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Health Tracking

FROM THE FIELD

Quality Improvement By Providers: Market Developments Hinder Progress

Abstract

 
Providers report maintaining, but not greatly enhancing, their quality improvement (QI) programs between 1999 and 2001. In addition, recent market developments are intensifying barriers to providers’ QI efforts. A notable exception is the tremendous attention to medical errors, which is stimulating patient-safety activities in hospitals. It is too early to tell if the momentum from these activities can be sustained and provide a spark for revolutionary changes in QI more broadly.

The purpose of this paper is to describe the status of QI efforts by providers (hospitals and medical groups), the market forces shaping this activity, and the implications for public and private policymakers.³ First I describe the types of QI activities that providers report engaging in and their assessment of whether these activities changed much from 1999 to 2001. I then examine whether existing barriers to providers’ QI efforts are intensifying or receding and whether new facilitators are emerging. Third, I examine one particular QI activity: efforts to reduce medical errors. Unlike QI activities more broadly, major change in hospitals’ patient-safety activity has been reported. I conclude with a discussion of the policy implications of these findings.

Data And Methods

Top Data And Methods Findings Barriers To Major Change Conclusions And Policy... NOTES

 
This research is based on the Community Tracking Study (CTS), a longitudinal study that conducts site visits to twelve metropolitan communities every two years.⁴ Specifically, 202 semistructured interviews were conducted between June 2000 and March 2001 with managerial and clinical leaders of forty-eight hospitals and forty-eight medical groups. In each market the study team selected three to six hospital systems or hospitals: the largest systems or hospitals and one relatively small one. We also selected four of the largest medical groups and independent practice associations (IPAs) in the market.⁵

Respondents were asked about the market and regulatory environment; the criteria that plans use to select providers; plans’ products and payment arrangements; and providers’ primary strategies, including major changes in QI and care management activities. We also asked respondents how the market and provider organizations’ strategies had changed over the past two years, if at all.

Well-established techniques were used to analyze the interview data, facilitated by qualitative data analysis software (Atlas.ti).⁶ Results from the prior two rounds of site visits (1996–97 and 1998–99) were used to put the current findings in context.

Findings

Top Data And Methods Findings Barriers To Major Change Conclusions And Policy... NOTES

 
Status of QI efforts. Overall, hospital respondents reported maintaining but not greatly enhancing their QI activities. Respondents representing all forty-eight hospitals reported that their QI programs had not changed much over the past two years; six noted modest enhancements.

Hospital respondents mentioned a wide range of well-established QI activities (Exhibit 1). Because of staff shortages, hospitals placed renewed emphasis on attracting and retaining clinicians and staff and viewed these efforts as keys to improving quality.

These findings suggest that many hospitals’ QI activities remain in a relatively early, developmental stage. However, several hospitals reported QI activities that are more advanced (such as routinely monitoring performance via key measures and comparing performance against national benchmarks). Respondents from academic medical centers (AMCs) and their affiliated systems reported using a wider range of QI tools in more areas of the hospital and system.

Likewise, respondents from all forty-eight medical groups reported no major changes in their QI activities. As did hospitals, medical groups most frequently mentioned implementing clinical guidelines and upgrading information system technology. They also often mentioned medical chart review as an example of QI activities they were pursuing.

More established medical groups, such as Harvard Vanguard, reported greater breadth and depth of QI activity. For example, they had more guidelines in place and reported being able to collect and use outcome data related to them.

Overall, QI efforts did not change greatly over the two years prior to the 2000/01 visits. In addition, the types of activities mentioned suggest that most hospitals’ and medical groups’ quality infrastructure could be much improved.

Barriers To Major Change

Top Data And Methods Findings Barriers To Major Change Conclusions And Policy... NOTES

 
Recent marketwide plan and provider developments are intensifying barriers to greater QI efforts. Four important developments are (1) increased financial pressure; (2) the continued decline of tightly managed HMOs and capitation; (3) strained plan-provider relationships; and (4) retrenchment of organized delivery system (ODS) strategies and structures. In contrast, only one new facilitator of QI activity was emerging: new payment arrangements that reward quality.

Increased financial pressure. Respondents reported that the financial pressure they had experienced during the previous two years was qualitatively different from what they experienced in the mid-1990s. Downward pressure on payment rates came from all payers simultaneously, while costs began to rise.

First, payment reductions stipulated in the Balanced Budget Act (BBA) of 1997 began to hit providers as provisions of the act were implemented. Medicare constitutes a substantial portion of providers’ revenue (30–70 percent) and had been a relatively generous payer before the BBA.⁹ Consequently, when Medicare payment reductions took effect, providers found it difficult to make up the revenue. The Balanced Budget Refinement Act (BBRA) of 1999 eased some of these payment reductions, but many providers continued to struggle.

Second, HMO payment rates increasingly were used as benchmarks for other plan product payment rates, and for some providers managed care accounted for a greater portion of their total business. Some respondents noted that they might have unwittingly helped to create "dysfunctional markets" (that is, markets in which payment rates were artificially low and unsustainable) by giving managed care plans deep discounts in hopes of securing volume. However, increased volume did not necessarily flow from such contracts because of broad plan-provider networks. In addition, plans now expected similar payment rates and discounts for their other products (such as preferred provider organizations, or PPOs).

While revenues were declining, costs were going up. Hospital respondents noted increased labor costs because of workforce shortages and rising technology and pharmaceutical costs. Medical-group respondents primarily noted increased practice overhead costs resulting from billing, regulatory, and liability demands.

These financial pressures resulted in reduced or negative margins for both hospitals and medical groups. Many hospitals and physicians (particularly specialists) successfully pushed back on private plans and secured higher payment rates, which will help to improve their financial situation in the future.¹⁰ Yet some providers continue to struggle. In a number of CTS markets (such as Boston, northern New Jersey, and Phoenix) there was a growing gap between those hospitals with and without financial resources.¹¹

Continued decline of tightly managed HMOs and capitation. In the first two rounds of site visits, there were signs that HMOs were not growing as rapidly as anticipated and that less restrictive forms of managed care were in greatest demand.¹² During our most recent site visits, respondents reported that tightly managed care plans and capitated payment would not grow and develop as anticipated.

Providers cited two market developments to support this conclusion. First, the majority of privately insured persons in the CTS markets were still enrolled in non-HMO products. The average HMO penetration rate for the twelve markets in 2000 was 28.4 percent, ranging from 11.2 percent to 43.8 percent. HMO enrollment actually declined in four markets between 1996 and 2000 (Lansing, Miami, Seattle, and Syracuse).¹³ In two other markets HMO enrollment increased moderately (less than 10 percent), and in the remaining six markets it grew more substantially (on average 43 percent) on a small base.

Second, HMOs remained just one plan product among many, and they were becoming less restrictive.¹⁴ Rather than selectively contracting with providers, HMOs now included almost all providers. Consequently, provider networks were overlapping and largely indistinguishable. Plans were also loosening some utilization management (UM) strategies that previously had constrained enrollees’ choice of providers and use of services.¹⁵

A large degree of capitation (shared, global, or professional) was the exception rather than the rule.¹⁶ In the single market where risk was extensive (Orange County), these arrangements were stable but not growing. In the remaining markets capitation was more moderate or limited, and risk arrangements were being retrenched or rejected.

As noted, one new development that might mitigate the move away from tightly managed HMOs and capitation was the emergence of new payment arrangements that reward providers for meeting QI targets. These payment arrangements recently emerged in three CTS markets (Boston, Orange County, and Seattle) and occurred on a very limited basis in four others (Lansing, Miami, northern New Jersey, and Phoenix). Depending on the market and plan, physicians receive a bonus of 4–10 percent for meeting quality goals, particularly measures related to Health Plan Employer Data and Information Set (HEDIS) indicators and patient satisfaction.

It is unclear at present if these new payment arrangements will provide the mix of incentives necessary for major QI change. On the one hand, these arrangements are similar to previous payment arrangements that were not very effective (for example, withholds with "upside risk," that is, receiving some or all of the withheld amount if performance targets are met). On the other hand, these payment arrangements may truly be different, in terms of both the nature of the incentive (that is, bonus versus withhold) and the types of measures used to assess performance (for example, chronic care management, or patient satisfaction versus utilization). As one respondent noted, "It’s easier to pull someone into the future than to kick them out of the past."

Plan-provider competition rather than collaboration. Research from previous CTS rounds noted competition between plans and providers for control over care management and the strained relationships that resulted.¹⁷ Without cooperation between plans and providers, QI initiatives are likely to be less effective.

During the current round of site visits, respondents noted that competition and strained relationships remained despite the easing of some unpopular UM strategies (such as prospective review).¹⁸ Moreover, competition and conflict had been exacerbated by several developments.

First, providers reported that many plans could not share data with them in a timely and useful manner. Some plans’ information systems were taxed by mergers or rapid growth. Respondents reported that others had fewer plan staffers than before working with them to improve reports. Even hospital systems and medical groups with sophisticated information systems relied on plans for certain data (such as out-of-network utilization).

Second, providers reported that plans have not helped to educate patients about the potential value of ODSs because plans want to market and support consumer choice. For example, a hospital system and its affiliated physician-hospital organization (PHO) in Boston asked plans to make it clear to enrollees via their provider handbooks that when they choose a primary care physician they are also selecting a provider subsystem or network (affiliated specialists and hospitals). This step would help the system to better manage the financial risk that they assumed for these enrollees and potentially better manage patients’ care. Plans were reluctant to clarify this information for enrollees, wishing to avoid the appearance of limiting provider access and choice.

Finally, plans were increasingly launching disease and care management programs that they had developed and implemented themselves or had contracted with a regional or national firm to provide.¹⁹ Respondents from local provider organizations that had worked to develop their own care management infrastructure were frustrated that plans were not contracting with them for such services. They also were doubtful that these plan-led programs ultimately would be successful, particularly those administered by regional or national firms. Such arrangements made communication and collaboration more difficult because there was an additional party to the local plan-provider relationship—one that was difficult to get to know since it was generally located in another city or state.

Retrenchment of ODS strategies and structures. Providers’ primary response to these market developments was to retrench their strategies and structures, which had largely been shaped by the goal of establishing an ODS. One major strategic shift was to reemphasize high-tech, profitable inpatient and outpatient specialty services (such as cardiology, oncology, and orthopedics) and amenities.²⁰ Forty-four percent of the systems and hospitals interviewed reported that they were expanding specialty care centers (inpatient and outpatient), and 35 percent were expanding niche specialty services. Hospitals also increasingly focused on attracting and retaining "star" specialists who could develop these specialty programs.

Hospitals also continued to restructure PHOs designed to accept risk and integrate care.²¹ For example, hospitals in the twelve CTS markets having a PHO declined from 36.5 percent in 1996 to 30 percent in 2000.²² Respondents from the remaining PHOs indicated that their organizations had not grown in number of contracts or covered lives; in some these had declined. Owned medical groups were downsized, and a variety of steps were taken to make them more productive. Recent research suggests that hospitals’ intense focus on increased productivity may alienate physicians, making it more difficult to engage them in future QI efforts.²³

The consolidation of independent physicians into larger medical groups potentially more capable of improving quality has lagged behind the creation of hospital-based ODSs in the CTS markets.²⁴ During the 2000–01 site visits there was little evidence that larger medical groups were developing, with physician consolidation efforts largely at a standstill.

Status of patient-safety efforts. Unlike QI activities more generally, hospital respondents reported major changes in patient-safety activities, largely because hospitals previously had not focused on this quality problem. One market observer noted, "Hospitals have come a long way. Two years ago their idea of patient safety was to salt the sidewalk when it snowed."

As with QI more generally, hospital respondents reported engaging in a wide variety of patient-safety activities (Exhibit 2). The most frequently mentioned activities were in the areas of leadership and accountability, medication safety, and staffing.²⁵ The specific activities most frequently mentioned included the following: (1) Establish a patient-safety committee. (2) Set and prioritize patient-safety goals. Often the committees’ first steps were to identify opportunities for improving patient safety and to prioritize next steps. (3) Reduce medication errors. Hospital respondents said that they were working to implement the American Hospital Association’s (AHA’s) safe medication practices.²⁶ (4) Implement computerized physician order entry systems. Related to efforts to reduce medication errors, six hospitals reported that they had selected and purchased a CPOE system and were beginning implementation. (5) Hire intensivists and hospitalists. Hospitals were hiring intensivists (physicians with specialty training in critical care medicine) to work in intensive care units (ICUs), where many medical errors occur, or additional hospitalists (physicians who work full time in the hospital to manage inpatient care). At this early stage, respondents from diverse types of hospitals (smaller and larger hospitals, AMCs and general acute care hospitals) were engaged in these activities.

Despite these barriers, hospital respondents noted that some forces in local markets facilitated major change in patient safety. Great state and local interest and activity had been generated by the IOM reports and by national-level efforts to address patient safety. Many states were considering, or had passed, legislation related to patient safety.²⁸ Hospital respondents in California mentioned legislation that mandated hospitals to submit plans in 2002 for information system improvements to reduce medication errors and to have such systems operational by 2005.²⁹ Hospital respondents in New York and Washington states reported that government agencies were reexamining existing error reporting requirements and asking them for input about how they might be improved.

Large employers in three CTS markets (Boston, northern New Jersey, and Seattle) were participating in the Leapfrog Group and in two others (Lansing and Orange County) were raising awareness of patient-safety issues through other initiatives. Leapfrog recommended two of three activities hospital respondents frequently reported (CPOE systems and use of intensivists to staff ICUs).³⁰ Several state professional associations (of doctors and nurses, hospitals, and health plans) also had launched initiatives of their own. For example, the New Jersey Hospital Association announced the creation of a Quality Institute with a $250,000 annual budget.³¹

Finally, and perhaps most importantly, consumers became much more aware of medical errors. Hospital respondents noted that the local media extensively covered the release of the IOM reports and related stories. In addition, they felt that patient safety was such a basic concern that consumers would be more likely to seek out, and use, information provided about hospital performance in this area.

Conclusions And Policy Implications

Top Data And Methods Findings Barriers To Major Change Conclusions And Policy... NOTES

 
Findings from the 2000/01 CTS site visits are consistent with the IOM’s assessment that enormous changes are required to stimulate major improvements in quality.³² Barriers far outweighed facilitators; in fact, only one potential facilitator, new payment arrangements that reward providers for meeting QI targets, was emerging in these local markets.

An important exception to this is the tremendous attention to medical errors and patient safety and the degree of hospital activity it stimulated. Early patient-safety initiatives were widespread in the CTS markets and had great momentum. Facilitators of patient-safety efforts now outweigh barriers.

These findings raise two important policy questions. First, can interest and improvement in patient safety be sustained? If so, will patient safety be a spark for the more revolutionary, systemic changes called for in the IOM’s reports? On the one hand, patient safety is compelling and provides a smaller set of QI activities on which to focus. On the other hand, patient safety may encounter some of the same barriers as QI efforts in the longer term.

Future market developments, and policymakers’ responses to them, will ultimately provide the answers to these questions. The most important market development likely to affect providers’ QI efforts in the short term is rising costs. Double-digit premium increases have returned, and hospital costs recently surpassed drug costs as the key driver of total health care cost increases.³³ Public and private purchasers’ resolve to slow cost increases is likely to intensify; however, the way they address the problem will have a sizable impact on providers’ incentives for improving quality.

Greater focus on quality and patient safety would increase the likelihood that cost will not take on more weight in the value equation. Early patient-safety efforts illustrate that much can be accomplished in a short time when attention is focused on quality. If all key parties—policymakers, purchaser, plans, providers, and consumers—dedicated similar energy to QI more broadly, major change could result.

Editor's Notes

 
Kelly Devers is a health researcher at the Center for Studying Health System Change in Washington, D.C.

The author gratefully acknowledges the Community Tracking Study’s provider research team and administrative staff, as well as the interview respondents who contributed their time and insights. The author also thanks Paul Ginsburg, Cara Lesser, and the anonymous reviewers for their valuable comments. The Robert Wood Johnson Foundation provided support for this research.

NOTES

Top Data And Methods Findings Barriers To Major Change Conclusions And Policy... NOTES

 

1. The Institute of Medicine defines quality as "the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge." Institute of Medicine, Medicare: A Strategy for Quality Assurance (Washington: National Academy Press, 1990).
2. L.T. Kohn, J.M Corrigan, and M.S. Donaldson, eds., To Err Is Human: Building a Safer Health System (Washington: National Academy Press, 1999); and IOM, Crossing the Quality Chasm: A New Health System for the Twenty-first Century (Washington: National Academy Press, 2001). See also D.M. Berwick, "A User’s Manual for the IOM’s ‘Quality Chasm’ Report," Health Affairs (May/June 2002): 80–90.
3. The term hospitals refers to hospital systems and freestanding hospitals and their owned and affiliated physician organizations (such as PHOs); medical groups refers to both medical groups and IPAs unless otherwise specified.
4. See J.L. Hargraves and S. Trude, "Obstacles to Employers’ Pursuit of Health Care Quality," in this volume of Health Affairs.
5. We used knowledge gained from prior rounds of the site visits, secondary sources (such as trade publications), and the National Survey of Physician Organizations (NSPO) to identify physician organizations in the market.
6. M. Miles and A.M. Huberman, Qualitative Data Analysis: An Expanded Sourcebook, 2d ed. (Thousand Oaks, Calif.: Sage Publications, 1994); K.J. Devers, "How Will We Know ‘Good’ Qualitative Research When We See It? Beginning the Dialogue in Health Services Research," Health Services Research 34, no. 5 (1999), part II: 1153–1188[Medline]; and T. Muhr, Atlas.ti: Visual Qualitative Data Analysis and Model Building (Berlin, Germany: Scientific Software Development, 1997).
7. These were noted by respondents representing five or more hospitals.
8. L. Brewster, L. Rudell, and C. Lesser, Emergency Room Diversions: A Symptom of Hospitals under Stress, Issue Brief no. 38 (Washington: Center for Studying Health System Change, 2001).
9. The percentage of revenue derived from Medicare varied greatly by geographic location and type of hospital or medical group. A recent national survey by the U.S. Census Bureau shows that in 2000 Medicare accounted for 32 percent of hospitals’ revenue and 24 percent of physician offices’ revenue, on average. "Revenues for Health Care Sector Grow by 6 Percent, U.S. Census Bureau Reports," BNA Health Plan and Provider Report (5 December 2001): 1502.
10. B. Strunk, K. Devers, and R. Hurley, Health Plan-Provider Showdowns on the Rise, Issue Brief no. 40 (Washington: HSC, June 2001); and K. Devers et al., "Hospital Negotiating Leverage with Health Plans: How and Why Has It Changed?" (Unpublished paper, HSC, February 2002).
11. This finding is similar to findings of other recent studies on hospitals’ financial health. See M.G. Harrison and C.C. Montalvo, "The Financial Health of California Hospitals: A Looming Crisis," Health Affairs (Jan/Feb 2002): 118–126; and S. Salit, S. Fass, and M. Nowak, "Out of the Frying Pan: New York City Hospitals in an Age of Deregulation," Health Affairs ( Jan/Feb 2002): 127–139.
12. J.M. Grossman, "Health Plan Competition in Local Markets," Health Services Research 35, no. 1 (April 2000), part I: 17–36[Medline]; and C.S. Lesser and P.B. Ginsburg, "Update on the Nation’s Health Care System: 1997–1999," Health Affairs (Nov/Dec 2000): 206–216.
13. D.A. Draper et al., "The Changing Face of Managed Care," Health Affairs (Jan/Feb 2002): 11–23. This trend is consistent with national survey data from Henry J. Kaiser Family Foundation and Health Research and Educational Trust, Employer Survey of Benefits, 2001, which shows that HMO enrollment declined from 29 percent of covered workers in 2000 to 23 percent in 2001.
14. Draper et al., "The Changing Face of Managed Care."
15. See S. Felt-Lisk and G.P. Mays, "Back to the Drawing Board: New Directions in Health Plans’ Care Management Strategies," in this volume.
16. R. Hurley et al., "A Longitudinal Perspective on Health Plan–Provider Risk Contracting," Health Affairs (July/Aug 02): 144–153.
17. L.T. Kohn, "Organizing and Managing Care in a Changing Health System," Health Services Research (April 2000), part I: 37–52.
18. Felt-Lisk and Mays, "Back to the Drawing Board."
19. Ibid.
20. K.J. Devers, L.R. Brewster, and L.P. Casalino, "Changes in Hospital Competitive Strategy: A New Medical Arms Race?" (Presentation at Emerging Health Care Market Trends: Insights from Communities, Washington, D.C., 10 December 2001), www.hschange.org/CONTENT/394/Devers.pdf (31 July 2002).
21. T. Lake et al., "Recent Trends in Hospital-Physician Relationships" (Unpublished paper, HSC, February 2000).
22. American Hospital Association, Annual Survey of Hospitals, various years (Chicago: AHA, 1996–2000).
23. See J. Alexander et al., "Risk Assumption and Physician Alignment with Health Care Organizations," Medical Care (July 2001): 146–161.
24. Lesser and Ginsburg, "Update on the Nation’s Health Care System."
25. Noted by respondents representing five or more hospitals.
26. See AHA, "Improving Medication Safety," 7 December 1999, www.aha.org/medicationsafety/mederrorsadv12799.asp (21 June 2001).
27. Three hospital trade associations (the Healthcare Leadership Council, the AHA, and the Federation of American Hospitals) issued a report and announced a "framework" for evaluating proposed patient-safety initiatives. See Healthcare Leadership Council, "Health Care, Hospital Groups Release Framework to Evaluate Safety Initiatives," Press Release, 15 January 2002, www.hlc.org/html/january152002pr.html (31 July 2002). The report states that safety standards should meet at least the following two criteria: They were developed using appropriate methodology, and they can be implemented by all hospitals. See also AHA, "Comment Letters," 20 May 2002, www.hospitalconnect.com/aha/advocacy-grassroots/advocacy/comment/CL-052002-260.html (31 July 2002), for the AHA’s letter to the Leapfrog Group urging a "less ‘cookie cutter’ " approach to patient safety. Leapfrog’s recommended steps are in the spirit of the IOM’s reports but are not based on the strongest evidence available. See Leapfrog Group, "Patient Safety," www.leapfroggroup.org/safety2.htm (31 July 2002); and Agency for Healthcare Research and Quality, "Making Health Care Safer: A Critical Analysis of Patient Safety Practices," Evidence Report/Technology Assessment 43, 20 July 2001, www.ahrq.gov/clinical/ptsafety (31 July 2002).
28. S. Norris, Medical Errors and Patient Safety, Health Policy Tracking Service, Issue Brief no. 31 (Washington: National Conference of State Legislatures, December 2001).
29. E. White, "Policymakers Promoting Patient Safety Technology in Different Ways," BNA Health Care Policy Special Report (23 April 2001).
30. See Hargraves and Trude, "Obstacles to Employers’ Pursuit of Health Care Quality"; and the Leapfrog Web site, www.leapfroggroup.org.
31. Valerie Sellers, seniorvice-president for health planning and research, New Jersey Hospital Association, personal communication, 8 July 2002.
32. Kohn et al., eds., To Err Is Human; and IOM, Crossing the Quality Chasm.
33. B. Strunk, P.B. Ginsburg, and J.R. Gabel, "Tracking Health Care Costs," 26 September 2001, www.healthaffairs.org (21 June 2002); and B. Strunk, P.B. Ginsburg, and J.R. Gabel, "Tracking Health Care Costs: Hospital Care Key Cost Driver in 2000," Data Bulletin no. 21 (Washington: HSC, revised September 2001).

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