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http://www.nytimes.com/2002/06/26/business/26CARE.html

Quality Goals in Incentives for Hospitals

By MILT FREUDENHEIM

rodded by big employers and hospitals, one of the nation's largest nonprofit health plans will announce a financial payoff today for hospitals that meet widely accepted standards for high-quality care.

Blue Shield of California is introducing the incentive program after sharp criticism by some of the state's best-known hospitals, which objected to a new system under which Blue Shield and a few other health plans publicized and favored certain hospitals solely on the basis of lower costs.

But quality alone will not put a hospital on the list if its prices are too high. Blue Shield said it would now evaluate hospitals in terms of both quality and cost-effectiveness. The ones that make the cut will cost patients less and thus be likely to attract more patients.

A spokesman for large employers praised the new program. "This is part of the future," said Peter V. Lee, president of the Pacific Business Group on Health, based in San Francisco. "It's the way we are changing how we pay for health care, to include not just the financial bottom line but the quality bottom line."

Under the plan, one million California residents covered by Blue Shield — in groups of 300 or fewer — will typically pay either an additional $200 copayment or 10 percent of the hospital's fee each time they are admitted to a hospital that is not on Blue Shield's preferred list. For hospitals on the list, members will pay their health plan's usual charges.

Blue Shield says 1.6 million more could join the system, if large employers adopt it for 2003.

The state's giant pension plan, the California Public Employees' Retirement System, decided against incorporating the hospital incentives into its Blue Shield health maintenance organizations. A spokesman for the system, widely known as Calpers, said it decided to stay on the sidelines at least for the first year.

Paul Fearer, human resources director at the Union Bank of California, said he had "serious concerns" that payments to hospitals based solely on costs would "send the wrong messages to our employees." Some might think that the preferred hospitals were better, not just cheaper, he said, while others might think that paying more for a hospital would necessarily buy the best care.

Under the latest Blue Shield plan, even some of the more expensive hospitals can qualify if they develop systems that protect patients against medical errors and conduct extensive surveys asking recently discharged patients if they thought that their needs had been adequately met. Researchers have said that certain measures of a patient's experience are associated with better health after they leave the hospital.

The Blue Shield program includes a number of measures for hospitals being pushed by the Leapfrog Group, a collection of large employers including General Motors, General Electric and Boeing that banded together in 1999 to promote higher-quality care.

In a Leapfrog Group experiment in New York, five big employers — I.B.M., PepsiCo, Verizon, Xerox and Empire Blue Cross and Blue Shield — are paying bonuses to 10 hospitals that have, or are installing, computerized systems for doctors to order drugs and tests, and that have physician specialists who supervise patients requiring intensive care. These hospitals are paid up to 4 percent extra when they treat any of the 100,000 employees, retirees and family members from the sponsoring companies.

"The Pacific Business Group on Health urged us to do what we are doing this week," said Bruce Bodaken, president of Blue Shield. His company met with hospital executives to "make sure the measures that we introduced were ones they felt comfortable with," he said.

Blue Shield of California is one of a handful of health plans across the country that are offering members access to hospitals based on levels, or tiers, of payment. The goal is to make clear to patients that some hospitals cost more and to share these costs.

"Hospital costs in Sacramento are two and a half times what they are in Los Angeles," Mr. Bodaken said. He said hospital rates and the number of hospital claims were "the fastest-growing cost" for California health plans.

The University of California Davis Medical Center initially said it would refuse to accept Blue Shield patients when the university found itself on Blue Shield's higher-priced nonpreferred list, which could be seen as a blot on their reputation and might scare some patients away.

Robert Chason, chief executive of the Davis medical center, recalled, "We said you are only looking at cost — you are not looking at quality of care."

Now, he said, "they will begin to take quality into consideration as well as cost," adding, "It's a better way for patients as well as hospitals."

Blue Shield said its preferred list included more than 300 hospitals and is growing.

But Cedars-Sinai Medical Center, a nationally known Los Angeles hospital, has not made the list, presumably because it declined to reduce its fees. Rick Jacobs, a senior vice president at Cedars-Sinai, called the tier approach "wrong-headed," adding, "Our No. 1 concern is that the payments may set up barriers for the patients who need care the most."

A number of organizations across the country are working on systems for measuring and eventually giving consumers a way to pay for quality in hospitals. They include the Niagara Health Quality Coalition in Buffalo and health care coalitions in Florida and Wisconsin.

Mr. Bodaken at Blue Shield of California said his approach was not intended to punish members who follow their doctors to a more expensive hospital. He said people in traditional H.M.O.'s and managed-care networks pay much more if they use out-of-network hospitals than the additional $200 or 10 percent.

Managed care networks maintain that they are paying for the best hospitals and doctors, often without any way of proving it. Now, health plans and employers are seeking objective measures that hospitals can use as benchmarks in a process that copies the continuous quality improvement approach in manufacturing industries.

The tiered approach is modeled on drug plans in which consumers typically pay a few dollars for low-cost generic drugs, $10 to $20 for brand-name drugs on a preferred list, and $30 to $50 for drugs not on the list.

Other health plans experimenting with hospital tiers, but not with rewards for quality, include PacifiCare Health Systems in California, the Tufts Health Plan, and Blue Cross and Blue Shield of Massachusetts. Among insurers that have said they soon plan to introduce tiered hospital payments for 2003 are Blue Cross and Blue Shield of Florida and Cigna.

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