An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Blue Cross and Blue Shield of Michigan Hospital Incentive Program


Two published papers have examined the impact of the BCBS of Michigan Hospital Incentive Program. This program was initiated in 2000 and fully implemented in 2001 between BCBS of Michigan and the 86 hospitals statewide with which it contracts. Under the incentive program:

  1. Hospitals could earn up to a 2 percent bonus of the hospital’s heart-related DRG payments by exceeding the median performance of all participating hospitals on several process of care measures related to the care of patients with AMI and Congestive Heart Failure (CHF). 
  2. Hospitals could earn incentives through participation in patient safety initiatives and community health improvement projects. 

As of this review, no results have been published describing changes in quality metrics in response to this program. The three evaluation studies that have been published examine the cost-effectiveness of the program (Nahra et al., 2006), results of qualitative interviews with leadership at 10 participating hospitals (Sautter et al., 2007) and the results of a survey of organizational changes that participating hospitals reported making in response to the P4P program (Reiter, Nahra, and Wheeler, 2006).

Nahra et al., 2006: This study estimated the cost-effectiveness of the Michigan BCBS Hospital Incentive Program from the sponsor of the health plan program’s perspective. In estimating the costs, the researchers included incentive amounts paid to hospitals by BCBS and the costs of administering the program. Benefits from the program were estimated by using increases in performance on the process measures to calculate the number of patients receiving improved heart care. These calculations were combined with published clinical trials data to estimate how many quality adjusted life years (QALYs) would be saved from the improved heart care over the 2000–2003 period. The researchers estimated that the clinical quality improvements observed would lead to savings of 733 to 1,701 QALYs. Based on this calculation and the cost of the program to the health plan, the cost per QALY was between $12,967 and $30,081, a range generally considered to be cost-effective (Ubel et al., 2003). This study illustrates that modest quality improvements can lead to substantial gains in QALYs saved. Additional unpublished information obtained from the program evaluator (private communication J Wheeler) indicated hospitals reported incremental costs for participation in the P4P program were on average $36,915 for large teaching hospitals and $28,525 for other hospitals.  Even taking these into account, the program would be considered cost effective.

One limitation of this evaluation is the absence of a control group or trend data from the period prior to intervention to know whether the observed improvements in heart care are attributable to the BCBS Hospital Incentive Program or other secular trends in care for heart disease (such as the CMS RHQDAPU pay-for-reporting program, the Joint Commission quality improvement initiatives, or the CMS 7th Scope of Work quality improvement efforts).

Reiter, Nahra, and Wheeler, 2006: This study reports the results of a survey of the 86 hospitals participating in the BCBS of Michigan Hospital Incentive Program. The survey measured the effect of participating in the program on hospital behavior. The study outcomes were the number of hospitals self-reporting that the incentive program had triggered a structural change or a process change within the hospital. Structural changes included the formalization of a quality management staff position or a change in the person responsible for quality. Process changes included implementation of a computerized physician order entry (CPOE) system or creation of case-management teams. Of the 86 hospitals participating in the program, 66 responded to the survey (70 percent response rate). Of the respondents, 32 (48 percent) reported that they had made a structural change and 39 (59 percent) reported they had made a process change in response to the P4P program. Overall, 75 percent of the responding hospitals reported making at least one type of change as a result of the BCBS Hospital Incentive Program. The most common structural change was involvement of leadership and greater board engagement in quality improvement. The most common process changes were instituting physician education, developing case-management teams, and increasing leverage with hospital physicians. The authors observed that since most of the process changes focused on physician behavior, a hospital’s ability to improve quality might depend on its “willingness or ability to exert influence over physicians.” 

While this study found changes in the behavior of hospitals in response to the P4P program, it does not demonstrate that the changes made by hospitals resulted in clinical quality improvements. Additionally, the combination of the BCBS P4P program and other quality improvement interventions that were occurring simultaneously (e.g., CMS P4R, Joint Commission quality improvement) may have created a tipping point for the hospitals to make the reported behavioral changes. This study does not include a control group, which means there is no way to determine whether hospitals not exposed to the BCBS of Michigan Hospital Incentive Program were making similar changes.

Sautter et al., 2007:  This qualitative study described the findings of semi-structured interviews with senior management and cardiologists at 10 Michigan hospitals participating in the P4P program.  Fifty-four hospitals that participated in the P4P program and reported cardiac care performance to BCBSM 2002-2004 were placed into strata based on their changes in performance on one of the quality measures used in the incentive program, assessment of ventricular function among CHF. Hospitals from each strata were selected for interviews to obtain variation in hospital characteristics, such as size and teaching status. Among the 10 hospitals selected for interview, 7 had improved their performance, 2 were top performers at baseline and remained top performers, and 1 hospital showed declining performance. Only two of the 10 hospitals interviewed reported that the P4P incentives were a driver for quality improvement; eight of the 10 reported their facilities were undertaking these activities anyways or that the incentive was not large enough to be effective. The authors, however, are not sure these responses imply that without financial incentives performance would have improved to the same degree. They note, “incentive rewards clearly enabled some hospitals to make investments in quality.” In explaining the variation in quality improvement, the authors believe “underperforming hospitals with some infrastructures for quality improvement had the greatest success when presented with incentives.” 

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