP presentation noted that in 10 “high potential” incidents at BP facilities in the Gulf in 2007, a common theme was “a failure to follow BP’s own procedures and an unwillingness to stop work when something was wrong.”

“Where was the board?”

That question, not addressed by the Journal, will clearly be asked in the days and months to come, as it always is following a seemingly avoidable corporate failure. It’s too early to know whether directors had access to information that could have alerted them to safety problems and if so whether they acted appropriately. However, a number of aspects of BPs governance are eerily reminiscent of the Enron board before that company self-destructed.

On paper, BP appears to have great governance. The board includes nonexecutive directors with august backgrounds. It has adopted governance principles, and it posts extensive information about governance activities on its website. The board has a committee on safety, ethics and environment assurance with a non-executive chairman. It holds executive sessions without any staff present.

Yet, in practice, the evidence to date suggests the BP board failed in its obligations to shareholders. The chairman of the board’s safety committee (who only was appointed to the board in February) is an accountant by training who worked in the pharmaceutical field. None of the non-executive directors appear to have a background in industrial safety, although one is a petroleum geologist.

According to BPs website, the board’s safety committee spent considerable time with an independent expert and so should have been aware of concerns about the company’s culture. BP’s own report on the committee’s work says the expert noted many safety improvements, but “it was also recognized that the journey requires investment not only in engineering but in sustaining cultural change and this will take many years to complete.” In addition, the committee’s oversight seems to focus on refinery operations. There’s no indication on BP’s website that the committee spent much time looking at the safety or disaster plans for drilling operations.

Lessons for hospital governance

It’s too soon to render a verdict on the performance of the BP board. Future investigations will determine whether BP’s directors vigorously questioned management and expressed a healthy skepticism over whether top management was truly supporting a pro-safety culture.

However, BPs travails suggest important lessons for governance of hospitals and healthcare delivery systems. Three in particular stand out:

1. A board quality committee needs a true expert in medical quality and patient safety. Just being a dedicated community member or accomplished business executive or even a physician is not sufficient. Quality assurance and safety management are discrete professions and areas of expertise. When directors lack sufficient knowledge in a subject area, they can become overly dependent on management and may be reluctant to push back hard enough.

2. A board quality and safety committee must have information on the organization’s safety culture, not just quality indicators. Culture determines whether written rules are followed or ignored. It appears that BP workers who had serious concerns about safety were reluctant to stop risky operations. In a hospital’s operating room, would nurses stop a surgeon who failed to complete pre-surgical checklist? Would physicians step forward to discipline a marginally performing colleague? To know, hospital directors need quantitative information on the organization’s safety culture, such as survey and benchmark reports provided by AHRQ. They also need feedback from the front lines, gleaned for example by accompanying senior management on patient safety rounds.

3. Directors must have the will to challenge management and clinicians when necessary. While expertise and transparent information are necessary for effective governance, they are not sufficient. Directors have to be willing to speak out when they believe that there is insufficient attention to quality and safety priorities. Effective governance means the board does not accept what it is told without question.

The incentives of healthcare reform will make it even more imperative that hospital and health system boards act as guardians of the public’s interest in safe and high-quality clinical care. The Patient Protection and Affordable Care Act is driving hospitals and health systems to reduce costs and improve efficiency to an unprecedented degree. These initiatives are necessary and appropriate but may increase risk.

No hospital CEO or chief medical officer knowingly takes action that will harm a patient. Then again, it’s unlikely any BP executive thought his actions would lead to the explosion of the Deepwater Horizon, leaving oil spewing into the Gulf of Mexico.

The job of the board is the same no matter how committed and competent its executives are. Effective governance requires diligent and independent oversight and the courage to hold management accountable.

Barry S. Bader, Publisher, Great Boards

President, Bader & Associates

Good Governance Practices for Hospitals — from Great Boards

Spring Issue of Great Boards is Available

The spring issue of the Great Boards newsletter is available on the Great Boards website.  Here’s a summary:

The Board’s Role in Compensation Oversight for Employed Physicians

In August, 2009, Covenant Medical Center of Waterloo, Iowa, agreed to pay $4.5 million to settle allegations of healthcare fraud arising from its financial relationships with five employed physicians.  The Covenant case has drawn increasing attention to how hospitals should determine appropriate compensation for employed physicians, and how hospital boards should oversee physician compensation.  We consulted an expert, Dan Grauman, president & CEO of DGA Partners of Philadelphia.  DGA’s consultants help healthcare organizations and their legal counsel to document and determine fair market value of physician compensation, and to structure equitable compensation for employed physicians.

“Boards should consider forming Physician Compensation Committees,” says Grauman. “They need to develop a physician compensation policy, including specific guidelines on the process of determining appropriate compensation for each and every physician.  The committee should also set policies pertaining to the actual physician compensation models, in terms of mechanisms used to compute compensation. Once the board committee has developed guidelines and standards, they should be reviewed annually for consistency with fair market value.  If certain physicians appear to be paid more than fair market value, the committee should ask whether there are reasons that explain these anomalies, or else require plans to correct the situation.”

Applying Sarbanes Oxley to the Board’s Quality Oversight Role

Could applying key elements of Sarbanes-Oxley to hospital boards’ responsibility for oversight of clinical quality improve the board’s effectiveness? The idea has merit, argues David B. Nash, MD, MD, Dean, Jefferson School of Population Health and an expert on quality who has chaired a large health system’s board quality committee.

In this commentary, Barry Bader draws on Nash’s suggestion and offers eight SOX-styled practices that could enhance board oversight of quality.  Food for thought.

Focusing Boards on the Right Quality Measures

Hospital and health system boards are being overwhelmed by a multitude of quality indicators.  Some liken the situation to the biblical Tower of Babel.

Great Boards editor Elaine Zablocki interviews leaders about how they are rethinking the most important quality measures for boards to review.  Among the major themes she’s hearing are these:

  1. Boards are replacing narrow measures with indexes and “big dots,” such as severity-adjusted system-wide mortality, designed to capture a great deal of information in a single number.
  2. Measures are more specifically linked to the strategic plan. The largest health systems are defining system-wide areas of quality focus, while also encouraging regions and hospitals to develop independent plans and metrics for specific improvements within those areas.
  3. Increased emphasis is being placed on reducing preventable injuries and deaths.
  4. Boards are asking for quality measures to be displayed in more powerful dashboard formats that combine increased information with a simpler graphic format.

Download the new issue of Great Boards now.

Quality not a priority for many boards, says flawed study

A study just published in Health Affairs on Hospital Governance And The Quality Of Care, by Harvard faculty Ashish K. Jha and Arnold M. Epstein asserts that “fewer than half of (responding not-for-profit hospital) boards rated quality of care as one of their two top priorities, and only a minority reported receiving training in quality.”

The study has a lot of important and legitimate findings. For example, it found a positive correlation between high-performing hospitals and many practices for board oversight of quality. For example, boards of high-performing hospitals (measured by quality objective indicators) are more likely to:

  • Include quality performance on every board meeting agenda
  • Spend at least 20% of their time on clinical quality issues
  • Have a Board quality committee
  • Review a quality dashboard with trends over time and benchmarks
  • Review hospital-acquired infections rates, medications errors, and The Joint Commission’s core measures at least quarterly
  • Establish quality goals
  • Publicly disseminate quality performance measures
  • Have moderate or substantial expertise in quality
  • Evaluate the CEO in part based on quality criteria.

Unfortunately, the headlines are that just 44% of boards rank quality as one of their “top two priorities,” and that just 32% boards has received training in quality.   These findings are misleading.

First off, concluding quality isn’t a board priority because it isn’t in the top two is an arbitrary judgment.  It’s probably a reflection of the financial pressures hospitals currently face.

Second, more boards do need training in clinical quality to understand how to interpret quality reports and how to engage with clinical leaders to set quality goals and exercise accountability. However, I think the survey understates the degree of education on quality boards have received. Many hospital boards have had some exposure to quality education at either conferences or as an integral part of board or committee work but didn’t consider these to be “training in clinical quality” on the survey.

Health Affairs is widely read by policy makers, and the authors “suggest that governing boards may be an important target for intervention for policymakers hoping to improve care in U.S. hospitals.”

That is a patently bad idea even though it would generate business for consultants like me and organizations like The Governance Institute and the Institute for Healthcare Improvement, which already deliver education for boards on quality. Boards are organized in various ways, and some rely heavily on committees for oversight. Many conduct education as an integral part of their board and committee work. Requiring that every board member go to conferences to be trained and credentialed in clinical quality would be a waste of resources.

So, do look at this study for guidance on practices to enhance your board’s quality oversight work — but educate any press or policy makers who ask that some sort of mandatory board education is not what we need.

Are clinically integrated PHOs a viable platform to align physicians and hospitals?

Last week, I attended a symposium on clinical integration sponsored by Advocate Physician Partners of Chicago. APP is arguably the country’s most successful physician-hospital organization (PHO) at linking hospitals and physicians to contract collectively with health plans, improve clinical outcomes, reduce costs, and share savings with physicians.

In the winter issue of Great Boards, I’ll examine whether clinically integrated PHOs are a viable mechanism to align the financial incentives for hospitals and physicians to manage costs and improve quality. So I came to learn more about APP’s success story, and whether other system’s boards and leadership should pursue this alignment strategy.

And a success it is.

Out of the 5,200 medical staff members practicing in Advocate’s hospitals, APP includes 900 primary care physicians and 2,500 specialists, as well as eight acute care general and two childrens hospitals. APP has signed contracts with 10 health plans for 280,000 capitated lives and 700,000 PPO lives. APP has clearance from the Federal Trade Commission to negotiate contracts for all its members because of its clinical integration program, in which providers agree to follow best practice guidelines designed to improve quality at lower cost.

In 2009, the clinical integration program is engaging physicians in 37 initiatives designed to meet or exceed goals for 107 measures for clinical outcomes, efficiency, medical and technological infrastructure, patient safety and patient satisfaction. For example, the diabetes care initiative focuses physicians on eight measures of how well diabetes patients are managed outside the hospital, to prevent costly hospitalizations, premature deaths, and diabetic complications such as blindness and kidney failure, In 2009, the program preserved an estimated 9,000 years of eyesight and 6,800 years free of kidney disease, and extended lives an estimated 5,700 years.

APP also boasts success with clinical integration programs designed to achieve smoking cessation, screen for and treat depression, improve asthma outcomes, administer childhood immunizations, prescribe generic drugs, and use appropriate drugs to treat coronary artery disease and heart failure. For the details, see a copy of APP’s 2009 Value Report.

As a result, APP’s physicians received more than $28 million in clinical integration incentive payments in 2008. The average payout was about $10,000 per physician, but some high-performing, busy clinicians earned in the neighborhood of $20,000 in incentives.

Some 800 of APP’s physicians are employed by Advocate, but the rest are private practitioners, and about 1800 medical staff members are not part of the PHO, so APP is a good model to examine whether hospital-employed physicians and independent practitioners can collaborate to achieve common quality and economic goals.

Here are a few of my takeaways from the symposium:

What’s in this for physicians? If a PHO has a genuine clinical integration program, “physicians can align with each other and hospitals to distinguish themselves in the market on the basis of quality; justify higher reimbursement; and conduct collective negotiations with health plans,” said Thomas Babbo, a partner with Hogan Marren, Ltd. and the legal architect of the clinical integration program. “This is about quality and about getting better reimbursement from payers precisely because of this ability to drive better quality. This is value-based, collective bargaining for physicians. It’s not something to apologize for,” so long as it’s genuinely intended to improve quality.

Should you ask the FTC’s permission? Although the Federal Trade Commission has issued a number of advisory opinions describing the characteristics of a clinical integration program that would justify collective contract negotiation by physicians, Babbo generally advises clients to actively engage the FTC up-front regarding what they’re doing, but not to go through this formal process The process is lengthy, the PHO must delay clinical integration while it’s waiting for the opinion, and there’s a risk the FTC will find some aspect of the program to fault. Instead, he recommends following the existing guidelines laid out by the FTC and U.S. Department of Justice since 1996, and in earlier opinions for other PHOs, such as the Greater Rochester IPA and Tri-State Health Partners.

Since Advocate has a successful medical group of employed physicians, why does it need a PHO? The PHO recognizes that “9 out of 10 Americans get their medical care from a solo or small group practice,” explains Lee B. Sacks, M.D., president of APP. Among APP’s approximately 600 primary care physicians in private practice (not employed by Advocate), 300 (50%) are in solo practice, almost 200 are in two or three person practices, and less than 250 are in practices of 20 or fewer physicians. These physicians are not interested in larger groups or hospital employment. “APP is a bridge between Advocate’s employed and independent physicians.”

Will payers play? “You have to have payers in the market who are willing to pay you” an incentive for quality, says Sacks. Since the PHO seeks higher fees from health plans, it has to demonstrate its value proposition, i.e., better outcomes and more efficient healthcare at a lower overall price. Even then, health plans will be reluctant to pay higher fee schedules on the promise of lower overall costs. Babbo recommends going to local employers and making the case for the value proposition of clinical integration directly to them, such as smoking cessation programs that decrease absenteeism and lower healthcare costs. The employers can then become an ally of the PHO when seeking contracts with health plans. Sacks, adds, “Health systems are usually among the largest local employers, so working with the benefits team of the partnered system is an opportunity to demonstrate value to other employers.” In our winter issue, I’ll describe APP in further detail, including its membership criteria, infrastructure, financial incentives, and governance structure, which is physician driven and physician led. I’ll also describe the startup efforts by Tri-State Health Partners in Hagerstown, Maryland, the most recent PHO to get a favorable advisory opinion from the Federal Trade Commission.

Clinically integrated PHOs are one of a number of possible mechanisms for hospital physician alignment and integration. You can read about others, including case studies, on the Great Boards website.

The New Yorker article Obama made famous

This is the article that galvanized President Obama (he circulated it widely) and has everyone in health care talking as Washington debates how to control health care costs, improve quality and expand access all at once. In the June 1 issue of The New Yorker, physician-writer Atul Gawande tells how he went to McAllen, Texas to find out why it’s the most expensive city in the country for health care. He writes: “The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.” Not quality, not demographics, not fraud or malpractice, although all are issues. The culprit is excessive use, and unless health reform reform changes that, it will fail.

Every health care trustee, physician and executive should read this piece both for its insights and because of its impact on healthcare reform.