Healthcare: Paying for Value Instead of Volume

In February 2009, Michael Zucker told a group of high-paid surgeons something they did not want to hear: The way they earned a salary was about to change.

Zucker is the chief development officer at Baptist Health System, a five-hospital network in San Antonio. For 37 common surgeries, such as hip replacements and pacemaker implants, it would soon collect bundled Medicare payments. Traditionally, hospitals and doctors had collected separate fees for each step of such procedures; now they would get a lump sum for treating everything related to the patient's condition.

If a hospital delivered care for less than the bundled rate, while hitting certain quality metrics, it would keep the difference as profit. But if costs were high and quality was too low, Baptist would lose money. For the first time in their careers, the doctors' paychecks depended on the quality of the care they provided.

Four surgeons quit in protest.

I'd describe the reception as lukewarm at best, Zucker says. There was a lot of: ‘How could you do this?' and ‘I'm not going to participate.'

The program launched in June 2009 with a checklist of quality metrics. To earn a bonus, surgeons would, among other things, need to ensure that antibiotics were administered an hour before surgery and halted 24 hours after, reducing the chances of costly complications.

Only three doctors hit the metrics that first month, but their bonuses caught the attention of others. There was a lot of, ‘Why are those doctors getting more, and I'm not? Zucker says. Eight doctors got bonus payments in July; two dozen got them in August. Compliance with certain quality metrics steadily climbed from 89% to 98% in three months.

Two-and-a-half years later, Baptists' surgeons have earned more than $950,000 in bonuses. Medicare, meanwhile, has netted savings: Its bundled rate is about 5% lower than all the fees it used to pay out for the same services. It wasn't a home-run, says Zucker, noting the start-up costs in administering the program — not to mention a handful of lost employees. But I'd call it a solid triple.

For much more, see Health Reform at 2: Why American Health Care Will Never Be the Same by Sarah Kliff, March 23, 2012 at Wonkblog.