Aligning physician and hospital incentives: the approach at hospital for special surgery.

Healthcare administrators and physicians alike are navigating an increasingly complex and highly regulated healthcare environment. Unlike in the past, institutions now require strong collaboration among physician and administrative leaders. As providers and managers are trained and work differently, new methods are needed to provide the infrastructure and resources necessary to create, nurture, and sustain alignment between them. We describe four initiatives by administrators and physicians at Hospital for Special Surgery to work together in mutually beneficial relationships that help us achieve the highest level of patient care, satisfaction and safety. These initiatives include improving management efficiency through an orthopaedic service line structure, helping individual physicians grow their practices through the demand-office-operating room initiative of the Physicians Service Department, controlling costs through the supply effectiveness policy, and promoting teamwork in innovation through the technology transfer program.

Aligning incentives in orthopaedics: opportunities and challenges -- the Case Medical Center experience.

For 30 years, the orthopaedic faculty at Case Western Reserve University worked as an independent private corporation within University Hospitals Case Medical Center (Hospital). However, by 2002, it became progressively obvious to our orthopaedic practice that we needed to modify our business model to better manage the healthcare regulatory changes and decreased reimbursement if we were to continue to attract and retain the best and brightest orthopaedic surgeons to our practice. In 2002, our surgeons created a new entity wholly owned by the parent corporation at the Hospital. As part of this transaction, the parties negotiated a balanced employment model designed to fully integrate the orthopaedic surgeons into the integrated delivery system that included the Hospital. This new faculty practice plan adopted a RVU-based compensation model for the physicians, with components that created incentives both for clinical practice and for academic and administrative service contributions. Over the past 5 years, aligning incentives with the Hospital has substantially increased the clinical productivity of the surgeons and has also benefited the Hospital and our patients. Furthermore, aligned incentives between surgeons and hospitals could be of substantial financial benefit to both, as Medicare moves forward with its bundled project initiative.

Economic incentives to promote innovation in healthcare delivery.

Economics influences how medical care is delivered, organized, and progresses. Fee-for-service payment encourages delivery of services. Fee-for-individual-service, however, offers no incentives for clinicians to efficiently organize the care their patients need. Global capitation provides such incentives; it works well in highly integrated practices but not for independent practitioners. The failures of utilization management in the 1990s demonstrated the need for a third alternative to better align incentives, such as bundling payment for an episode of care. Building on Medicare's approach to hospital payment, one can define expanded diagnosis-related groups that include all hospital, physician, and other costs during the stay and appropriate preadmission and postdischarge periods. Physicians and hospitals voluntarily forming a new entity (a care delivery team) would receive such bundled payments along with complete flexibility in allocating the funds. Modifications to gainsharing and antikickback rules, as well as reforms to malpractice liability laws, will facilitate the functioning of the care delivery teams. The implicit financial incentives encourage efficient care for the patient; the episode focus will facilitate measuring patient outcomes. Payment can be based on the resources used by those care delivery teams achieving superior outcomes, thereby fostering innovation improving outcomes and reducing waste.

Gain sharing: a good concept getting a bad name?

The introduction of diagnosis-related groups (DRGs) created a clear misalignment between the incentives facing hospitals and those facing physicians. The interest in gain sharing that developed in the 1990s represented an attempt by physicians to extract and hospitals to offer some of the savings being produced by physicians. Advisory bulletins by the Office of Inspector General (Department of Health and Human Services) quickly put a stop to further interest in these strategies. Newer, narrowly defined types of gain sharing have been under consideration. More broadly defined strategies that will be tested under a new Centers for Medicare and Medicaid Services demonstration are more promising.

Complying with physician gain-sharing restrictions.

Many IDSs are considering implementing gain-sharing programs as a way to motivate their physicians to provide high-quality, cost-effective services. Before embarking on such programs, however, IDSs need to understand the legal requirements associated with such programs to ensure that the gain-sharing arrangement is in compliance with Federal law.