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Value-Based Purchasing, Transparency and Transformation

Carolyn M. Clancy, M.D., Director of the Agency for Healthcare Research and Quality (AHRQ)

Keynote Address for the Third Annual Health Information Technology Summit, Washington, DC, September 27, 2006

Thank you for the opportunity to speak with you this morning, at the Third Annual Health Information Technology Summit. It's great to see so many familiar faces, and have the opportunity to meet people from all over the country as we work together to improve the quality, safety, effectiveness, and efficiency of the U.S. health care system.

That's the mission of the Agency for Healthcare Research and Quality [AHRQ], and to achieve these aims, we are indeed fortunate to have the opportunity to collaborate with organizations of the caliber of Bridges to Excellence and the eHealth Initiative and its Foundation.

I don't need to tell you that the work you're doing to improve the quality of health care through incentives and the application of health information technology [IT] puts you at the forefront of what's happening today in health care.

As our Nation addresses the challenges of:

Unsustainable cost increases in health care.
Uneven quality of care.
And unjustifiably high rates of medical errors, the knowledge and experience you bring to the table is helping us find real-world solutions.

The timing couldn't be better for the discussions we're going to have today on the topic of performance-based incentives and how they pertain to the growing infrastructure of health IT. Last month, the President signed an Executive Order that requires Federal agencies to do more about informing beneficiaries about the cost and quality of their health care services, and this announcement has created a great deal of interest around the concept of health care transparency.

As everybody in this room knows so well, transparency is one of the most talked-about initiatives in health care. For years, in the private sector, you've been championing ways to make health care cost and quality information more visible, more accessible, and more understandable to payers and purchasers. And now the biggest payer of all, the Federal Government, has skin in the transparency game.

Between the Department of Health and Human Services [HHS], the Defense Department, the Office of Personnel Management, and the Department of Veterans Affairs, Uncle Sam pays for about 40 percent of the Nation's health care bill. During the next several months, we're going to see a tremendous push to combine the purchasing clout of the Federal Government with the health care buying power of the Top 100 private employees in America—a public-private partnership on a scale we've never seen before to help health care consumers make more informed decisions about health care.

From where I sit, this is a very exciting development. It demonstrates what can happen when powerful ideas like transparency converge with productive collaborations.

Transparency is indeed a powerful idea, but like so many big ideas, it is rapidly becoming a catchphrase, open to as many different interpretations as there are people in this room. Let's not forget what transparency really is—a useful tool for building something we all want: a value-based health care system.

So what does a value-based health care system look like?
How do we build it from the elements we already have in place?
And what can we do to make it work?

[HHS] Secretary Leavitt describes a value-based health care system based on four cornerstones:

Quality standards.
Cost standards.
An interoperable health IT system.
And incentives.

I'd like to talk with you for a moment about each of these cornerstones and where we are in their development. Everything begins with quality and cost standards, because we're never going to get to a value-based health care system until we:

Define what constitutes quality health care.
Design systems to collect quality of care information.
And pull together claims information so we can compare costs between specific doctors and hospitals.

We've been laying the foundation for quality and cost standards for a long time, and we're starting to make some real progress where theory meets reality, at the grassroots level of our health care system.

Last month, I had the opportunity to travel with Secretary Leavitt and visit the sites of the first Ambulatory Care Quality Alliance [AQA] Pilot Projects, which are being sponsored by AHRQ and the Centers for Medicare & Medicaid Services [CMS]. For the first time, through these AQA pilots, we're going to be able to combine public and private data on physician practice.

We're testing the most effective methods to provide consumers with meaningful information they can use to make choices about which providers will best meet their needs. We're testing different ways to pull together and report data on physician performance. And, in addition to measuring the quality of care, we're going to identify providers who deliver efficient care to patients while avoiding unnecessary complications and cost.

The first six sites that I visited with Secretary Leavitt were in San Francisco, CA; Indianapolis, IN; Phoenix, AZ; Madison, WI; Watertown, MA; and St. Paul, MN, and we were very impressed with the initial results we saw.

We're also preparing to significantly ramp up the number of pilot sites, because we know how important this information will be to setting the quality and cost standards we need to define and measure value in health care.

Last year, the AQA endorsed a starter set of 26 standard performance measures that are now being put in physician contracts and implemented around the country. We expect that when completed, the knowledge we develop through the AQA pilots will provide a comprehensive national framework for performance measurement and public reporting.

In addition to the work we're doing on quality and cost standards, there's also progress being made on the third cornerstone of value-based health care: interoperable health IT standards. The American Health Information Community, under the leadership of Secretary Leavitt, is making advances in four key areas to accelerate the use of health IT in:

Consumer empowerment.
Chronic care.
Electronic health records.
And public health bio-surveillance.

HHS has also certified the first round of ambulatory electronic health record products, and announced final regulations needed to support physician adoption of e-prescribing and e-health records technology. Electronic health records, computerized physician order entry, e-prescribing, and other health IT applications have the potential to transform the way health care is delivered in this country, and AHRQ is deeply committed to helping providers adopt health IT in their everyday practice.

When properly used and understood, we're seeing that health IT can help providers make better use of their time and energy. It can streamline mundane tasks such as:

Scheduling.
Billing.
Charting.
And sharing information through complex systems.

Since 2004, no other agency of the Federal Government has invested more money to understand and implement health IT at the provider level than AHRQ. Today, we are backing over 125 projects in 43 States with over $166 million in grant and contract funding. Earlier this year, we released a report prepared by the RAND Corporation that surveyed the best available evidence on how health IT improves quality. The evidence suggests that, indeed, the quality of health care can be significantly improved, but this improvement is primarily seen in large health care systems that develop their own health IT systems and have substantial resources to commit to their health IT efforts.

Nevertheless, the majority of American physicians still practice in small office settings. To help these providers realize the promise of health IT, AHRQ puts a heavy emphasis on helping small practices serving inner city, small town, and rural populations. These providers stand to benefit the most from e-health systems, but they don't have access to the resources large hospitals and provider networks have.

While other entities of the Federal Government are backing public-private initiatives that tackle technical issues such as interoperability and infrastructure, AHRQ is supporting research designed to help individual clinicians. We want to understand how health IT impacts the culture of care, and how doctors, nurses and other providers interface with these powerful new tools to enhance patient care.

Earlier this year, AHRQ launched a new Web site—the National Resource Center on Health Information Technology—which is now available to all providers who want to learn from each other's real-world experiences. Our philosophy behind this Web-based learning resource is simple: to learn as we go. Rather than wait years for report findings, we see the importance of capturing and sharing lessons learned in real time to build a community of health IT users, and accelerate the learning curve through a steadily increasing knowledge base.

Despite the widespread enthusiasm for health IT, and the growing priority it has with the Government and the health care industry, we still have a long way to go in the wiring of the American health care system, which is still much less computerized than other industries. As health care costs continue to increase much faster than other sectors of the economy, and the quality of health care continues to improve at a painfully slow rate, performance improvement strategies from other industries are making their way into the health care arena.

Until just a few years ago, it would be unheard of in health care circles to be talking about things like Six Sigma and the Toyota Production System, but we're opening up to a lot of externally originated concepts, and some of these ideas are gaining traction. But the imported idea that's really raising eyebrows, not to mention excitement and even anxiety in many health circles, has taken its place as the fourth cornerstone of value-based health care—incentive-based performance improvement, or pay for performance.

In health care, pay for performance—often abbreviated as P4P—refers to the strategy of promoting quality improvement by rewarding doctors and hospitals who meet certain performance milestones pegged to health care quality. Performance is sometimes linked to patient outcomes, but it is more commonly defined in terms of processes of care. Examples of these measures might include the percentage of people with diabetes who have been referred for annual retinal examinations, or the percentage of children who have received immunizations appropriate for their age.

It's no secret that pay-for-performance initiatives have been driven by health care purchasers, including the Government, employers, and private insurers. These purchasers want providers to achieve certain quality improvement targets. But instead of telling providers how to meet these targets, purchasers are incentivizing doctors and hospitals to find and use their own solutions for meeting performance-improvement goals.

At the beginning of this decade, only a handful of health care organizations had any experience with pay for performance, and there was almost no evidence, other than anecdotal, to determine if rewards and recognition could drive quality improvement in areas where other initiatives had failed.

But when it comes to pay for performance, there is one area where we have an impressive amount of evidence, and that is the impressive rate of growth we're seeing across the country with incentive-based programs. At last count, there were well over 100 P4P programs in the United States, covering over 53 million Americans. Expectations are that over 85 million Americans will be covered by P4P programs by 2008.

Now more than ever before, clinicians are earning payments and prestige for providing more effective preventive services and treatments, instead of only providing the most health care, and support for incentives continues to build momentum. That's because when it comes to incentives, the Federal Government is starting to practice what the marketplace preaches. All eyes were watching when the Centers for Medicare & Medicaid Services [CMS] teamed up with the Premier Hospital Association to test pay for performance on a large scale.

The first round of results from the CMS/Premier Incentive Demonstration came in last fall, and significant quality improvement was seen in nearly all the participating hospitals. Over 120 hospitals received almost $9 million in extra incentives, the first time Medicare has ever paid performance bonuses.

In 2003, CMS also began working with MedPAC, the Medicare Payment Advisory Commission, on recommendations that link payments to the quality of care provided Medicare beneficiaries. Last year, MedPAC concluded that Medicare is ready to implement pay for performance as a national program, and CMS is moving forward on many of MedPAC's recommendations.

Last week, Medicare was again in the national pay-for-performance spotlight when the Institute of Medicine released its long-awaited study called Rewarding Provider Performance: Aligning Incentives in Medicare. In addition to recommending that CMS phase-in incentive measures over time, the report reinforces transparency by asking large providers and employers to share health care quality information with the Federal Government for the benefit of all health care consumers. The report concluded that incentive measures in the Medicare reimbursement system may likely improve health care quality, but interestingly enough, may not necessarily reduce costs. I also took special interest in the IOM's conclusion that despite the large number of P4P programs taking root across the country "a robust evidence base on the effectiveness of these programs is not yet available."

Given the rapid growth of the pay-for-performance system, and the relative scarcity of evidence, there are many people, especially in the provider community who, to put it mildly, remain skeptical about P4P. Organizations such as the American Medical Association and the American Academy of Family Physicians are concerned that pay-for-performance programs can lead to unintended consequences such as:

Payers influencing medical decisions.
Faulty performance measures.
Too much record keeping.
And too much emphasis on cost cutting.

These are eminently valid concerns.

In order for pay for performance to be accepted by the provider community, we're going to need fair and accurate performance reporting systems, and trust and transparency between payers and providers—all enabled by health information technology and motivated by healthy competition. All physicians, and especially primary care practitioners, need to know how the system works and what they need to do to receive incentive payments.

Now more than ever, everyone needs to be aware of what's happening in the pay-for-performance arena, and that's one of the reasons AHRQ sponsored a special P4P supplement to the February 2006 issue of Medical Care Research and Review. This supplement included findings from five research teams, commentary perspectives from professionals representing employers, policymakers and providers, and other timely material on the role and impact of incentives on health care quality.

In the growing debate about P4P and its potential to improve quality, AHRQ played a key role as fact-finder and neutral source of evidence. In addition to bringing providers up to speed on the implications of P4P, we're also helping purchasers get a better handle on using incentives to drive quality improvement.

In 2004, AHRQ published one of the first comprehensive evidence reviews on strategies to support quality-based purchasing. And, last May, we released a new Decision Guide for Purchasers that helps purchasers frame the P4P discussion with strategic questions like:

When and how should providers be involved in P4P decisions?
Should you use bonuses, withholds, or a combination of financial incentives?
How should bonuses be structured?
How effective are non-cash rewards such as public recognition?
How can we tell if the program is working?
And what unintended consequences should we look for?

When it comes to testing the effectiveness of incentive and reward programs, we've learned that there is no substitute for collaboration. In addition to teaming up with your organization, we've also worked with the Leapfrog Group of employers and purchasers, and the Rewarding Results initiative sponsored by the Robert Wood Johnson Foundation, the Commonwealth Fund, and the California Healthcare Foundation.

At this relatively early stage of P4P's development, collaboration with providers and purchasers is an important role for AHRQ. But as P4P gains momentum, it's also likely that AHRQ will become one of the major participants in writing the rules of the road for P4P.

Today, AHRQ-sponsored research—especially related to our ongoing Consumer Assessment of Health Care Providers and Systems, or CAHPS®, provides essential data to inform quality and cost performance benchmarks.

The Institute of Medicine's P4P report from last year also identifies AHRQ as one of the key organizations that will help determine a common set of performance measures for P4P evaluations.

There is much we still need to know about measuring and reporting on physician practice. Right now, most reporting is done on a piecemeal basis. Physicians treating patients with public and private coverage have their performance measured separately by each group. Furthermore, each group uses different measures, so if you're a consumer or purchaser trying to pick the best providers, using the same criteria, good luck!

Ready or not, the pay-for-performance express is heading down the rails, but nobody knows at this point where the detours are or what the final destination will look like. It's going to be an exciting ride, with a lot of twists and turns, but it also offers, I think, a lot of opportunities to the information technology industry to get on board. And make no mistake about it, pay for performance is not going to get anywhere without health information technology. Health IT will enable the transparent communication and scorekeeping we need to make performance measures and incentives work. But as you help develop these systems, it's going to require a lot more than asking health service researchers for the specs you need to write the code.

And on the flip side, it's also going to mean that people in the health care industry need to stop thinking that there are off-the-shelf programs out there, right now, where all you have to do is hit the F7 key and automatically upload records to a magically effective network. It's going to take some serious collaboration and innovative thinking, especially when you help us find answers to challenging questions like:

How do we develop a shared accountability model that balances the needs of health care purchasers, who are driving the pay for performance model, and the provider community, which is already coping with massive change in their clinical practice and compensation arrangements?
How will we balance the need to make health information machine readable, and do it so we are not just layering on material electronically, but making things actionable? What I mean by this is how do you take guidelines that state "the doctor should consider" and write code for that?
How do we design a health IT system with a P4P dimension that enables multiple physicians caring for a common patient to share information without missing critical data or tripping over each other?

It's no secret that coordination of care, especially for the 20 percent of our population responsible for 80 percent of all health care expenditures is a disaster, and addressing this challenge has to be one of our top priorities.

And while we're talking about sharing patient information among multiple providers, here is one of the thorniest issues of all:

How do we share information over a network with everyone who needs to see it, while protecting the privacy of patients and observing not only the national HIPAA [Health Insurance Portability and Accountability Act] regulations but the patchwork of State and local regulations that govern such transactions?

That's a digital Gordian knot if there ever was one.

And finally, here's another question you're going to be asked repeatedly by the purchaser community:

Can we save enough money by automating and streamlining administrative processes to free up the significant amounts of cash we need to fund pay-for-performance incentives and bonuses?

With questions of this complexity, it's going to be quite a challenge to make incentives a solid cornerstone of value-based health care. The key will be to develop more evidence about how incentives work in the health care marketplace to:

Improve quality.
Share what we learn.
And apply this evidence effectively.

Which brings me to a final thought I would like to share with you this morning. All the discussion we have surrounding transparent quality and cost standards, interoperability, and incentives is timely, and the health IT work that's being done around e-prescribing, e-health records, and e-reporting is truly groundbreaking, but there is another "e" opportunity that we cannot afford to ignore. That "e" stands for evidence, as in evidence-based medicine.

As the wiring of America's health care system continues, we need to find ways to integrate the principles and practice of evidence-based medicine across the full spectrum of care—including:

Clinical decision support systems.
Payment systems.
Care coordination systems.
And patient-provider communication systems.

We need to hard-wire the emerging value-based health care system to make the right thing to do the easy thing to do. That means:

Designing and building a system that can take advantage of the mountains of evidence we have available right now to help doctors and patients make informed decisions about:
- Treatments.
- Medications.
- Risks.
- And costs and benefits.
Designing a system that can deliver accurate, up-to-date information at the point-of-care on the comparative effectiveness of treatments.
Having a system that can deliver critical, time-sensitive information, such as FDA drug warnings, to practitioners everywhere.
Having a system in place that can address issues such as the growing practice of physicians prescribing medication for off-label uses without having much evidence for these off-label treatments. According to an AHRQ-supported study, one in five of all prescriptions are written for non-approved uses, and 75 percent of the time, there is little or no proof that the prescription drug will work.

Of course, we don't have the luxury of building such a system from scratch. The only place where we can do that is on the Gulf Coast in the aftermath of Katrina. We have to build on what we have, but when you look around, the infrastructure we have in place is considerable.

It may be that today, the penetration of clinical health IT systems is only 15 percent. But on the other side of the office, over 90 percent of all health care settings have electronic billing systems, and most medical laboratories and pharmacies have fully computerized operations. As we continue to build up our quality and cost reporting systems, develop interoperable e-health records and systems, and start incentive systems, we will have many opportunities to create hybrid systems and share IT infrastructure.

The situation reminds me of an observation made by George Carlin who says, "Have you ever noticed? Anybody going slower than you is an idiot, and anyone going faster than you is a maniac."

I hope that by working together, we can make progress at a rate that everyone feels comfortable with, as we build a transparent, value-based health care system that delivers high-quality, safe, efficient, and effective health care for all Americans.

Thank you very much for hearing what I have to say, and now I look forward to hearing from you.

Current as of September 2006

Internet Citation:

Value-Based Purchasing, Transparency and Transformation. Keynote Address by Carolyn M. Clancy for the Third Annual Health Information Technology Summit, Washington, DC, September 27, 2006. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/news/sp92706hit.htm