Fundamentals of Human Resource Management 5th Edition by Raymond Noe, John Hollenbeck, Barry Gerhart, Patrick Wright

Exercise 2

Continuum Health Partners Link Pay to Costs, Quality of Care
Continuum Health Partners started in 1997 when three New York hospitals-Beth Israel Medical Center, St. Luke's Hospital, and Roosevelt Hospital-formed a partnership. It has since grown into a larger health network that includes seven health care facilities as well as private-practice offices and ambulatory-care centers. Like other health care organizations, Continuum has seen its costs soar even as insurance companies and government payers have pressured the organization to charge less. In providing health care, however, it is not acceptable to compromise patients' well-being in order to save money.
To resolve this dilemma, Continuum has tried linking pay to performance. It recently participated in research that tested the impact of pay-for-performance on costs and patient outcomes. In the study, the Continuum hospitals set up a gainsharing program for participating physicians. The hospitals undertook a set of cost reduction efforts that included performance standards for dictating medical records in a timely fashion and prescribing certain medications associated with optimal patient outcomes for the eight commonly performed surgical procedures included in the study. The hospital measured its costs before and after the standards went into place. The physicians were paid a share of the savings generated during the study's four years.
Continuum found that the hospital saved about $18 million during the study's time period. At the same time, the rates of complications did not change significantly. In addition, there was no evidence that doctors avoided taking on sicker patients during the study period (which might have benefited them financially).
Gainsharing is an innovation in the health care industry. Doctors are highly trained professionals who have not traditionally appreciated being told standards they must meet. Hospitals are understandably concerned that emphasizing costs may compromise patient quality. Federal law also has made some of these arrangements legally questionable. However, one of the provisions of the Affordable Care Act allowed the use of gainsharing if it does not compromise the quality of care and if it includes mechanisms to prevent waste, fraud, and abuse. Also, physicians' participation in these pay-for-performance programs must be voluntary, and the gainsharing bonuses may not exceed 50% of the amount normally paid to physicians for handling the same number of patients.
These changes come at a challenging time for Continuum. In an effort to drive quality improvement even as it pushes down costs, the government's Centers for Medicare and Medicaid Services is planning to cut the basic rates it pays by 1% unless hospitals "earn back" the higher rates by meeting targets for clinical results and patient satisfaction or by showing major improvement in those measures. The hospital industry expects that the 1% at risk will grow and extend to private payers as frustration with the high cost of health care continues to be a public-policy issue. Serving a densely populated and multicultural community, Continuum and other New York City hospitals have found that they tend to lag the nation in patient satisfaction. So along with its experiment in pay for performance, Continuum has addressed the patient satisfaction piece of the equation by setting up a website where it reports its progress in quality and patient safety, hoping to increase awareness of its commitment to patients' well-being.
What kinds of performance measures would you include in a balanced scorecard for Continuum's top executives? To which measures do you think most of their compensation should be tied?