The Michigan Value Collaborative

Helping Michigan hospitals achieve their best possible patient outcomes at the lowest reasonable cost

Month: June 2016

Pay-for-performance programs and low quality hospitals: lessons learned

Edward Norton

Edward C. Norton, PhD, is an Economist and Professor in the School of Public Health at the University of Michigan.

Pay-for-performance programs aim to reward hospitals that achieve high quality at low cost.  Yet designing the incentives to meet those goals is challenging.

Consider the dilemma that the Centers for Medicare and Medicaid Services (CMS) faced when they added a performance metric for episode payment to a program that previously had included only quality metrics.  Instead of rewarding only hospitals with both high quality and low cost, they gave bonus payments to some hospitals whose low quality was outweighed by low costs.

In short, CMS paid a bonus to some low-quality hospitals after the addition of a spending metric to Medicare’s Hospital Value-Based Purchasing (HVBP) program.  Several MVC Team Members just published a new study showing this unintended consequence.

Here are the main results of that national study.  In fiscal year 2015, CMS expanded its Hospital Value-Based Purchasing program by rewarding or penalizing hospitals for their performance on both spending and quality.  This represented a sharp departure from the program’s original efforts to incentivize hospitals for quality alone. How this change redistributed hospital bonuses and penalties was unknown.  Using data from 2,679 US hospitals that participated in the program in fiscal years 2014 and 2015, we found that the new emphasis on spending rewarded not only low-spending hospitals but some low-quality hospitals as well. Thirty-eight percent of low-spending hospitals received bonuses in fiscal year 2014, compared to 100 percent in fiscal year 2015. However, low-quality hospitals also began to receive bonuses (0 percent in fiscal year 2014 compared to 17 percent in 2015).  All high-quality hospitals received bonuses in both years.

What does this mean for MVC and the BCBSM pay-for-performance program?  The simple answer is that BCBSM only measures episode payments, not other quality measures.  Obviously BCBSM also cares deeply about quality of care, but this P4P program is focused on only one measure, thus avoiding the problem that CMS found.  CMS is now considering a minimum quality threshold to avoid rewarding low-quality, low-spending hospitals.

The MVC team hopes to use its experience studying the national P4P programs to design and improve similar P4P programs in Michigan.


Questions or comments?  We’d love to hear from you.  You can comment on this article, or fill out the contact form at the bottom of the page.

How to win at quality improvement in your hospital

Phyllis Wright-Slaughter

Phyllis is a Senior Data Architect working with the Michigan Value Collaborative.

Health care quality improvement and reducing episode costs for inpatient care are currently the focus of many state and national programs, including the MVC.  The Center for Studying Health System Change (HSC) conducted interviews with hospital executives in Detroit, Memphis, Minneapolis-St. Paul and Seattle.  The focus of these interviews was the hospital’s quality improvement activities and the role of nurses in these activities.  Although the focus was on nurses and nursing teams, the comments and recommendations can be applied to other staff (Physician Champions, Pharmacists, Respiratory Therapists, etc.) who can affect the quality of care provided in a hospital – essentially everyone.

Here are the major points from this paper:

  1. Quality Improvement demands are increasing – true in 2008 when this article was written and even more so now. The roles on nurses and other staff also increase.
  2. Improving hospital quality requires a supportive hospital culture. Strategies that can lead to a supportive culture include:
    • active and supportive hospital leadership
    • active and ongoing staff engagement through setting expectations for staff and holding everyone accountable for individual roles
    • inspiring and using physicians and nurses to champion efforts
    • providing ongoing, visible and useful feedback
  3. It’s important to pinpoint challenges faced by the hospital, and be creative in addressing them. Challenges faced include:
    • Limited resources: engaging all staff and not just department leadership can help
    • Growing demands for data collection, and understanding how to use data to improve patient care
    • Reporting and tracking quality improvement activities
    • Need to improved training and education

With an integrative approach that includes all hospital staff, hospitals can meet the challenges and opportunities of improving quality and episode costs.  MVC is a proud partner of Michigan hospitals and excited to continue to support improvement efforts going on around the state.


 Reference: “The Role of Nurses in Hospital Quality Improvement”, HSC Research Brief No. 3, March 2008 (http://www.hschange.org/CONTENT/972/ )

See also this article in health affairs on the nurses roles  in improving hospital quality and efficiency.


Questions or comments?  We’d love to hear from you!  You can comment on this article, or use the form at the bottom of the page.