House Committee on Ways and Means

Statement of Peter Lee, President and Chief Executive Officer, Pacific Business Group on Health, San Francisco, California

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

March 15, 2005

Chairman Johnson, Congressman Stark, distinguished Subcommittee members, I am Peter Lee, the President and CEO of the Pacific Business Group on Health.  I appreciate the opportunity to be with you this morning to talk about how leading purchasers are working with labor, consumers and providers to measure and reward quality and cost-efficiency to foster improvements in a very troubled health care system.  In my remarks I will provide concrete examples of efforts underway to promote higher quality and more cost-efficient care through measurement and reward programs, highlight some principles that should apply to the expansion of these strategies, and describe the how Medicare can join and even lead these important efforts.  

The Pacific Business Group on Health is a nonprofit association of many of the nation’s largest purchasers of health care, based in California.  PBGH represents both public and private purchasers who cover over 3 million Americans, seeking to improve the quality of health care while moderating costs.  The members of PBGH range from large public and private purchasers such as Bank of America, CalPERS, FedEx, Target, the University of California and Wells-Fargo, to thousands of small businesses in California that we serve through our small employer purchasing pool – PacAdvantage.  For fifteen years, PBGH has been a catalyst promoting performance measurement and public reporting at every level of the health care system to improve performance and to help consumers to make better choices.

Current Performance Gaps – Wide Variation and Significant Room for Improvement

Health care cost is one benchmark against which both employers and employees measure health care.  By that measure, with costs nearly doubling over the last five years, we should be getting more and better health care.  While it’s true that there have been important advances in technology and new services, it is also sadly true that there is a huge value disconnect in our health care system.  Recent research by RAND found that an American’s likelihood of getting the right care at the right time was about 50 percent.  This work only serves to underscore reports from the Institute of Medicine and others that document the chasm between what clinicians know works and the care actually provided. These deficits persist despite many initiatives by both the federal government and private health care delivery systems to improve care. Key findings of the RAND work include:

• Overall, adults received about 55 percent of recommended care;
• The level of performance was similar for chronic, acute, and preventive care;
• Quality of care varied substantially across conditions. For example, people with cataracts received about 79 percent of recommended care; those with hip fractures received about 23 percent.

The variation in care is also true for the cost-efficiency with which care is delivered to Americans.  In Slide 1 of the material accompanying this testimony we show data from a health plan in Washington that portrays a performance distribution of hundreds of individual physicians based on the quality of the care and their cost-efficiency.   The vertical axis reflects adherence to evidence-based quality of care process measures. The horizontal axis reflects the cost-efficiency of the care they deliver (measuring “longitudinal efficiency” which captures the “total cost of care provided by each physician”– adjusting for the mix of illnesses among their patients and including all physician, lab, hospitalizations, pharmacy, imaging and ALL other costs related to an entire episode of acute care or a year of chronic illness and preventive care). 

This graph demonstrates that patients today are as likely to be seen by physicians who are both lower quality and less cost-efficient (the bottom-left quadrant) as they are by high quality, more cost-efficient doctors (the upper-right quadrant).  Today, the vast majority of providers do not know where they stand in terms of the quality and cost-efficiency of their care; they are not rewarded through payments for doing a better job; and patients do not have information to make better choices.   Some of the lessons from this reality are:

• While we have an obligation to give patients better information to choose doctors – and let them know where their doctors stand with regards to quality and cost-efficiency – it is just as critical that we provide information and incentives to providers to move “up and right.”  Consumer AND provider information and incentives must be about fostering performance improvement by physicians.
• Both research and practical experience have demonstrated that significant cost savings are achievable – while improving better quality care.  The “Breakthrough Competency” assessment of health plans conducted by PBGH reported on research finding that up to 17 percent of premium could be saved by better provider selection, while actuarial modeling in Medicare identified savings of 3-4% with relatively little movement “up and right.”  (The full details of the evaluation of potential Medicare savings conducted by the Consumer-Purchaser Disclosure Project are attached to my testimony.)  Both of these figures are likely low estimates.  Since we have never had a health care system that rewarded better cost-efficiency and quality, we have no idea how large the savings could be or how quickly quality would improve if we harnessed market forces to continuously motivate better performance.

Over the past five years there have been a growing array of programs that seek to measure provider performance, make that information available to providers for improvement, and reward better performers with payments or by public recognition programs.  The Leapfrog Group recently published a compendium of 90 incentive and reward programs sponsored by health plans, private purchasers, CMS and others.  These programs are touching the lives of tens of millions of Americans, and thousands of physicians and hospitals.  They provide lessons for Medicare and chart the way for changing our payment system into one that actually rewards better performance. 

Performance-Based Provider Programs

Many of the nation’s leading health plans are instituting programs that promote high performing physicians or hospitals.  Examples include:

• Aetna’s Aexcel Network, through a set of multi-tiered options, promotes higher-performing physicians in 12 specialties based on clinical quality and cost-efficiency;
• Blue Shield of California’s hospital tiering, which includes consumer information on hospital performance, is based on cost-efficiency and quality;
• PacifiCare’s medical group and hospital tiering also combines quality and relative cost-efficiency;
• Humana promotes better consumer choice through its use of a “Hospital Value Index;” and
• United Health Plan’s Performance Program identifies more efficient and higher quality physicians, and offers a Centers of Excellence program for hospitals.

Health plans are developing these products in direct response to the call by purchasers and the evident gaps in the current payment and delivery of health care.  We have also seen employers and labor institute collaborative projects to measure and reward higher performance.  Three examples I would like to describe are a program sponsored by the UNITE-HERE Labor Management Trust in Las Vegas, Nevada to create a more cost-efficient network of physicians and reward better performers, the Bridges to Excellence program rewarding individual physicians, and California’s Integrated Healthcare Association initiative for medical groups.

UNITE-HERE Labor Management Trust Fund, Las Vegas

The UNITE-HERE Labor Management Trust Fund is a Taft-Hartley trust providing health care to 120,000 hotel workers and their families in Las Vegas, Nevada.  Faced with years of double digit medical cost increases, the Trust decided to focus on the variation in quality and cost-efficiency of physicians serving its members.  The Trust measured all of its physicians using an industry standard “cost-efficiency tool” that assesses the longitudinal efficiency of care provided, and also measured the quality of care provided based on analyzing administrative data to determine the extent to which physicians were meeting evidence-based guidelines.  In 2003, after using cost-efficiency analysis as a screening tool and applying a variety of other criteria to ensure fairness and maintenance of adequate access to all kinds of care, the Trust excluded 50 of the 1,800 physicians that had been providing care as network providers.  The rationale given by the Trust for its program was that multiple factors, of which cost-efficiency screening was one, were taken into account in deciding who was included in its restructured physician network.  At the same time, the Trust identified “Gold Star” physicians based on their quality of care.  These Gold Star physicians were highlighted in the physician directory for Trust beneficiaries.  In addition, these physicians were eligible for performance bonuses of up to 10% of their compensation based on a calculation that gave ¾ weight to quality and ¼ weight to cost-efficiency.  .   

The results have been dramatic (as can be seen in Slide 2) – with medical trend reduction of over ten percentage points from the trend that would have occurred if the 12% rate from the previous year had continued.  The vast majority of the savings (70%) was due to the changes in the physician network and the ripple sentinel effect on all the network physicians.  (At the same time, the Trust instituted changes to its formulary, added a pharmacy benefit that provided some generics at no cost and made other benefit design changes that accounted for the remainder of the savings.)  For these low-wage hotel and restaurant workers and their families, the result of the savings generated has meant they are seeing salary increases for the first time in three years, making possible a 30 cents per hour wage increase that would have otherwise been unaffordable.

Bridges to Excellence

Bridges to Excellence (BTE) is a multi-stakeholder approach to creating rewards for quality.  The mission of BTE is to improve quality of care through incentives that encourage providers to deliver optimal care and encourage patients to seek evidence-based care and self-manage their conditions.  By recognizing and rewarding providers who demonstrate they have implemented comprehensive solutions in the management of patients, BTE seeks to create significant leaps in the quality of care.  Quality is measured uniformly using one of three NCQA-developed physician recognition programs.  These programs focus on areas where there is a clear link between quality improvement performance criteria and actuarially estimated financial returns for payers and for providers in a fee-for-service environment.  The three NCQA recognition programs that serve as the basis for payments (summary information provided in Slide 3 attached) are:

• Physician Practice Connections measures the extent to which a practice has implemented information technology (IT) systems that leverage available data to track and educate patients, maintain medical records, prescribe medicines and ensure appropriate follow up.  These are all IT systems that have been shown to dramatically improve patient care and prevent mistakes.  A version of these same measures is in development to be used by CMS as part of its efforts to pilot reward programs with the DOQ-IT project, the Medicare Care Management Program Demonstration project, and the upcoming 8^th Scope of Work for Quality Improvement Organizations. 
• Diabetes Provider Recognition Program, developed with the American Diabetes Association, covers an array of measures for effective care to diabetics.  The measures assess care for diabetics in a physician’s practice including the measurement and control of cholesterol, blood pressure and blood sugar (HbA1C) levels, and whether critical eye, foot and kidney function exams are conducted; and
• Heart Stroke Recognition Program has six measures of effective care for people with cardiac disease, developed in collaboration with the American Heart Association.  The measures assess physicians’ care of patients with cardiac disease and include the measurement and control of cholesterol and blood pressure levels, use of aspirin and smoking cessation advice. 

Physicians elect to apply for recognition with NCQA and submit data documenting their performance.  The sponsoring employers then assess the extent to which their employees are being seen by participating doctors.  Those that are recognized as high performers can receive “bonus payments,” which could earn a physician practice an additional $20,000 from BTE. 

The program has been launched in four communities in Ohio, Kentucky, Massachusetts and New York by employers such as Ford Motor, Verizon, General Electric and Hannaford Brothers with a half dozen health plans (as described in Slide 4 attached).  While nationally these employers sponsor health care for millions of Americans, in the four named communities alone they are providing incentives for services provided to over 300,000 employees and dependents.  BTE has paid out more than $1 million to date, out of an available pool of $8 million.  Payments to physicians are geared to reflect higher standards over time. 

In addition, the participants in BTE seek to engage consumers by supporting them with care management tools for diabetes and cardiac care and providing information on physicians that have completed the recognition program to inform the consumers’ selection of provider.  The patients in physician practices recognized by BTE are more likely to get the right care at the right time, such as increased early testing for diabetes, for heart disease, or learning how to better manage their chronic illnesses.   BTE also provides incentives to patients who participate in programs to enable them to better manage their illnesses.

The program is now being expanded to over a dozen additional areas by United Health Care, multiple Blue Cross/Blue Shield plans, including CareFirst here in the Washington, DC area, and employers and purchaser coalitions.  While BTE has learned that physician certification processes are resource intensive, they have also seen how important this route can be to engage physicians.

California’s Integrated Healthcare Association’s Medical Group Pay-for-Performance

Over the past four years, the Integrated Healthcare Association in California has brought together a collaboration of purchasers, seven of California’s largest health plans, physician groups, consumer advocates and researchers to launch a pay for performance program to reward physician groups in California’s HMO market.  The goal of the IHA program is to create compelling incentives to drive breakthrough improvements in clinical quality and patient experience.  The drivers of IHA’s initiative are common measures, public reporting and payment from health plans.  The use of standard measures creates economies of scale for data collection and enables a common platform for statewide public performance reporting (a full description of this program is attached to my testimony).

The common metrics that are the basis of the IHA initiative are:

Clinical Quality (50% weighting)

• 10 HEDIS-based measures for preventive care (cancer screening and childhood immunizations) and chronic disease care (for asthma, diabetes and cholesterol management) reported with administrative data

Patient Experience (30% weighting)

• measures that reflect overall ratings of care, access, specialty care, and communication between physician and patient, collected through common statewide CAHPS-like survey

Investment and Adoption of IT (20% weighting)

• Measuring extent of data integration (e.g., combining pharmacy and inpatient data) and clinical decision support at the point of care, with capacity collected through web-based survey plus audit

The seven health plans (Aetna, Blue Cross of California, Blue Shield of California, CIGNA, Health Net, PacifiCare, Western Health Advantage) and over 200 physician groups participate in this initiative, encompassing 7 million HMO enrollees and 25,000 physicians.  In 2004, more than $100 million in bonus payments were made to participating medical groups, with half of the pay-out, $50 million, based on common quality measures established by IHA.  There is every indication that the 2005 payout will be even larger.

A range of stakeholders – including health plans, physician groups, purchasers and consumers – selected the measures.  In an effort to minimize burden on the participating physician groups, the clinical measures are all based on administrative data and the patient experience survey on a statewide standard.  PBGH, together with the National Committee for Quality Assurance (NCQA), and the California HealthCare Foundation, have spearheaded the development of measures for this program.  Many physician groups report these bonus payments as key drivers in making more rapid investments in information technologies.  We are also seeing marked improvement in performance areas that we can track over time – such as for patients’ reported experience of care. 

The program also gives credit for physician groups’ efforts to measure individual physician performance on clinical effectiveness and patient experience, provide regular feedback to those physicians and offer rewards based on performance.  Many of California’s physician groups are taking this next step of measuring and rewarding individual doctors.  One demonstration of the growing interest can be seen in the participation of 18 physician groups in physician-level patient experience surveying which is sponsored by PBGH and which seeks to align individual physician survey efforts with those at the group and health plan level. 

In addition to the common metrics being the basis of payments, the IHA initiative has helped provide a common picture of physician group performance for consumers, thereby providing a consistent picture of medical group performance.  This information is now being used by the State of California’s Office of Patient Advocate and PBGH’s HealthScope consumer websites, as well as by the participating health plans.  In addition, it is being used by health plans such as PacifiCare and Health Net to inform their design of higher value networks that deliver both higher quality care and relative premium savings.

Building on Lessons Learned

These three initiatives provide concrete examples of programs that share the common goal of encouraging improvements in quality and cost-efficiency by linking payments to better performance, and by engaging consumers.  In each case, the sponsors recognized that they needed to constructively engage both providers and consumers.  In addition, they all recognize that the measures each is using are a work in progress.  As a nation, we need to move to a standard set of performance measures for physicians and hospitals as rapidly as possible.  The Consumer-Purchaser Disclosure Project, a coalition of employers, labor, and consumer groups, has endorsed a set of guidelines to encourage alignment of the many efforts in effect today.  We need to also avoid having a Tower of Babel of conflicting measures by:

• Getting a full set of physician and hospital measures endorsed by the National Quality Forum (“NQF”), and through that process we are assured of their validity, reliability and transparency. 
• Assuring that measures are not “black boxes” – those conducting measurement and reward programs should be fully transparent and those being measured must have an active role in shaping the measures and understanding their component parts.

In the case of physicians, within the next two years there should be an NQF-endorsed standard ambulatory patient-experience survey.  On the technical quality of care front, while there are proven measures that use administrative data – none have yet been subject to the National Quality Forum’s endorsement process.  The NQF, however, is embarking on an Ambulatory Care measurement process,  This process should result in a “starter set” of measures, but will need to be rapidly expanded to reach the full array of specialists through increasingly expanded administrative data reporting. 

We need to have a similarly rapid review and NQF-endorsement process for cost-efficiency measures.  As detailed in a recent multi-stakeholder effort describing working standards for measuring provider cost-efficiency, sponsored by the Leapfrog Group and Bridges to Excellence, we need cost-efficiency measures that are feasible to implement by health plans and CMS, credible and reliable for consumers and fair, equitable and actionable for providers.  The need for efficient and timely data collection necessitates use of administrative data for reporting.  In doing so, however, a number of key factors need to be considered, including:

• Using existing administrative data, but building on that data to include pharmacy and laboratory results data where it is not already present – these are key additions in the case of Medicare, and were recently recommended by MedPAC;
• Assuring that for physician measurement there are enough patient encounters combined to make reliable reports and enough physicians to make valid comparisons;
• Applying appropriate attribution rules for when to assign the cost of services to a particular physician and/or physician group;
• Determining the best balance between reporting physician performance via a few aggregate performance measures versus a complement of narrow performance measures;
• Applying appropriate case-mix and severity adjustment to account for different populations seen by physicians, and
• Assuring interoperability in health IT and data exchange systems to foster efficient data access and aggregation.

These challenges have been and are being addressed in the dozens of programs that are up and running around the country.  Our challenge as a nation is to make sure they are addressed consistently, fairly and soon to create truly national standards.  Though there will always be ongoing opportunities to improve the precision and validity of provider performance measures, there is clear consensus among consumer organizations, purchasers and many providers that current measures are sufficient starting point and the time for universal performance transparency is now.

Medicare – The Opportunity and Necessity to Lead

CMS has increasingly embraced performance measurement and rewards through demonstration projects.  And we applaud CMS Administrator Mark McClellan’s leadership in this area.  We strongly support the recent recommendations of MedPAC that CMS go beyond demonstrations to phase in an increasing percentage of performance-based payments for hospitals, physicians and home health care.  Though it remains unknown what level of performance-based payment will best accelerate our crossing the quality chasm, many researchers have observed that the small percentages tested to-date are woefully inadequate.  We need to move to making performance-based payment a substantial portion of our payments to physicians and hospitals – likely in the range of the 20% currently being paid in the United Kingdom.  The many private sector efforts need the leadership and partnership of Medicare to foster improvements that will ripple through the entire health care system.  In contrast to the 90 programs currently operating across the country, Medicare not only has a national geographic reach, but it has the service density in virtually every community to provide a robust picture of the performance of most providers.

The programs I have described reinforce the rationale behind the MedPAC proposal to start with rewarding information technology capacity and then phase in performance rewards for quality, patient-experience and cost-efficiency as measures for these areas are endorsed by NQF.  In addition to the MedPAC recommendations to phase in performance rewards for all providers in Medicare, we also need to move in parallel to phase in transparency in reporting to allow consumers and the private market to use the information to make better choices.  Medicare itself should build on its important efforts at public quality reporting in the hospital and nursing home arenas to show publicly the relative performance of physicians and add measures of cost-efficiency. 

Beyond its own use, CMS should make routinely available to the private sector, the  patient identity-encrypted version of the full Medicare claims data base, so private health plans can more precisely measure hospital and physician performance over longitudinal periods of illness (which most private sector plans do not have sufficient data with which to do on their own with precision). 

Medicare must reward better performance and provide consumers with tools to make better choices.  While these steps should be taken with all due deliberation and consideration for the complexities – we need to keep in the forefront of our minds that employers, consumers and taxpayers are being faced with untenable options by a health care system that delivers inconsistent quality at a staggering cost relative to other countries with which our companies and workers compete.  The National Health System in the United Kingdom has embarked on a program to have 20% of family practice payments be performance based.  While I believe that we should move to a system that has a similar portion of payments based on performance, we need to move in that direction by taking deliberate and considered steps.  Taking deliberate steps, for example, means that physicians and hospitals should see their results before they are publicly released.  But deliberate steps must be taken to increase the portion of payments made to providers that are based on performance and the extent to which this information is shared with the public.  We must move beyond a system that is performance blind. 

Most patients today are not receiving the care we know they should be.  Most providers are paid the same whether they deliver the high quality or low quality care, irrespective of their cost-efficiency.  Wasted spending that buys no incremental health likely exceeds 25% of current spending.  We must change these dynamics – consumers must have the performance measurements and incentives to make the best choices; and providers must be rewarded for doing a better job.  Thank you for the opportunity to be with you today.