Performance-Based Contracts: What If We Don't Have Data?

Andrew Bolles

Andrew Bolles

VP, Business Development

Published August 29, 2017

When contracting a physician group to manage one of your hospital service lines, it's now common practice to tie a percentage of payments to performance. Doing so can benefit all parties and improve care for patients. But how should you proceed if your existing performance data is shaky — or even nonexistent?

Performance: It's Not a Bad Word

When it comes to professional service agreements (PSAs) between physician groups and the hospitals they serve, the best performance clauses are structured to benefit all stakeholders involved.
Ideally, performance based-contracting fosters greater accountability on the part of the physician group. They're incentivized to work toward the hospital's goals, including better clinical outcomes, improved patient satisfaction, and enhanced efficiency.
These contracts can also be an opportunity for physician groups. The hospital is often willing to pay more when a percentage of compensation is tied to performance. Also, the physicians are rewarded for leadership and innovation, which helps the practice to attract and retain engaged providers.
Physician performance may be tracked across a range of domains, including compliance, efficiency, and satisfaction of both patients and medical staff. Each domain presents an opportunity to introduce specific metrics.
Of course, simply laying out the metrics and targets isn’t enough. To measure performance in a meaningful way, you need data. And if you're like most hospitals out there, you haven't yet perfected your systems to track every metric you want to improve upon.
So if your data set on operating room (OR) turnaround isn't terribly robust (or doesn't exist), can you still include that domain in your anesthesia group's performance-based contract?
The answer is (usually) yes.
But before we get to that, here are a few tips for identifying which measures will give you the biggest bang for your pay-for-performance buck.

Get Specific About Goals

When outsourcing a service like emergency medicine, hospital medicine, or anesthesia, it can be hard to know which measures you should hold the new group accountable for. What should you focus on in order to boost quality and deliver great care for patients?
At this stage, the best performance-based PSAs start with an open dialogue with your front-line clinical leaders. For example, if your ED turnaround times are suffering, your nurse director probably has a good handle on the pain points. Maybe an inefficient registration process is lengthening your door-to-provider time. Or maybe a lack of collaboration with the hospitalists means an extended LOS for admitted patients.
At this point, it's a good idea to get pretty granular about what exactly needs to be measured. This is because regulators, organizations, and individuals often define metrics in different ways.
For example, let’s say you’re looking to improve OR efficiency and want to include room turnover time as a key measure.
While you may define room turnover as being from the time that the patient leaves the room to the time that the next patient comes in, your potential outsourcing partner may define it as the time the patient leaves the room to the time the room is ready for the next patient.
Defining exactly what you will measure ensures everyone gets on the same page right from the start.

Let the Data Gathering Begin

Once specific metrics and their definitions are agreed upon, it’s time to move forward with your new outsourcing partner.
If you lack robust performance data, then at some point, the physician group will need to perform an operational assessment. This will help them gain a clear understanding of your hospital's current performance across each domain and gather baseline data against which to measure subsequent performance.
The assessment should include a clear focus on the data sources to be used for each metric and provide an understanding of definitions, documentation responsibilities and techniques, data collection methods, and normalization. 
In some cases, a potential partner may push for an operational assessment before signing a performance-based PSA. While this may be entirely appropriate, it's almost always problematic from the hospital's point of view. Operational assessments can be time-consuming, delaying the contract start date by months. And if the current group isn't aware that its contract is in jeopardy, an assessment may backfire by tipping the hospital's hand.
In some cases, a pre-contract assessment may be hard to avoid, especially if there's a lot at stake or the issues involved are complex. But often, with certain conditions in place, a physician group will sign before the assessment.
You can provide reassurance by presenting a well-articulated plan that includes very specific metrics and solid estimates of current performance. (Again, specificity is your friend here.)
Building a risk-free "start-up" period into the contract can also help. This provides a reasonable time for the physician group to complete its assessment and address existing issues before performance clauses kick in.
Above all, listen. This should be a collaborative process. Some physician groups have a lot of experience with performance-based contracts that can work in your favor.

Targets and Benchmarks: What's Fair?

So now that you and your outsourcing partner have defined metrics to be tracked, how do you set performance targets? This step is especially tough if you don't have much existing data and haven't conducted a performance assessment yet.
Third-party data can be very helpful when it comes to benchmarking performance expectations. Industry associations publish performance data across a broad range of metrics. (Keep in mind, however, that sample sizes, survey methods, and respondent biases can affect results, so they need to be taken into consideration.)
For example, average OR efficiency is about 75 percent. So 75 or 80 percent might be a good initial benchmark for a hospital that's a little weak in this area but also has some specific pain points identified.
On the other hand, if efficiency at a given facility is currently estimated at 30 percent, getting up to the industry benchmark average might be impossible due to structural reasons, or take several years. This might require a stepwise approach in which performance benchmarks increase every contract period.

Find a Collaborator

It may come as a bit of a surprise, but some physician groups actually want to work with you to design a contract that will reward great performance.
They know that not only are such arrangements becoming the norm, they also have benefits for hospitals, physician groups, and patients.
As you consider potential partners, look for those that embrace performance-based contracting and have a good track record of getting the job done. When everyone comes to the table with the same goal, it's surprising how smooth the negotiations can be.

Originally published March 2017.

Partnering to improve patient lives

Vituity branding orange wave pattern background