By TAYLOR J. CHRISTENSEN
When I attended the Institute for Healthcare Improvement’s 2024 annual forum in Orlando, Florida, one of the best parts of the conference, as always, was talking to the other attendees. Every time I would sit down to eat a meal or sit down in a session, I would talk to the people around me. And I heard about so many different quality improvement (QI) projects!
After several conversations, I started to notice a pattern: Many of the projects were fighting an uphill battle because they were going against financial incentives. Or, at a minimum, they were not supported by financial incentives. All of this got me thinking about a new exhaustive, mutually exclusive categorization . . .
All QI projects can be divided into three categories:
Category 1: Supported by financial incentives
Category 2: Neutral to financial incentives
Category 3: Opposed by financial incentives
Determining which category a potential project will fall into is important for predicting how much support from hospital leadership a QI project will have.
So how do you determine which category a potential project is in?
Remember that seeking profit (or “surplus” if you’re a non-profit organization) is what drives most behavior in all organizations, even in healthcare. And whatever is profitable is what organizations have a financial incentive to do. Here’s a simple formula for profit:
Profit = Revenues – Costs
In most industries, providing a higher-value product or service (Value = Quality / Price) compared to competitors will earn that organization greater market power, which they can use to extract greater profits either by keeping prices the same and winning more market share or increasing prices while maintaining the same market share. Either way, that greater market power turns into greater profit.
In healthcare, however, higher value does not lead to greater market power. The reasons for this have been explained elsewhere, but it really comes down to patients not making value-sensitive decisions when they are choosing where they will receive care.
Thus, quality improvement efforts that result in a healthcare provider delivering higher-value care are not automatically financially incentivized. Instead, the only factor that matters from a financial incentives standpoint is whether the QI project increases revenue or decreases costs.
So, if a project will increase revenue and/or decrease costs, it’s in Category 1; if it will not have any net impact on profit because either it doesn’t change revenues or costs or it increases or decreases both of them equally, then it’s in Category 2; and if it increases costs or decreases revenues, it’s in Category 3.
This all probably seems heartless–we’re talking about quality improvements that can save lives and quality of life here, and all I’m focusing on is money?
Yes–it’s a simple financial reality that an organization can only survive and continue to serve the community if, on average, it earns more money than it spends. And since hospital margins are typically pretty tight these days, there isn’t a lot of executive support for quality improvement projects that decrease profit. I’ve talked about this elsewhere, but the problem isn’t the “financialization” of healthcare; the problem is that financial incentives are not aligned with what we want the healthcare system to do for us. And that is the major barrier to quality improvements. So until we can align our financial incentives with what we want the system to do for us, we’re stuck having to evaluate QI projects from a cold profitability perspective rather than a “does this improve the value we are delivering to patients?” perspective.
Now let’s look at some examples I heard about from the other conference attendees and see if we can figure out which category they are in:
- Fascia iliaca nerve blocks: An emergency department in Saskatchewan, Canada, has been trying to increase the utilization of these nerve blocks for patients who come in with hip fractures because it improves pain control and decreases the amount of narcotics they need, both of which decrease delirium in these usually elderly patients. The uptake of the procedure has been positive but lackluster, mostly because it’s more effort for emergency medicine doctors to do the nerve block and because it’s asking them to change their practice habits, which is always difficult. The difference in cost of doing a nerve block versus giving more narcotics is small enough to be negligible, although it takes a few more minutes for the physician to do the procedure compared to simply ordering narcotics to be administered. This project probably falls into Category 2 (neutral to financial incentives) because it has no significant impact on either revenues or costs. Thus, you can’t expect any great push from hospital administration to support this project unless they are generally very quality conscious; otherwise, the focus of their time and effort is on trying to stay within their budgets while avoiding the worst quality errors.
- Inflammatory bowel disease (IBD) care improvement collaborative: This collaborative facilitates the sharing of QI frameworks, evidence, and best practices to help various provider teams across the country improve their care of IBD patients, which generally leads to an improvement in IBD control with fewer flares, fewer emergency department visits, and fewer hospitalizations. Notably, some of the providers involved in the collaborative have said that their hospitals don’t like that they’ve been decreasing emergency department visits and hospitalizations because it hurts the hospital’s finances. Clearly, from a hospital standpoint, this is in Category 3 (opposed by financial incentives). If the clinic is not part of the same organization as the hospital, then it’s probably Category 2 (neutral to financial incentives) for the clinic, or possibly also Category 3 if there is a significant amount of resources (costs) being dedicated to the improvement work without an associated increase in clinic revenues. This project will probably not get the interest and uptake it deserves because financial incentives are working against it. Some kind of shared savings arrangement with the insurers could help make this a win for everyone.
- Improving the time from a hospital discharge order being placed to getting the patient out the door: A hospital (I think it was UCLA) has been working on identifying and eliminating the things that delay getting patients out the door after they’ve been discharged. When a patient doesn’t have to wait around in a hospital room for hours after they get a discharge order, they like that, so this is definitely a project that will improve quality from a patient perspective. The biggest cause of delays the researchers found is patients having to wait to get an echocardiogram (ultrasound of the heart) before they can leave. So the hospital hired more ultrasonographers, which allowed them to do the studies sooner and enabled patients to leave sooner. If I remember right, they lowered the average delay by almost 2 hours! How does this project fare from a financial incentives standpoint? Hiring more ultrasonographers definitely increases costs. However, when a patient leaves the hospital sooner, it opens up a bed sooner that can be filled with a new patient (especially when it’s a busy hospital like this that is often operating at capacity), so this intervention actually increased the number of admissions this hospital could accept. It also decreased the amount of time their emergency department is on divert. Both of those factors increased revenue to a greater degree than the increase in costs, which means this project is in Category 1 (supported by financial incentives). Executive leadership was probably glad to hire those additional ultrasonographers.
As you can imagine even just from those examples, many QI projects fall into Category 2 and 3. It’s heartbreaking the impact this has on patients, and it’s also heartbreaking seeing so many good people in healthcare working tirelessly to improve the care for their patients while being financially punished for doing so.
I long for the day when all quality improvements will be rewarded with greater profit, which will not only bolster buy-in from hospital leadership but also will spur the dissemination of those improvements by motivating competitors to improve their quality as well or risk losing market power (and, thus, profit).
But, until we get there, using this analysis can at least help the people involved in QI projects predict the degree of finances-induced support or resistance their projects will face, and that may help them get creative to find a way to shift more projects into Category 1.
Taylor Christensen is a hospitalist who blogs (occasionally) at Clear Thinking on Health
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