Maryland Proceeding Off-Course

Paul Levy

First published 3/21/11 on [Not] Running a Hospital

Maryland, the only state with a hospital rate-setting process, also has an interesting financial incentive program related to quality indicators. It is described here. Some excerpts:

This initiative, which commenced July 1, 2009, links payments to hospital performance on a set of 49 Maryland Hospital Acquired Conditions (MHAC) across all-payers and patients in the State. During fiscal year 2008, these hospital-based preventable complications were present in approximately 53,000 of the State’s total 800,000 inpatient cases and represented approximately $500 million in potentially preventable hospital payments.

The MHAC methodology provides a system of payment incentives based on a hospital’s actual number of complications versus a statewide target rate for each of the 49 MHAC categories. Under this approach, hospitals face strong financial incentives to reduce complication rates. They will also be armed with a sophisticated data analysis tool that will enable them to systematically help achieve this collective goal of reducing complications.

The Washington Post recently (March 19) published a letter to the editor from Robert Murray, the Executive Director of the state’s Health Services Cost Review Commission, which offered more detail:

The [MHAC] method of applying hospital rewards and penalties is based on measuring each hospital’s performance and determining whether the complication rates are lower or higher than, or on par with, expected rates. The expected rates of complications for each hospital are calculated using statewide average rates for the type and severity of illnesses of the patients treated by a given hospital. Therefore, hospitals with more complex patients are not disadvantaged because their expected complication rates would be higher than those hospitals with less complex patients.

The MHAC approach to funding the rewards and imposing penaities is revenue-neutral and does not raise money for the state through fines; for poorer-performing hospitals, a portion of their approved increase in prices for the current year has been withheld and redistributed to the better-performing hospitals based on performance in the previous year.

In this article, you can see some of the objections to this scheme:

The head of the Maryland Hospital Association says the complication list is too broad and that part of a reported drop last year in the overall rate of complications may simply have been hospitals doing better record-keeping. One leading patient safety expert says the Maryland program – and other national efforts – are moving forward despite insufficient evidence to truly measure and verify the types of preventable complications that should be targeted.

“There is so much pressure to drive down cost and improve quality that politics have gotten ahead of the science,” says Dr. Peter Pronovost, a professor at Johns Hopkins University School of Medicine and winner of a MacArthur Foundation “genius grant” for his work on improving hospital safety, often through the use of simple checklists. “There’s a gap between regulators, who say the measures are good enough and clinicians, who say they’re not.”

From this vantage point, I am hard-pressed to see how a “focus” on 49 metrics makes much sense. That is unlikely to stimulate a sensible approach to process improvement. Also, the dollars at stake are de minimis — 0.5% of total inpatient hospital revenue in the state or about $60M — unlikely to act as much of a financial incentive. Dr. Pronovost has it right. Government regulation of this sort is invariably crude and off-point. It would be much better if the medical profession demonstrated that it is capable of self-regulating in a way that persuasively exhibited a commitment to quality and safety and to patient involvement in the design and delivery of care.

Former CEO of a large Boston hospital, Paul Levy is an advocate for patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement. He writes at [Not] Running A Hospital.


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