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Volume 51, Number 6
November/December 2006

  • INTERVIEW
    Interview with Danny L. Jones Jr., FACHE, chief executive officer, Independence Regional Health Center and the Medical Center of Independence, Kyle L. Grazier
  • PAY FOR PERFORMANCE
    Unintended Consequences: Getting the Most While Avoiding the Worst, Kaveh Safavi
  • COMPETENCIES
    Leadership, Andrew N. Garman, Peter Butler, and Lauren Brinkmeyer
  • ARTICLES
  • Return on Investment in Pay for Performance: A Diabetes Case Study, Kathleen Curtin, Howard Beckman, George Pankow, Yuliya Milillo, and Robert A. Greene
  • Hospital Governing Boards: A Study of Their Effectiveness in Relation to Organizational Performance, Kathryn J. McDonagh
  • Is Anybody Managing the Store? National Trends in Hospital Performance, John R. Griffith, Jeffrey A. Alexander, and David A. Foster
    View the 2006 Edgar C. Hayhow Award winner:
  • FELLOW PROJECT
    Establishing and Sustaining Healthcare Operations in a Contingency: A Logistical Perspective, Lt. Col. Paul Martin
  • Board Evaluation Instruments for the Fellow Project by Norman Andrews

 

Executive Summary

Return on Investment in Pay for Performance: A Diabetes Case Study, Kathleen Curtin, Howard Beckman, George Pankow, Yuliya Milillo, and Robert A. Greene

With purchasers’ increasing frustration with healthcare costs, more innovative approaches to performance-based reimbursement are in demand. Establishing pay-for-performance programs has become a popular strategy for reorienting payments from rewarding volume to rewarding adherence to preselected quality measures. However, while performance on quality measures has improved, no reports exist about the return on investment (ROI) of pay-for-performance programs.

This article compares the overall costs of implementing and maintaining a pay-for-performance program with the resulting cost trend savings for diabetes care for a health maintenance organization’s (HMO’s) population. The program was a five-year partnership (2000–2004) between a health plan and an independent practice association for the HMO product. It reported performance scores on quality, patient satisfaction, and practitioner efficiency at the individual physician level. Physician performance reporting began in 1999, and paying for that performance began in 2002. The yearly cost of care for diabetes was defined as the amount paid by the plan to providers based on claims presented to the insurer for pharmacy, facility, practitioner, durable medical equipment, and surgical claim expense. ROI was calculated using a rolling two-year trend. Plan savings were measured as the amount paid by the insurer to all providers in all categories compared to expected payments based on the trend.

The cost of the program was $1,150,000 yearly. Savings for diabetes alone in 2003, the first post-intervention year, were $1,894,471. Second-year (2004) savings against the two-year rolling trend were $2,923,761. For 2003, the resulting ROI was 1.6:1, and for 2004, it was 2.5:1. To our knowledge, this article is the first report of a positive ROI for an HMO-based pay-for-performance program, and it begins to answer the question of whether the investment in such programs is worth the effort.

Executive Summary

Hospital Governing Boards: A Study of Their Effectiveness in Relation to Organizational Performance, Kathryn J. McDonagh

This article describes the development and evolution of governing boards and summarizes critical findings from a research study on hospital governing boards. The purpose of the research was to examine factors that measure performance of governing boards and the relationship of governing board effectiveness to the organizational performance of hospitals. Board leaders from 64 nonprofit hospitals across the country were surveyed using the BSAQ tool, which measures board effectiveness in six areas of competency. Board competency scores were compared with a previous group that consists of more than 300 nonprofit boards and that demonstrated significantly higher scores. A factor analysis conducted to compare the six competency factors between study groups revealed a strong single factor in this study.

The factors that measure governing board performance were found to be consolidated into one single factor of collaborative board functioning consistent with emerging governance theory. This may support the concept of the importance of governing boards as collaborative, socially dynamic networks of leaders. The hospital performance was assessed using data from the nationally recognized program, Solucient 100 Top Hospitals.

The results demonstrate that higher performing boards did have better hospital performance in several dimensions, most notably in profitability and lower expenses. Lower expenses were related to higher scores for the BSAQ total score. Hospital profitability was positively correlated with all seven BSAQ scores. A more favorable Solucient ranking was related to hospitals that had a lower BSAQ political score. This was also found in a multiple regression model that predicted a favorable ranking when the BSAQ political score was lower. This may mean that these boards do what needs to be done to maintain excellent performance and do not let politics get in the way of their work. Although governance and its effect on hospital performance is a complex concept to study, this investigation yields findings of interest to leaders in the healthcare field.

Executive Summary

Is Anybody Managing the Store? National Trends in Hospital Performance, John R. Griffith, Jeffrey A. Alexander, and David A. Foster

Nine standardized measures compiled from Medicare data show trends in the safety, quality, financial management, and efficiency for more than 2,500 community hospitals over five years ending in 2003. Although much public attention has been given to hospital performance, along with exhortations to improve, few measures show substantial positive trends, either in variance reduction or overall improvement. The authors conclude that environmental forces are not stimulating improvement and that the overall picture is one of randomness rather than management.