June 2010, Number 156 56685 www.worldbank.org/enbreve A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region. Hospital Performance and Health Quality Improvements in São Paulo (Brazil) and Maryland (USA) by Andre Medici1 and Robert Murray2 Why Evaluate Hospital Performance? OSS model. The remaining hospitals are either under municipal management or private (for-profit or philanthropic). Hospitals are the most essential and most costly component of health systems. They account for up to In the late 1990s, São Paulo's state government began two-thirds of health spending. As a result, they greatly contracting private entities to manage public hospitals influence the overall quality of health care. As governments under the OSS model. This model is based on three elements: search for the best ways to monitor and evaluate hospital (1) the use of management partnerships, (2) management performance, policy-makers must identify the best ways contracts with the SES, and (3) regulation by state government. to maximize hospital outcomes, patient satisfaction, and Hospital management partners are institutions with recognized operational efficiency. Recent increases in healthcare capabilities to manage hospitals, such as universities and costs have generated a number of proposals for the philanthropic organizations. The management contracts are organization of publicly financed hospitals. These include comprehensive and include distinct evaluation and reporting new management models, new payment systems and requirements. The model began with 15 hospitals in regions clinical guidelines and disease treatment protocols inspired with the neediest populations and lowest health coverage. The by evidence-based guidelines. contracts impose the following requirements: Management can profoundly affect the quality of healthcare · The bidding institution must submit to a verification delivery. Certain public management processes in healthcare process to confirm compliance with certain prerequisites. institutions lacking flexibility, budgetary autonomy and performance based incentives, have become associated · Management contracts specify the kind of assistance and with poor health outcomes, and inefficiency. However, new services to be delivered and the agreed health goals. management models that emphasize autonomy in contracting, human resources, and budgeting can improve efficiency, · OSS hospitals may only serve populations that use the SUS. outcomes, and customer satisfaction. This note discusses two models for hospital management innovations: the state of · A special state commission, chaired by the SES, supervises São Paulo's state social organization (OSS) model and the state and evaluates the outcomes achieved against the contract's of Maryland's diagnostic related groups (DRG) classification stated goals. system. Both were presented in a Seminar organized by the São Paulo State Secretary of Health (SES) and the World Bank in · OSS hospitals must publish their accounts and other November 2009. information in the official state newspaper. In addition, the State Accounting Tribunal (TCE) audits OSS financial and Hospital Management Innovations accounting statements. in São Paulo Using Management Contracts The São Paulo state government uses a variety of hospital management arrangements. The public universal health system OSS management contracts are important instruments of (SUS) has contracts with 614 public (under state or municipal accountability and transparency in the use of public funds. management) and private hospitals. Of the public hospitals, 70 The contracts give managerial autonomy to hospitals, which are state-owned; 45 are directly managed by the SES; and 25 are expected to meet higher levels of responsibility and (some of which are teaching hospitals) are managed under the accountability. Contracts also govern OSS hospital data 1. Senior Health Economist at the World Bank ­ Washington (D.C.). 2. Executive Director of the Health Services Cost Review Commission (HSCRC) ­ Baltimore (MD). 1 interfaces with central health information technology (IT) selecting and contracting managers, allocating budgets, hiring systems, where a core set of indicators common to all hospitals and firing personnel, defining and paying for performance are available on line and monitored by the SES. Hospital incentives, and managing contracts with suppliers. They are management is expected to address problems identified by financed mostly by global budget schemes and provide for the core indicators monitored by the SES. Management teams better monitoring and evaluation of contracts, and flexible also work toward service production goals of quality assurance bidding processes. At the same time, the OSS model provides and customer satisfaction. To facilitate financial audits, the SES more space for better monitoring and evaluation by the central receives monthly health production cost reports and financial government, by providing electronic data on outcomes linked statements, which are sent to the TCE, and allow a comparison with health goals agreed between the OSS and the SES. between expenditures and goals achieved. The Maryland Hospital Management System OSS hospitals contribute to a more robust health system and increased patient satisfaction. They are active participants in In the late 1970s, Maryland faced many of the same challenges local health systems and participate, as directly-administrated now confronting policy-makers in São Paulo. The state's hospital public hospitals, in deliberative bodies of both the local health and health units included public and private institutions, some councils. The new managerial tools also improve the quality of which were "world class," while others provided substandard of healthcare, encourage social participation, and enhance care, particularly to the poor and uninsured. Maryland's hospital the relationship between citizens and hospital management. costs were more than 25 percent above the national average. Most patient complaints are solved and customer satisfaction Yet, there were few sources of reliable data on performance or increases without the need for SES intervention. evaluation tools sufficient to hold hospitals accountable for their operating performance. In response, the Maryland legislature Comparing Health Outcomes between OSS and established the Health Services Cost Review Commission Traditional Public Hospitals (HSCRC) a politically independent government agency, with broad powers to collect data, disclose information on hospital Two World Bank studies (see Table 1) show that hospitals performance, and establish hospital payment levels. administered under the OSS model produced better outcomes than directly-administered public hospitals. The OSS hospitals At the same time, the state government developed a unique produced more patient discharges; used hospital facilities hospital evaluation and payment system based on the use of more intensively, contracted fewer medical services, and had Diagnostic Related Groups (DRGs). DRGs are a classification lower average costs per patient. At the same time, the OSS system that groups hospital patients with similar clinical model improved quality by guaranteeing patient integrity and conditions into 314 diagnostic categories. Clinical conditions accomplishing medical quality protocols. OSS hospitals are also are defined by both the patient's principal diagnosis--the main employing a higher number of qualified personnel and making problem requiring care--and other secondary diagnoses. more efficient use of existing hospital facilities. At the same time, OSS hospitals have lower costs for some specific medical The HSCRC collects data on the costs, volumes, and the services (La Forgia and Couttolenc, 2008). financial condition of the hospitals, and detailed clinical and cost data for every inpatient and outpatient case. It establishes Better outcomes in OSS hospitals are attributed to several of the service-specific payment levels for all inpatient, hospital- model's characteristics. OSS hospitals have more autonomy in based outpatient, and emergency services. Its rate setting Table 1. Comparison of Hospital Performance Indicators, 2003 and 2006 Direct Management Indicators OSS Model (12 hospitals) Difference (%) Model (10 hospitals) Average hospital discharges per bed per year (2003) 60 discharges 46 discharges 30.4 Average days of stance (2003) 3.3 days 5.2 days -36.5 Rate of C Sections in total birth deliveries (2003) 25.50% 77.10% -66.9 Contracted medical hours/staff medical hours (2003) 3.6 5.1 -29.9 Average cost per inpatient (2003) R$3,300 R$3,600 -8.3 Average number of skilled nurses per bed (2006) 0.33 0.28 17.9 Average number of employees per bed (2006) 4.28 4.48 -4.5 Rate of bed occupancy (2006) 80.90% 72.10% 12.2 Average cost of Intensive Care daily rate (2006) R$978 R$1,197 -18.3 Average cost of a CADSCAN exam (2006) R$133 R$394 -66.2 Average cost of a breast cancer exam (2006) R$33 R$44 -25 Source: La Forgia, G. and Coutollenc, B. (2008) for 2003 data; and SES (2007) for 2006 data. 2 authority applies to over 50 general acute, specialty, and private which can be used in comparative evaluations of mortality psychiatric hospitals with regulated annual revenues in excess rates, complication rates, readmission rates, and the like. The of $13 billion. A robust auditing and compliance mechanism DRG tool facilitates comparisons because it works as a powerful ensures conformity with charging and data submission standardizing or risk adjustment mechanism that enables the requirements. The HSCRC distributes publicly available annual evaluation of quality outcomes across different hospitals. reports on hospital operations. These reports are available in the page http://www.hscrc.state.md.us DRGs are much more than a pricing or comparative quality evaluation mechanism. They also provide a "language" that DRGs enable the HSCRC to establish a fair price for a bundle links the clinical and financial aspects of care. The "language" of esential hospital services. This has implications for both provides hospital managers and clinicians a meaningful basis allocational and operational efficiency. First, the price for evaluating both the processes of care and the associated established for each DRG reflects the cost of the resources financial impact. The use of DRGs in Maryland for payment used in treating each patient. This accuracy in pricing ensures purposes also provides hospital management with increased appropriate provision of resources and ensures appropriate autonomy and clear incentives to reduce unnecessary resource supply level of services. Second, the use of DRGs for payment use and improve outcomes per patient. places hospitals at some degree of financial risk because their reimbursement is based on the average cost for all cases in a Maryland System Performance particular DRG. This, however, provides strong incentives for Cost Containment: Between 1976 and 2007, Maryland hospitals to actively manage the care of each patient, assuring experienced the lowest rate of increase in cost per admission both quality and cost containment. Finally, DRGs are the starting of any state and much slower hospital cost growth than point for the development of more expanded service bundling experienced in the nation as a whole (see Figure 1). and stronger incentives for efficiency and effectiveness. Access to Care: The costs of uncompensated care, associated The success of the Maryland system is largely a function of with the coverage of no insured individuals, are included in the two important activities: 1) the collection and publication of payment levels of all hospitals. All payers, public and private, consistently reported data on hospital operations; and 2) the use are mandated by law to pay the prices established by the of the DRGs as the basis for hospital payment and to evaluate HSCRC, and, thus, all payers contribute equally to the financing hospital performance. The usefulness of the cost and quality of care for the uninsured. Because of this system, hospitals have dimensions emanates from their ability to provide meaningful a mechanism to finance the care provided to those who cannot product definitions (DRG categories) of hospital care. These afford to pay, and the uninsured have access to all hospitals product definitions have enabled policy makers to develop including private community facilities and the state's two large meaningful comparisons of relative hospital performance on and renowned academic medical centers. efficiency and quality. Equity and Fairness: Maryland has consistently maintained Quality Comparisons and Communication Value the fairest hospital payment system in the United States. Both From a quality perspective, the clinical data required for DRG public and private payers pay the same amount for the same payments are also useful in establishing outcome measures, care at a given hospital. Figure 1. Indexed Growth Rates in Hospital Cost per Adjusted Admission, Maryland vs. U.S., 1976-2007 10.00 9.00 8.00 7.00 6.00 5.00 4.00 U.S. Growth Rate 3.00 MD Growth Rate 2.00 1.00 0.00 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Year Source: American Hospital Association Statistics Cost per Equivalent Inpatient Admission (EIPA) 3 Financial Stability: The Maryland system has also enhanced the The DRGs can also increase the transparency and accountability financial stability of the hospital industry. The state has consistently of a hospital system, while at the same time increasing the had the highest proportion of hospitals rated "investment grade" decision-making autonomy of hospital managers. Given by U.S. municipal bond rating agencies of any state. sufficient public accountability and the establishment of clear financial incentives, hospital managers can be given increased Public Accountability and Managerial Autonomy: Maryland flexibility in decision-making to respond to the clear incentives hospitals are also characterized by a high degree of public in the system to improve quality and reduce cost. accountability and transparency. This transparency is achieved through the publication of numerous reports on hospital cost, DRGs can also be the starting point for expanded bundling of financial, and quality performance. All HSCRC data are available services for evaluation and payment purposes. When linked to to the public. payment, greater bundling of services results in even stronger incentives for providers to control service use and cost. Improvements in Quality of Care: The use of DRGs for hospital payments provides strong incentives for hospitals to document Finally, DRGs are also a powerful communication tool for hospital thoroughly all relevant clinical information about patients managers and policy makers alike. The success of any payment and and the care they receive. Thus, DRG based payment systems quality improvement system is highly dependent on how effective have facilitated the development of meaningful metrics to their incentives are communicated. The fact that DRGs provide a measure and evaluate hospital quality and outcomes. As a good clinical description of a patient's care has been central to the result, Maryland is a leader in the development of quality success of Maryland's hospital payment system. Finally, the simple measurement and the evaluation of hospital performance categorical nature of DRGs creates a nomenclature that links the on preventable complications rates, mortality rates, and clinical and financial aspects of care for physicians and managers preventable readmission rates. and allows for more effective responses to established financial and other incentives in the system. Conclusions: Relevancy for Health Reform in Middle Income Countries Bibliography São Paulo has achieved impressive and internationally Barradas Barata, L. R., Olímpio J Nogueira V Bittar, Adriana recognized progress in public hospitals management. The Magalhães, Sônia Aparecida Alves, Eliana Radesca Álvares bid for more hospital autonomy in selecting and contracting Pereira de Carvalho. (2009). Comparison of Hospital Groups managers, allocating budgets, hiring and firing personnel, in São Paulo. Revista de Adminstração em Saúde , 11 (42), 9-15. defining and paying for performance incentives, and managing contracts with suppliers has improved the performance of OSS Bittar, O. (2005). Countless Numbers in Healthcare Planning. hospitals over the traditional public hospitals in a number of Revista de Administração em Saúde , 7 (28), 1-16. outcomes. It has also resulted in greater patient satisfaction, more transparency and accountability with public funds, and La Forgia, G., and Couttolenc, B. (2008). Hospital Performance in better opportunities for monitoring and evaluation by the SES. Brazil: The Search for Excellence. Washington, D.C.: World Bank. However, the challenge to implement an effective evaluation and Murray, R. (2009). Setting Hospital Rates to Control Costs and performance based payment system will depend on the ability Boost Quality: The Maryland Experience. Health Affairs , 28 to improve information systems and incentives associated with (5), 1395-1405. payment for performance. To that end, São Paulo is considering adopting a hospital payment system based on DRGs. Secretaria de Estado da Saúde. (November 18-19, 2009). Seminar on Hospital Management and Evaluation in São The Maryland experience shows how hospital efficiency and Paulo (Seminário sobre Sistemas de Informação e Avaliação do quality performance can be enhanced through the development Desempenho de Hospitais Públicos: Experiências Internacionais, of rigorous evaluation and payment mechanisms based upon Nacionais e o Caso de São Paulo): http://www.saude.sp.gov. diagnostic classification systems. These systems allow for the br/content/hofreswusl.mmp. Accessed in 2010. development of effective cost and quality comparisons across hospitals. When used for payment, DRGs can result in clear and consistent incentives for improved efficiency. Disclaimer: The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. "en breve" is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of the World Bank - http://www.worldbank.org/lac Visit the entire "en breve" collection at: www.worldbank.org/enbreve