Tuesday, June 2, 2009

A Balanced-Scorecard Approach to Health Reform

scorecard Value-Based Purchasing (VBP) is one of the major proposed tenets of health reform and even though it makes intuitive sense (who can argue with paying more to a provider who demonstrates that they do a better job), it will probably end up as just another overly prescriptive government solution. For example, for Medicare’s FY2010 payment update, hospitals will need to report 42 performance measures in order to receive full payment.

Maybe we should shift our Program to move providers away from volume and toward quality by shifting the Program itself away from volume and toward quality. [That gave me a headache but you get the point] Maybe a better approach is to set expectations using a balanced scorecard approach just like the GAO and OMB recommend for government operations. From wikipedia:

The Balanced Scorecard (BSC) is a performance management tool for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.

By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.

Organizations were encouraged to measure, in addition to financial outputs, those factors which influenced the financial outputs. For example, process performance, market share / penetration, long term learning and skills development, and so on.

The underlying rationale is that organizations cannot directly influence financial outcomes, as these are "lag" measures, and that the use of financial measures alone to inform the strategic control of the firm is unwise. Organizations should instead also measure those areas where direct management intervention is possible.

Think about it this way. Many people who work in a corporate environment have about 30% of their pay tied to tiered performance bonuses. And although Wall Street firms misused bonuses to focus on short-term gains, their use as a tool to encourage long-term growth is still solid. These tiered bonuses are often structured as such: one-third for their company’s performance (tier 1), one-third for their division’s performance (tier 2), and one-third for their personal performance (tier 3). The interesting thing about the tiered approach is that is builds a sense of community where one division is rooting for their peers and helping them reach their shared goals. Why can't health care do the same thing?

Current VBP efforts really only focus on tier three and a few tier two objectives: process and intermediate outcomes. This makes it easier to implement but less effective at achieving real change that makes a difference in patient outcomes and our country's finances.
From my post last week, I mused:

For example, Medicare makes various adjustments to hospital and other provider payments that account for local cost differentials. These differentials largely support a continuation of the wide variation that exists today in costs and their inverse relationship to quality (see excellent New Yorker article by Atul Gawande). But imagine what a difference it would make if Medicare watered-down these local cost differentials over time and phased-in local health improvement differentials. That means all Medicare payments to a hospital would be partly tied to their ability to improve the health of their local community. Now we're talking real change and alignment of incentives.

The more I think it about the more I like some variation of this approach. Let's call it Community-Based Purchasing (CBP). [Even though CBP would add one more acronym to the mix, it would definitely be better than the Medicare’s horrid RHQDAPU]

Just like in a balanced scorecard, CBP would fill the first tier of the bonus structure. Then a small set of summary measures covering the normal domains (financial, internal process, customer focus, and training and education) could be applied to individual providers in tier 2). And so forth and so on as the measures cascade down the chain.


[Graphic above is courtesy of the Balanced Scorecard Institute and their helpful presentation can be found at this link]

What would this do? Well, first of all it help would align incentives and build necessary relationships between providers. It would also balance the “art” and “science” of improvement efforts. The Federal Government could assume its role setting expectations with a small set of global measures and provider-based measures, and leave these providers and their local collaboratives to figure out the best way to achieve those expectations. It would also assist with CBO scoring of reform efforts as Tier 1 measures that focus on public health are available in actuarial tables (e.g. incidence of smoking, access to care, mortality and morbidity, etc.).

In summary, we have often heard that our reform efforts need to result in a system that is uniquely American and in that regard, why not build a uniquely American solution using uniquely American tools – like the balanced scorecard. ~BAA