Contracting value – quality and costs | KPMG | GLOBAL

Introduction: Quality and Costs

Introduction: Quality and Costs

Throughout the world, healthcare systems are facing unprecedented pressure to cope with rapidly aging populations, a higher prevalence of chronic diseases and ever rising expectations. At the same time, the budgetary constraints most health systems face are equally unprecedented. In a time of stagnating economic growth, countries struggle with the almost unstoppable upward direction of their healthcare expenditures – which even in good times usually grew faster than the base economic growth rate.



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There is also a growing awareness that the quality healthcare systems deliver – the safety, patient centeredness and effectiveness of the care – is highly variable. Since the end of the last century, an avalanche of reports has shown that we all too often do not deliver the results that we know are possible, and that as a consequence many people suffer unnecessarily and even die.

Whether it is the way chronic care is delivered or the organization of mental healthcare; whether it is back surgery or cancer: the care that is delivered is often too little, too much or sometimes just wrong. From the perspective of the patient, our care systems appear fragmented and poorly coordinated, wasting many opportunities to improve health outcomes or to deliver the care most needed at the right time and the right place.

These missed opportunities are costly. In a fascinating reversal of common sense economics, improving healthcare quality more often than not makes the delivery of healthcare less rather than more expensive.

Quality and Costs

In the US, 4.5 percent of all hospitalized people develop an infection in the hospital, causing 99,000 deaths, requiring numerous extra hospital days and wasting US$30–40 billion annually. Implementing infection control programs could prevent many hospital infections (estimates range from 20 to 70 percent), save many lives and save between US$6–30 billion annually. There are many similar examples of the inverse relation between quality and costs in healthcare in developed countries. As shown below, quality (including safety) improvements will generally reduce complications and avoidable care so that costs fall while quality goes up. At a certain point, of course: additional safety measures, dedicated services, the most qualified professionals and so forth will increase costs.

In most parts of healthcare, however, we are very far from that point. In countries with a very underdeveloped healthcare infrastructure, the curve will start out more traditionally, with higher quality requiring a basic layer of investments. Even in these markets, however, many instances can be found where improving quality significantly reduces costs.

Estimates of just how much money could be saved through wholesale improvement in quality are difficult to assess. Some experts estimate that up to 30 percent of US healthcare costs could be cut while maintaining or improving quality. Whatever the precise figure, it is clear that the road to more sustainable healthcare systems lies primarily in delivering better care, not just more care.

Why is it that healthcare systems perform so unevenly? Why does it appear so difficult to cut costs by improving quality, which seems like the perfect route to take for everybody involved?

The reason is not that managers or professionals lack the desire or the know-how to deliver better outcomes. Nor is it a lack of innovative potential in the healthcare industry, or of best practices to emulate.

Put simply, the main reason outcomes are less than optimal is that we pay providers to deliver just that. Producing high quality healthcare efficiently is not rewarded by higher revenues for providers. At best, there is no direct relation between revenues and the quality and efficiency of care. All too often, there are substantial perverse incentives: in many cases, worse care generates more revenues for providers while efficient, high quality care generates fewer revenues.

Given that we expect our healthcare systems to deliver high quality care, it is chilling to consider just how well we have managed to create incentives that fail to stimulate this, and in many cases stimulate the opposite.

In most instances, for example, improving chronic care reduces hospital re-admissions through proactive disease management in the primary care environment. This often leads to a virtual stalemate since hospitals have no incentive to lose patients (and income), and primary care providers have no incentive for pursuing the extra work without additional compensation. The list of examples is endless. Healthcare systems tend to pay for individual activities, or for the existence of a building or an organization; they pay individual providers that will each do their best on a small piece of the work around a patient's problem. They do not, however, pay for the integration of all these individuals' activities and efforts, nor do they pay for the results that all this work delivers. Indeed, in most instances, they do not even measure these results.

In short, our payment systems maintain the fragmentation that underlies our systems' failures. They pay for disjointed and non-coordinated inputs, not for integrated outcomes. "Every system is perfectly designed to achieve exactly the results it gets," Paul Batalden says. "Sadly, all too often that means suboptimal quality, waste, and frustrated professionals and patients."

Contracting value: Shifting paradigms

Healthcare systems are facing pressure to cope with rapidly aging populations, a higher prevalence of chronic diseases and ever rising expectations.

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