Effect of Patient Protection and Affordable Care Act on Performance Metrics - Linking Outcomes and Process Measures

This edition of IMA Insights explores some of the effects the Patient Protection and Affordable Care Act (PPACA) will have on hospital performance metrics. The article does so in the context of continuing healthcare reform focusing on the creation of accountable and cost-effective healthcare delivery and the affect those will have on the way hospitals measure and report performance.    

The PPACA is proposed to improve the quality and efficiency of medical care services for all Americans, especially for those enrolled in Medicare and Medicaid. Payment for services will be linked to quality outcomes. The PPACA will make substantial investments to improve the quality and delivery of care, support research to inform consumers about patient outcomes resulting from different approaches to treatment and care delivery, and encourage the creation of new patient care models. Greater emphasis will be placed on hospitals to demonstrate efficacy. Doing so will require that hospitals measure and report on performance metrics important to the many and diverse stakeholders. This requirement, in turn, will require that hospitals identify outcome metrics - ones that are meaningful to their constituents - that tie to internal process metrics that will help drive improved performance. 
Though hospitals were slow to adopt the balanced scorecard concepts introduced in the mid 1990s, many have since instituted performance measurement systems across their organizations. Hospitals continue to face three significant challenges as they struggle to demonstrate performance in an era of increasing public demand and scrutiny and of changing economic and organizational incentives. 

First, many hospitals have failed to align their performance metrics with organizational strategic intent. Performance metrics associated with case management and denials management demonstrate an example of this. A hospital with intent to optimize its revenues may not have a performance metric defining dollars of denials as a percent of net patient services revenues. 

Second, many hospitals have yet to translate macro organizational performance metrics that focus on outcomes achieved into departmental or functional process performance metrics that, upon analysis, enable performance improvement. Again, performance metrics associated with case management and denials management exemplify this. The hospital may have identified dollars of denials as a percent of net patient services revenues as its overarching metric, but has not translated that into meaningful process measures upon which case managers may work to reduce the overall amount of denials. 

Third, many hospitals have yet to domesticate performance metrics and use it to drive improvement. Many have created unwieldy and cumbersome performance reporting systems that present too many metrics, utilize an ill-defined lexicon, and require too many resources to produce. Further, all the measurement results in no improvement.  
Hospitals have hundreds of performance metrics from which to choose. Judiciously selecting those appropriate for the hospital to monitor separates the best practice organizations that use performance metrics to drive improvement from those that monitor too many metrics and improve little. There is movement from federal, state, and private sectors that will tie some reimbursement to providers' performance, shifting to value-based payment and promote coordination of care. Additionally, the Joint Commission is adding some expectations for actual achievement on measures for its accreditation process.

At the organizational level, the hospital needs to monitor the performance metric that provides the most complete reflection of the essential characteristic it wishes to gauge. Further, the hospital needs to avoid measuring duplicative or competing performance metrics. There is an old measurement axiom, "A man with one watch knows what time it is, a man with two watches is never quite sure." Selecting the most appropriate performance metric helps to avoid this dilemma. 

Returning to the example of denials management, the fundamental metric of strategic importance is that portion of net patient services revenue the hospital generates through the provision of needed services for which payment is denied. That organizational performance metric is dollars of denials as a percent of net patient services revenue. All other performance metrics relating to denials are either subsidiary to or represent metrics that contribute to the dollars of denials as a percent of net patient services revenue. 

Of equal importance is expressing the performance metric as a ratio of factors, rather than simply providing a count. For example, one can report on the dollars of denials. While important, this metric alone does not reveal if one is improving performance relative to the growth in net patient services revenue. If a hospital maintains $2 million dollars in denials over a five year period, one cannot say that things have improved. If during that same period net patient services revenue has increased from $100 million to $150 million, denials management has improved. If however, net patient services revenue declined to $75 million, denials management has eroded. Presenting the performance metric as a ratio of critically important factors, in this case denials and revenue, is a prerequisite for success. 

Translating the organizational-level performance metric into departmental or functional metrics is another best practice of hospitals who have demonstrated success. A client experience illustrates the need to accomplish this. A group of finance, revenue cycle, and case management staff met to discuss the hospital's challenges with denials. Considerable discussion ensued. The group debated over the existence of a problem, the magnitude of the problem, and the source of the cause of the problem. One clear insight arose from the discussion - each discipline had its own definition of what denials meant and, based upon the respective definition, each discipline employed its own performance metric to measure it. The disciplines used different language - either calling different things the same name and the same thing different names, and this disconnect prohibited consensus on the problem, its magnitude, and the approach to address it. 

The end result of the group's work was to identify the organizational-level performance metric (dollars of denials as a percent of net patient services revenue) and functional-level performance metrics (e.g., percent of technical denials, percent incomplete registration, percent clinic denials, payer denials as percent of payer net patient service revenue, denied days as a percent of total payer days). With finance staff focused on the overall performance metric, revenue cycle staff could begin to understand and address the causative factors within the technical denials and case management staff could begin to understand and address causative factors within the clinical denials. Supported by subsidiary analyses of the causes, the group was able to identify implementable actions that resulted in real improvement - lower denials as a percent of net patient services revenue.

An additional understanding arose from the multi-disciplinary discussion. The hospital realized more benefits from measures than from counts. The performance metrics expressed as ratios (e.g., percents, rates) revealed more to managers and were more useful than were performance metrics that were simple counts (e.g., numbers of things, occurrences). 

Hospitals will benefit from identifying the vital few performance metrics that are most meaningful, those that really matter. Cascading those vital few measures down to the departmental level will help focus managerial attention and drive improved performance. Creating an organizational lexicon of common words and common understanding will help eliminate confusion and conflict, and help move people in the same direction. 
Increased demand for performance reporting will drive hospitals to become better versed in performance measurement. Creating a hierarchical framework of metrics and language will help hospitals accelerate performance improvement. If you have any comments or questions about this, please call IMA Consulting at 484-840-1984.

Best Regards,

Bob Gift
IMA Consulting