The Problem. The flaw in the current fee-for-service payment model in the health care system is that "people really don't know how much they should pay," believes R. Adams Dudley, M.D., M.B.A., professor of medicine and health policy at the University of California, San Francisco. "They don't know what they get for it in terms of quality or efficiency. That leads to all sorts of bad behavior."
"The health care system is messed up." Dudley traces his interest in tending to an ailing health care system to his childhood in rural Wisconsin and Alabama in the 1970s. While Dudley could see a doctor whenever he was sick or injured because his family had access to group health insurance, many neighboring farmers could not afford medical care, no matter how sick they became.
"It was hard to watch. I thought maybe I could do something about it," Dudley said. In his college application essay, he wrote, in essence, "the health care system is messed up and I want to try to fix it. I am not sure whether that means medical school or economics or both."
The answered turned out to be both. After graduating college with a degree in economics, he earned a medical degree at Duke University and an M.B.A. from Stanford University. Dudley completed his medical residency at Massachusetts General Hospital and fellowships in both health policy and critical care/pulmonary medicine at the University of California, San Francisco, where he remains today as a practicing physician, teacher and scholar.
"I like taking care of patients, so I have always maintained my clinical activity because it is rewarding," he says. "When I am in the room, they are my patients. But when I leave the room, the patient is the health care system."
As a researcher, Dudley does not see himself as a member of a single social science field, but is more interested in what "will move the social conversation forward." His diagnosis of the health care system is that it has "really bad informational problems and payment problems."
To identify the best treatment, he says, "I have gone everywhere from how do you measure clinical performance to how do you think about the economics of behavior in the system?"
Controlling the Costs of Medicaid Managed Care. From 2001 to 2003, Dudley examined the payment system for health plans that participate in Medicare Advantage, a managed care program. When the research began, Medicare was paying the plans a per-enrollee rate, based on the average cost of patients in the fee-for-service pool. The problem with this approach: The plans used a number of strategies to attract healthy patients out of the Medicare fee-for-service pool, leaving the sicker and more costly ones in the pool.
By raising the average cost of patients in the fee-for-service pool, Medicare paid more money to the health plans, yet the plans themselves cared for healthier-than-average patients. "It was a double win," Dudley explained.
Dudley and a colleague at the University of California, San Francisco, economist Harold S. Luft, PhD, examined strategies used by health plans to attract and enroll healthy seniors, such as discounts on vacation tours, and to discourage unhealthy seniors, such as limiting access to subspecialists.
"If you just change your population a little bit, you can get big, big gains not because you are doing a better job of managing people clinically but because you are doing a better job of selecting," Dudley said. (The research, published in Inquiry in 2004, is available online for a fee.)
Informed by this and other research, Medicare ultimately changed the way in which it reimburses health plans that provide managed care. It now uses a "risk-adjustment approach," with payments based on the expected health costs of enrollees.
Although a decade old, Dudley said the work is as relevant today as state governments plan for the launch of health insurance exchanges in 2014, as required by the Patient Protection and Affordable Care Act of 2010. Once again, health plan executives participating in the exchanges may try to limit their responsibility for people with significant medical issues.
RWJF supported this work through its national program, Changes in Health Care Financing and Organization, which funds research projects that examine the impact of major changes in health policy on access, costs and quality. See Program Results Report for more information.
Performance Measures and the Limits of Report Cards. Another challenge in the health care payment system is the lack of standardized measures to evaluate the performance of hospitals and physicians. That makes it difficult to pay providers on the basis of the quality of their care, rather than on the units of service they provide.
Beginning in 2001, Dudley and two other researchers examined the impact of hospital report cards in 11 communities. Business coalitions created the report cards to evaluate local hospitals based on standardized quality measures, hoping their public release would spur quality-of-care improvements.
This research, too, was funded with a grant from a RWJF national program, Improving Chronic Illness Care, which focused on developing proactive models of patient care to manage chronic illnesses, such as diabetes or high blood pressure. See Program Results Report for more information.
After interviewing hospital executives and leaders of the business coalitions, Dudley and his colleagues concluded that releasing report cards was "no panacea" because interest from the news media and the general public wore off quickly. (The research, published in Health Affairs in 2003, is available online.)
"This led to a conviction that the next place we needed to go was to figure out a way to pay for quality. That is where the third grant on public reporting and payment comes from," Dudley explained.
Paying for Quality. During that project, which ran from 2005 to 2011, Dudley examined ways to improve performance reporting and quality-based purchasing initiatives. The project, which resulted in 30 published journal articles, was funded with a grant from RWJF's Investigator Awards in Health Policy Research, given to researchers' in a wide range of disciplines to tackle challenging health care issues. See Program Results Report.
As part of this project, Dudley created two new quality measures of intensive care units-mortality rates and length-of-stay, adjusting both for patient risk. "I went to the place where outcomes mattered the most. This was an attempt to focus on the sickest patients in the hospital," Dudley said.
Ultimately, those measures were endorsed by the National Quality Forum and the Hospital Quality Alliance, bodies that use consensus-based processes to select meaningful measures of health care quality, cost and value.
In another strand of the Investigator Awards research, Dudley and colleagues compared quality of care between hospitals that treat a high percent of patients on Medicaid (safety-net hospitals) and those that treat a low percent. In general, the researchers concluded, safety-net hospitals had smaller gains in quality performance over time. If payment incentives are based on quality measures, disparities between the two groups of hospitals might increase.
(The safety-net hospital research, published in a 2008 article in the Journal of the American Medical Association, is available online.)
RWJF Perspective. Throughout his career, Dudley's "work has been path breaking," said David Colby, Ph.D., vice president of Research and Evaluation at RWJF. "His work on quality, his work on risk adjustment and his work on pay for performance are focused on how do you create a health care system that rewards doing the right things for patients. He has been out in front, thinking: 'What is the next step and where can I move this?'"
While RWJF has focused so far on developing measures and making the measures public, according to Colby, Dudley "has gone one step further to ask: 'once you know the quality measures, how do you pay for performance?'" Answering that question, said Colby, will be essential to the work of RWJF and the many other entities engaged in implementing health reform.
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