Tuesday, March 26, 2013

The Challenging Business Case When Spending More on Nurses Improves Quality

Mark V. Pauly, PhD

There is considerable evidence, based on both common sense and rigorous research supported by the INQRI program, that what nurses do or do not do, in hospitals and in other heath care settings, can influence the quality of care. Clinical measures like fall rates and pain control, consumer satisfaction measures, and continuity of care can often be improved by new programs that change what nurses do. Some (though by no means all) of those programs themselves require new upfront resources—planning and training at a minimum, and often more nurse work hours at higher skill levels. But, as is so common in health care, knowledge that there is a way to improve quality does not mean that the new ways will be adopted. Inertia and organizational factors get in the way, but so does the need to provide a financial rationale for deploying more new resources.

Sometimes the hard message of economics gives bad news: just because something improves quality is not sufficient for it to be desirable if the value of the increment in quality is not large enough to justify the additional cost it entails. And proving that the improvement is (or is not) worth the cost is both challenging and politically delicate. But even when a more costly program would pass the cost-benefit test, can we be confident that hospitals, other health care providers, or insurers public or private will pay for those costs? The answer so far, in many cases, is that the financial or business justification is hard to see and hard to implement. Why is this so, will it always be this way, and what might be done about it?

The key insight is that, for an organization (whether for profit or not for profit) that has to cover its costs to survive, an activity will have a strong business case if it can do one of two things: either lower costs elsewhere by more than its costs, or bring in more net revenue than it costs. The first (“cost offset”) case is the easiest one to see. If a nursing intervention that reduces catheter infections allows for reductions in length of stay or use of more intensive and costly treatment, it may pay for itself—as well as improving patient wellbeing. But this obvious case is usually rather rare and, in any event, the improvement in patient wellbeing should matter even if the size of the cost offset is not large enough to pay for the intervention.

The second case is one in which the change increases cost but also increases quality by enough that revenue per unit covers the higher cost. This brings us to the biggest problem in reimbursement policy in medical services markets: typical payment methods do not pay for quality. They may pay for the volume of services (as long as their quality is higher than some minimal level) or they may pay for accounting costs. But it is only with the advent of so-called value based pricing, and the need to make sure that reimbursement methods that offer incentives to reduce costs do not at the same time harm quality too much, that the medical services system has seriously confronted the question of whether and how to pay for quality. If we do not pay for it, interventions like our portfolio of INQRI projects will not be financially attractive to firms that ultimately need to meet a bottom line, but it is easier to say that we should pay for quality than it is to figure out how to do it well.

Other markets, including markets for other services, can tell us what works but also what the challenges are. It is perhaps surprising that in other markets there is not usually a great deal of anxiety about designing methods that measure and pay for quality. Instead, if buyers can perceive quality differences, they move their business to firms that provider higher quality for the money. The better restaurant, the better hotel, the better beauty shop that figures out a way to improve quality as buyers see it may initially price relatively low to introduce itself, but if it is better than average it will experience a surge in demand, which will allow it to charge higher prices. As if “by an invisible hand,” prices come to incorporate quality. Of course, in this setting quality improvements that cost a lot may not survive in the market if their cost is greater than what they are worth to buyers, but this Darwinian process is how markets achieve efficiency. Sometimes there are both public efforts (like Federal tire grading rules) and private efforts (like Underwriters Laboratory approval for devices that use electricity) that help buyers understand and measure quality better—and after the fact we do find that higher quality commands higher prices.

So what about nursing interventions that control pain, and reduce ICU-dementia, falls, and infections in the hospital setting, or avoid confusion about medications post discharge? What about nurse provided primary care that is higher in quality and satisfaction and lower in cost than the alternative? We may hope that payers can recognize the importance of and develop fool-proof measures for these dimensions, and incorporate them into higher reimbursement rates (or penalize with lower payments if they are not present). Medicare payment policy changes, from penalties for readmissions to bundled payment to shared savings in an ACO model are steps in these directions—and some of these nursing related measures are captured in the “star” ratings now available online. The alternative strategy, of using information on higher quality to drive business toward higher quality providers, is also a hope, as evidenced by the Medicare Compare website. There is (at least) one technical problem here: if Medicare or any other payer sets its payment levels as fixed administered prices, the seller able to generate more business is forbidden from raising its prices (as would happen in other markets); the compatibility of the two strategies has yet to be worked out. The idea of having lower prices for nurse-provided care (to stimulate use and induce consumer experience) clashes with an understandable desire for equity in payment. Probably more importantly, evidence that patients both look for this kind of information and then use it to choose one provider over another in large numbers is lacking. The individual items of quality, truth be told, are probably insufficient to offset inertia or physician recommendation and affiliation, and consumers are used to believing that all health care is of good quality because government regulates quality. Some kind of bundling of nursing related practices that can be used as part of marketing—we are the hospital in town where patients don’t fall, don’t get infections, don’t stay longer than they have to—might work, perhaps better than the usual bland “we care” theme usually adopted.

 At this point it seems that an important research and management frontier is that of how to assemble these messages about higher quality into a tool that motivates buyers, either individual patients or their insurers, is the main challenge. The INQRI program provides a rich menu of proven changes across the spectrum of care sites that might serve as the necessary raw material. The business case will not make itself, and nurses need to do more than just prove what they do works if they are to help push it forward.

Dr. Pauly is the Bendheim Professor, a Professor of Health Care Management, and a Professor of Business Economics and Public Policy in the Wharton School at the University of Pennsylvania and the co-director of the INQRI program.

This post is part of our week-long blog carnival focused on the Medical Care supplement.  Click here to access all posts in this carnival.

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