J. Thomas Badgett, Ph.D., M.D.
Associate Professor of Pediatrics
University of Louisville School of Medicine
Judith Dempster, D.N.Sc., R.N.C., F.N.P.
President, American Academy of Nurse Practitioners
Elizabeth A. Garrett, M.D., M.S.P.H.
Associate Clinical Professor
Department of Family and Community Medicine
University of Missouri-Columbia
Catherine L. Gilliss, D.N.Sc., R.N., C., F.A.A.N.
Associate Professor, Department of Family Health Care Nursing
University of California, San Francisco
Gary L. Oxman, M.D., M.P.H.
Health Officer, Multnomah County Health Department
Portland, Oregon
Deborah Parham, Ph.D., R.N.
Division of Special Populations
Bureau of Primary Health Care
Robert M. Pestronk, M.P.H.
Health Officer, Genesee County Health Department
Flint, Michigan
Jose Toro-Alfonso, Ph.D.
Executive Director
AIDS Foundation
San Juan, Puerto Rico
In many groups, when people have a problem to solve, they sit around a table and share stories to create a collective vision and build community.
I want to tell you a story.
The year is 2016 and the United States is a remarkably healthier place. One example of our healthier nation is that nearly all children are fully immunized before the age of two.
Noticing the improvements, the New York Times asks its reporter to write a series of articles analyzing the changes. “We’re all aware,” the story editor tells her reporter, “that in 1993 health care was out of control. A trillion dollars spent and not all that much to be proud of: 37 million people worried about whether they can receive health care if they got sick, little attention to primary care, concern about the appropriateness and quality of care even when people have access to it. What’s happened since then?”
As the reporter begins her research, she discovers that the Clinton Administration was in office in 1993. She learns that you, Donna Shalala, were the Secretary of Health and Human Services. She requests an interview with you. During the interview the reporter asks for your insight into the profound changes in the health of our nation’s people.
You remember how it all began. It was on June 22, 1993 when the Public Health Service Primary Care Policy Fellows first proposed the term: managed outcomes. Managed outcomes was a strategy that coupled the extraordinary financial resources being spent on health services with outcomes. Managed outcomes set free what was best about the American people: their creativity, sense of social equity and their ability to be adaptive. Managed outcomes made clear what the nation wanted to purchase with its 1 trillion dollars.
“As an example,” you continued, “My department specified in its contracts with health alliances that in order to be paid, all children had to be fully immunized by the age of two. The alliances, recognizing that they were at financial risk, put the same terms in their contracts with health care delivery systems. And the delivery systems told their practitioners that reimbursement was dependent on completely immunized children.”
“Money was a powerful incentive!”
“We began with outcomes from a remarkable book called Healthy People 2000. Over time, we developed outcomes related not only to clinical care, like immunizations, but to mental health, dental health and environmental health and to areas of patient, community and practitioner satisfaction.”
“We learned quickly that micromanagement was unnecessary. The systems themselves arrived at the most productive and effective workforce to achieve the outcomes required. They realized the necessity of involving community residents in systems design because so many of the health problems were not ones which could be solved by clinical systems alone.”
“Information systems were developed to record, analyze and disseminate best practices. University researchers became more closely linked with practitioners and communities as answers were sought for new problems.”
“Primary care was heavily valued. Once health alliances, delivery systems and practitioners were at financial risk for the outcomes, they all quickly discovered that primary care systems produced good health outcomes at a reasonable cost.”
“We retooled our public health systems to assess the needs of our local, state and national communities, to develop relevant policy at all levels and to assure that services were delivered.”
“Something happened in 1992 that helped me make sense of managed outcomes”, you told the reporter. “It involved immunizations.”
“There was an outbreak of measles in Milwaukee, Wisconsin. When the public health team examined the reasons for the outbreak it became clear that a large number of children whose families belonged to organized health care delivery systems were among those with poor rates of immunization and therefore were among those at the highest risk of infection.”
“The health care delivery system back in 1992 was based on a package of benefits to which members were theoretically eligible. But without managed outcomes as part of our strategy, there were no specific expectations for these organized health care delivery systems, no financial incentive to achieve specific outcomes, no public health system in place to monitor the outcomes actually achieved. Practitioners were well-meaning and extensively trained but they were without specific direction and not held accountable.”
“I guess to sum it all up”, you concluded, “Managed outcomes was the glue which held together all the former seemingly separate issues of primary care, workforce composition, infrastructure and community empowerment. Managed outcomes was a cornerstone for health care reform.”
“It reoriented our purchasing decisions and established incentives to produce specific outcomes.”
“It promoted flexibility and sensitivity to the unique local resources of communities and people.”
“It oriented systems of care to do the right thing because their economic survival and prosperity depend upon it.”
“It promoted best practices at all levels of the system because of the competitive advantage which they generated.”
“It provided a new charge and mission for our public health system, building on its past history of success.”
“Those Primary Care Policy Fellows saw through to the core of the problem that day. I wonder where they all are now?”
“The Fellowship was money well spent.”
“Managed outcomes”, you told the reporter, “It’s been a long time since I’ve thought about managed outcomes.”
“I have a copy of the presentation they gave that day and the longer paper they wrote. Would you like a copy for background on the story?”
MANAGED OUTCOMES: a paradigm shift to improve our nation’s health
Jose Toro-Alfonso, J. Thomas Badgett, Judith S. Dempster, Elizabeth Garrett, Catherine L. Gilliss, Gary L. Oxman, Deborah Parham, Robert M. Pestronk
June 23, 1993 (Version 5)
Abstract: Current proposals for health care reform reflect an old paradigm which has lead to high cost, uneven quality, less than universal coverage, undue emphasis on a medical/clinical model and scant attention to primary care and prevention.
A new paradigm is introduced which reverses present trends and incentives, a strategy called “managed outcomes.” The strategy is not specific to any particular delivery system design. It encourages local experimentation and local flexibility in the design of organized delivery systems. Managed outcomes links purchasing decisions to specific goals established by the Federal Government and communities. It rewards those who are successful and provides prospective criteria by which to judge success.
Examples are shared here to illustrate the strategy in the context of managed competition.
BACKGROUND/OVERVIEW
America’s health care system has been characterized by Entoven as “a paradox of excess and deprivation.” Roughly 40 million Americans have no health insurance. These citizens are at risk of both impaired access to needed health services, and financial disaster in the event of a serious illness. At the same time, the U.S. spends more than any other nation on health care, with little hope of abating increases in this spending. Finally, there are serious concerns about the effectiveness and quality of many of the health care services that our citizens receive.
Much of the health care reform discussion has appropriately focused on controlling cost and improving access. Effectiveness and quality have been considered, but typically as the logical consequences of improved access or controlled costs.
Our working group advocates reframing the discussion on health reform. If we are to successfully address the long-term economic issues underlying the cost and access problems, we have to ask a critical question: What are we trying to purchase with our health care dollars? We think that this question demands that we consider health outcomes as the central issue.
To do this, we introduce the strategy of “managed outcomes.” Briefly, managed outcomes establishes a system of health care in which financial incentives are coupled with organized delivery systems to achieve measurable improvements in the health of the community and its members.
We propose a shift in the nation’s current approach to health care to one which considers health along with illness, utilizes prospectively defined goals rather than just patient and provider demands and preferences, and uses a financing and regulatory structure to profoundly influence the structure, functioning, and culture of our medical care system. We believe this new approach can be introduced incrementally and will, over time, produce answers to many of the problems of our current health care system.
How would the strategy of managed outcomes work in a reformed health care system?
Consider a system in which payors such as the federal government establish contractual relationships with entities called health alliances, which, in turn, contract with organized delivery systems to provide care. Envision contract language that requires the health alliance, in concert with its contracting providers, to achieve specific health outcomes within the population it serves. A few examples include:
Finally, imagine a system of financial incentives in the relationships between payors, the health alliances, and their contracting providers - incentives aimed at achieving specified health outcomes.
Managed outcomes anticipates a change in the role of the Federal Government and other payors in purchasing health services. In present models, the role of the payor is to purchase a package of benefits. A benefit package represents only the availability of certain services to be used as deemed appropriate by patient and provider. Under our proposed system, payors would more directly purchase improved health for those covered by the plan (the “service population”). Government and other payors would not only make services available, but would also give direction on how the services were to be used, and what they were expected to accomplish. Whether health outcomes are specified in terms of process indicators or measurable changes in health status, the outcomes purchased clearly and effectively express the goal of improving the health and well-being of the service population.
We envision a process that provides for strong consumer influence in defining service population specific health outcome goals and processes. To be successful, the process would include baseline health status data collection and ongoing reassessment.
The managed outcomes approach could support and promote development of primary care in two important ways. First, many of our nation’s personal health care objectives, as embodied in Healthy People 2000, are primary care oriented. Assuming that we continue to emphasize these types of objectives, we can anticipate a natural fit between our goals and primary care as a way of meeting them. Most screening and personal preventive services, as well as the diagnosis and management of common acute and chronic conditions are most appropriately performed by primary care providers.
Second, the use of selected general and specific outcome objectives would promote development of cost-effective care models. Cross-national research suggests that primary care oriented delivery systems have superior performance in achieving good health outcomes at a reasonable cost. Thus managed outcomes, with its financial incentives and emphasis on achievement of specified goals, creates an environment favorable to the evolution of successful primary care delivery systems.
SPECIFIC PROPOSAL
Managed outcomes reflects a set of structured relationships between the Federal Government as ultimate system organizer and purchaser, health alliances as intermediate purchasers and organizers, organized delivery systems as providers of care, and the community as participant in goal-setting and as ultimate beneficiary.
A prerequisite for managed outcomes to be successful is the existence of organized delivery systems to provide necessary health care services. These systems will share three key characteristics. First, each patient must have a relationship with an identifiable clinical provider. Managed outcomes is “provider model-neutral” in that the organized care system could be a clinic, health center, HMO, individual health care provider or other model. Second, the identified provider must be responsible for providing and coordinating the patient’s comprehensive care. Third, in contracting to provide services, the provider would accept responsibility for achieving contractually-specified health status improvements within the population it serves.
The relationships among the parties in managed outcomes is based on principles of shared accountability, and increasing specificity as resources and directions flow from payors to care providers to the people they serve.
Under managed outcomes, the Federal Government would have five essential roles. First, it would structure the system through laws and regulations. Second, it would specify and prioritize those outcomes to be achieved through the health care system. Third, it would collect and disburse financial resources for the system. Fourth, it would promote coordination of personal and population-based (i.e., public health) services by integrating centralized planning for both types of services. Finally, the Federal Government would evaluate the health alliances’ and providers’ success in achieving specified goals.
The health alliance would have a set of responsibilities parallel to those of government, but restricted in scope to the service population for which it is responsible. The alliance would be responsible for further structuring the health care system in its service area. This would be done through a series of contracts with local organized systems of care and through well-defined relationships with parties representing the interests of the service population. These would include relevant state and local public health agencies and consumer advisory boards. The alliance would disburse funds to contracting care providers. Finally, the alliance would have ultimate authority to terminate or renew contracts with providers based upon their success in achieving specified outcomes.
The primary functions of the organized delivery systems would be to provide necessary health care services and to ensure that the service population realizes the improvements in health status defined by specific objectives. Another important function would be participation in local planning to develop specific local health goals consistent with Federal priorities, but reflective of the unique needs of the service population, and the sensitivities of the local community.
In the managed outcomes system, appropriate financial incentives are critical to achieving the specified health outcomes. The health services literature strongly suggests that various types of providers to respond to financial incentives. For example, HMO’s have been able to achieve substantial reductions in hospital utilization and overall cost because of the incentives inherent in capitated care. A similar, but less desirable response is seen in fee-for-service providers who have been shown to increase the amount of care they provide in response to the opportunity to increase their income. In either case, it can be argued that financial well-being has acted as a powerful stimulus to change provider behavior.
We propose that both the health alliances and their contracting organized systems of care be placed at financial risk to motivate achieving specified health outcomes. Contracts between the payor and the health alliance would clearly specify that the health alliances would be at financial risk for achieving specified health outcomes. If the outcomes were not achieved within a predetermined period of time, the alliance would forfeit its right to a defined amount of revenue. Similar features would be incorporated into the agreements between the health alliances and their contracting providers. A variety of arrangements could be used to implement this financial risk, including risk pools, penalty payments, and, in extreme cases, disqualification from future participation as a health alliance or care provider.
It is conceivable that the members of the service population might assume some type of positive or negative consequence in relation to the personal decisions they make which influence their own health status. For instance, incentives might be offered for weight loss or smoking cessation. There could also be co-payments or deductibles, or taxes on certain purchases of products or services.
Finally, we envision a more vital role for the consumers and public health agencies in identifying health problems and shaping services than in our current system. This will occur at three levels. At the highest level, the Federal Government will specify outcomes to be achieved. Health status indicators, preventive services utilization, and consumer satisfaction are examples of the outcomes that could be specified (see attached example). We believe that all outcomes chosen should be achievable. For conditions with strong scientific underpinnings, the goals chosen by the Federal Government could be highly specific (e.g., achieving a 90% immunization rate among two-year old children). Conversely, for important health problems that are less clear-cut, and that vary in prevalence and treatment approach between communities, Federal goals could be specified in a more general way. (This would to promote greater local involvement In both problem definition and problem solving).
At the level of the health alliance, outcomes consistent with Federal specifications and priorities will be refined as necessary, and shaped to the characteristics of the community, as well as the specific needs of the population served through the health alliances. This process would involve representation of consumers, providers, and relevant state and local public health agencies. The process at this level would set specific goals for the overall population served through the alliance. It would also identify differences in need among subpopulations, and set the stage for potential providers to plan how to serve the defined population.
At the lowest level, goal setting would involve contracting organized systems of care, local consumer boards, and local public health agencies. The Federal Government would retain ultimate sign-off authority for all goals.
An advisory council of persons served by the delivery system will participate with representatives of the provider and payor communities to prioritize the established federal outcome areas and plan approaches to the delivery of needed care in ways deemed to be culturally and clinically appropriate. This same group will evaluate the extent to which outcomes have been achieved.
SUMMARY
What benefits could be expected if the strategy of managed outcomes is incorporated in the new health care system?
First, we would reorient our purchasing decisions throughout the system. We would establish incentives to produce specific outcomes rather than poorly directed packages of services. From communities up through national levels, we would state specifically what we wished our health care expenditures to purchase.
Second, we would promote flexibility in a system which must be sensitive to the unique circumstances and resources of local communities. All health care is inherently local. Systems of care must be given the opportunity to design processes and structures and for care which take into account the constellation of the unique needs and resources of the local community.
Third, powerful financial incentives are used to achieve specific outcomes. Systems of care would be oriented to “do the right thing” not only because it is a good idea or because it is the humane thing to do. Producing targeted outcomes would be essential to the economic survival and prosperity of health care systems.
Fourth, there would be a more effective integration of personal and public health services. This would result in greater complimentary of services and more efficient use of resources at all levels.
Finally, the system would promote best practices. Best practices will be used by systems of care to their competitive advantage as they seek a larger share of the market. Those services which are clearly effective at achieving outcomes will be valued and publicized. Those services which are clearly ineffective will be discontinued because they waste money and place the system of care and its constituent providers and organizations at financial risk. Those services whose value is unknown or untested will define essential areas of research and demonstration.