Outcomes management: buying value and cutting costs; when healthcare becomes less like roulette, efficiency and effectiveness can be rewarded - includes related information on software and Continuous Quality Improvement - Cover Story

Business & Health, March, 1991 by Pamela Taulbee

Outcomes management: Buying value and cutting costs

Purchasers of health care know they need to improve the value of what they are buying from the health care marketplace. They've been trying to do that for years. In the 1980s, the cost side of the equation V = Q/C (Value equals Quality divided by Cost) was attacked with vigor, primarily through discounting. But discounting simply squeezed one end of the balloon, shifting costs from big purchasers and government onto small employers and private payers that is, those with less buying power. So, overall, health care inflation kept rising unabated.

The other part of the equation--the definition and measurement of quality--has remained even more difficult to solve, largely because of the scarcity of solid, objective data needed to evaluate and set standards for health care.

But that's changing. Since the publication of Paul Ellwood's Shattuck, lecture, researchers have developed a critical mass of techniques and tools to manage, monitor and report out the cost and the quality of health care. Severity of illness measurement systems, hospital and physician performance indicators, small area variations analysis, and patient satisfaction and health status measures are all being used to identify potential problem areas. (See box.)

Many of the quality assessment systems, especially the severity of illness systems, attempt to measure outcomes of medical interventions and to compare those outcomes across institutions or physicians. While the term "outcomes management" is fairly new and definitions vary, the practice it describes generally involves gathering and analyzing the results of medical processes and performances, and then using that data to manage health care provision.

While outcomes management had been considered the provider's bailiwick, many employers, including Nestle, Honeywell and Orange County Public Schools, are now using it as a tool, working together with providers to purchase health care more effectively and, ultimately, to purchase more effective health care. With the information gained from outcomes management, the goal is to change the incentives in the health care system to reward efficiency and effectiveness.

Orlando, Fla.: A case history

About two years ago, the Orange County (Fla.) Public School System decided to self-insure health benefits for its 14,000 covered employees and dependents. The school system hired John Hanson, an executive with more than 20 years' experience in managed care, as director of insurance. "I had come to the point where I believed that discounts, utilization management, and other controls had maxed out on effectiveness," says Hanson. "I felt the biggest return on investment was in state-of-the-art computer systems, which could be used to gather and analyze medical data."

Hanson sits on the board of directors of the Central Florida Health Care Coalition, whose 36 members (including the Orange County school district) represent about 250,000 covered lives. At his urging, the coalition decided to use a software system designed by MediQual Inc., a Westborough, Mass., software publisher, to evaluate local hospitals for outcomes and appropriateness of care. The system, called MQ-PinPoint, uses data from the UB-82 (universal billing) forms that are collected by the Florida Health Care Cost Containment Commission. (The Commission is a state-funded organization that collects data on hospital charges and resource use.)

The MQ-PinPoint analysis regroups data from the billing forms into outcome risk catgories. It then compares these categories to its own database and issues reports on appropriateness of admission and efficiency of resource use. In the Orlando case, the analysis estimated that purchasers in the region were spending $29 million on inappropriate care $57 million on inefficiency and overly long lengths of stay and $27 million on ineffective care.

"What they're saying is, in the Orlando area, there could be over $100 million worth of potential savings to employers," Hanson explains. "For example, we had one hospital in the area whose actual charges are always low or lower, and its average length of stay a little bit shorter, than other area hospitals. Based on those data, you would expect that hospital to have about 40 percent of its patients in the lowest severity group. In fact, 55 percent were in that group. That hospital's charges seemed to be in line with its peers, but it had almost twice as many admissions of the lowest severity than other area hospitals. The inescapable conclusion is that the hospital's numbers are what they are because they have a bunch of patients that don't need to be there anyway.

"Using such data, we went to the hospitals and said we'd like them to purchase MedisGroups II. That software system, a more advanced product, uses clinical data directly from the patient record to correlate patient admission severity with clinical outcome and resource use data. The MedisGroups data are based on actual medical information on a patient's charg for example, a patient's actual EKG reading. The sort of billing-based data supplied by the Cost Containment Board, on the other hand, would only say that the patient's EKG was abnormal."