Why It Matters
Budget caps can provide discipline and incentivize the delivery of higher-quality care and improved population health.
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Constraints on Health Care Budgets Can Drive Quality

By Maureen Bisognano | Friday, November 8, 2013
The following post by Derek Feeley, Executive Vice President, IHI, was originally published on HBR.org as part of the Leading Health Care Innovation online forum – a collaboration from the editors of Harvard Business Review and the New England Journal of Medicine. (http://blogs.hbr.org/2013/11/constraints-on-health-care-budgets-can-drive-quality/)

Derek Feeley

In 1980, the national expenditure on health care in the United States was just over 9% of Gross Domestic Product. Today it accounts for nearly twice that — close to 18%. This increase has come at a high price, hitting home most obviously in workers’ pay. According to data published by the Kaiser Family Foundation, workers’ earnings rose by 47% from 1999 to 2012, but their contribution to health insurance premiums during that time went up by 180%. Health insurance premiums rose four and half times faster than the rate of inflation over the same period.

This trend is unsustainable. Is it time to consider what would happen if the overall expenditures on health care were capped, with any future increases determined by the people or their representatives? From my experience heading Scotland’s National Health Service from 2010 until August, 2012 (and before as its director of health care policy and strategy), I know that such constraints can unleash innovations that will lead to better care — and better health — for communities.

Scotland’s NHS serves 5 million people with a fixed, tax-funded budget of around $18 billion. It covers the entire population, based on a set of principles which stress that access is free at the point of care and based on need rather than ability to pay.

Working under a fixed-cost ceiling was, of course, difficult. The Parliament would vote on an expenditure limit and the NHS had to live within that limit. We had little or no revenue-raising ability, and we had to meet a clear, challenging, and publicly reported set of quality objectives.

But while the budget ceiling and outcome transparency were challenges, they provided discipline, and incentivized the delivery of higher-quality care and improved population health. The constraints we operated within also required creativity, the formation of new partnerships, and an open-minded, outward-facing search for the best, most innovative models of care. We used Ed Wagner’s Chronic Care Model to redesign the management of chronic conditions. We also developed an approach that put the Institute for Healthcare Improvement’s “Triple Aim” (improving the quality of the health care experience, improving the health of a population, and reducing per capita costs) at the heart of Scotland’s universal system.

One success has been a marked reduction in the use of emergency beds for patients over 75. That said, many of the strategies put in place are still in their early stages and their results (in terms of patient outcomes) won’t be clear for some time. Nonetheless, it’s not too early to declare that NHS Scotland has made significant progress in creating the foundations for achieving the Triple Aim.

The Affordable Care Act and the emergence of accountable care organizations (ACOs) provide an opportunity to rethink not just how U.S. systems are organized for care but also how to forge new relationships and partnerships — between clinical groups, between clinicians and patients, and among communities and populations. The possibilities opened up by these changes are profound. But in order to optimize their potential, health care systems need to change their perspective from focusing on volume (provide as much care as possible) to focusing on value (provide the highest-quality care possible).

Changes in payment models may reinforce these changes. The traditional fee-for-service model prevalent in the United States has driven health care policy and practice, placing a stronger emphasis on volume of care than on quality. If some of the early proponents of accountable care are correct that the Affordable Care Act will lead to a transition in payment models from fee-for-service, through bundled payments, and towards fixed budgets, then U.S. health care would do well to benefit from the lessons already learned in countries where these constraints have been the norm.

Here’s what we learned in Scotland: In an environment where generating revenue by increasing the volume of hospital care is not an option, success requires doing the following things well:

Balance Investments in Population Health and Treatment

The challenges facing health care (demographic change, multiple morbidities, obesity, etc.) are such that, unless systems invest in improving population health to reduce demand for sick care, they risk being overwhelmed. A fixed budget forces you to invest in wellness. Investments we made in Scotland include national programs to improve behavioral health and early detection of cancer and targeted programs to reduce disparities in the prevalence of heart disease.

Work with Outside Partners on the Social Determinants of Health

Once you prioritize wellness, you are forced to think beyond the 20% that health care contributes to improving people’s health and address the behavioral, social, and environmental issues that make up most of the other 80%. Members of the health care sector need to stop thinking that they can do all of this heroically on their own. Instead they should start thinking about being a better partner in communities and working with schools, voluntary groups, housing authorities, faith-based groups, and other community activities to promote wellness. Earlier this year, we launched the Early Years Collaborative, which aims to give all Scottish children the best start in life. Already, the collaborative has pulled together health care workers, social care workers, the police, and education professionals to reduce infant mortality.

Build a Strong System of Primary Care

As the core business of health care is increasingly devoted to supporting people with chronic disease (particularly those with multiple chronic diseases), it’s crucial to have primary-care teams able and prepared to help patients manage their conditions and avert hospital admissions. Preventive, coordinated, and team-based care has proven a successful strategy for managing these high-cost, high-utilization patients. (A 2011 Commonwealth Fund survey of 11 high-income nations found that patients in the UK experienced the fewest coordination gaps overall and the fewest gaps involving a hospitalization and/or surgery.)

In addition, reliable systems to track patients’ conditions and use the data to effectively predict demand for care are essential tools for improved primary care.

Get Care Right the First Time

While preventing infection and harm are at the very forefront of our professional duty to provide excellent care, such events also add to the costs of care from the purchasers’ perspective. We should continually drive down infections not only because it is good for patients but also because it reduces length of stay and bed utilization.

In addition, we should see unnecessary readmissions as waste rather than as a second opportunity to bill the payer. We should tackle inappropriate variation in practice. We must plan to address the growth in the number of frail elders with multiple conditions. And we must address the problem of multiple prescribed drugs and their interactions.

Finally, we should involve patients in shared decision making because we know it gives them the care they want and need, improves outcomes, and can reduce costs. (The same 2011 survey I mentioned above found that 79% of UK patients reported a positive shared-decision-making experience with a specialist.)

As we change the payment models, what if we also cap the growth in expenditures? The international evidence suggests that this would mean that health care systems would need to work with communities to improve wellness in addition to improving care; to shift the balance of care towards the community and the home; and to reduce harm, waste, and inappropriate variation no matter where it exists. This is what increasing value in health care has to look like. That doesn’t sound too bad, does it?

-Derek Feeley

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