Patrick Dyson, executive vice president of strategy and corporative services for Borgess Health (Kalamazoo, Michigan), traces his organization’s “pay for quality” physician alignment strategy back to the Institute of Medicine’s November 1999 report “To Err Is Human.” Following the publication of the report, which shocked many with its statistics on safety in medicine (or the lack thereof), both the government and private payors began linking pay to quality, and in 2006, Blue Cross Blue Shield of Michigan (BCBSM) climbed on the bandwagon with a pay-for-performance program of its own. The BCBSM program is similar to those developed by payors nationwide; it mandates that participating facilities maintain public reporting on their quality metrics and demonstrate a culture of safety, and it provides financial rewards of up to 5% of inpatient, outpatient, and rehab payments to hospitals for demonstrated improvements in quality and efficiency. “This can be achieved a number of ways,” Dyson said in a March 21, 2011, presentation at the annual congress of the American College of Healthcare Executives (ACHE) in Chicago. “They’re looking for that leadership emphasis on safety.” Borgess proceeded to do more than merely demonstrate its leadership’s commitment to safety, as Dyson and co-presenter Janice Anderson, JD, who served as general counsel, vice president, and corporate compliance officer for Borgess at the time, shared. Interpreting the BCBSM program as an harbinger of things to come—correctly, as it turned out—Borgess not only participated; it also began developing a new strategy aimed at aligning its hospitals and physicians to drive even greater improvements in quality.Quality Improvement PartnersIn 2006, Borgess leadership held a “medical staff of the future” retreat, which focused on finding “a different way to develop the competencies for pay-for-performance,” Dyson said. They considered options such as physician employment or co-management, but ultimately decided to develop a new model that would allow the hospital to align with medical staff to improve performance: a physician-owned LLC that would act as a pass-through for incentive dollars destined for distribution among the LLC’s membership. This approach enabled Borgess to create a financial win-win for both its physicians and hospitals, Dyson said, without distracting either group from focusing on its core business. This pathway to disbursing pay-for-performance incentives was new, so Borgess sought an advisory opinion from the Office of Inspector General (OIG). The health system proposed its model and received suggestions from the OIG on where it might run into problems. Then, in August 2008, the OIG sent Borgess Opinion 8.16, which gave the organization the green light to move forward. “Has anyone ever had an OIG opinion letter?” Dyson asked. “They start out with talking about how you’re violating all of these regulations, but they do show how you can implement your model and remain in compliance. It was very good guidance for us.” The LLC, Borgess Quality Improvement Partners (BQIP), is paid to meet quality targets by the hospitals’ pay-for-performance dollars, and offers an array of services aimed at helping physicians achieve compliance. “This was our way to not always use the stick instead of the carrot to improve our results,” Dyson said. “We talked about our willingness to share the incentives with the physicians.” Though the LLC was originally established to distribute BCBSM incentive funds, “Over time, other payors could join in, including Medicare,” Dyson said; Anderson added that the program also could be expanded legally to include incentives from value-based purchasing or accountable care organization (ACO) programs, according to the OIG opinion.Structure and GovernanceBQIP was launched in December 2009. To get it off the ground, Borgess Health put up its own money, which new physician members paid back in the form of a capital contribution determined by the number of enrollees, and entered into a professional services agreement with the new LLC with an initial term of three years. In addition to meeting quality targets necessary to attain incentive payments, BQIP members are required to participate in BQIP activities for at least four hours a month. These activities could include developing policies and procedures to meet quality targets; reviewing and monitoring the quality of care in their hospital and recommending changes; reviewing individual physician performance to ensure targets are met; conducting training, mentoring, and/or corrective actions with physicians to improve compliance; or auditing medical records to track compliance. In its first round of enrollment, BQIP attracted 26 physicians, and the system will solicit more members in the coming year. The physicians who joined are a combination of employed, contracted, and independent specialists, and are subject to oversight from both the BQIP Executive Committee and the Borgess Quality Department, both of which work together to ensure hospital-physician alignment. BQIP is governed by a seven-person executive committee: four physicians elected by their fellow members plus Borgess’ chief medical officer, chief medical quality officer, and chief nursing officer. Today, Dyson said, Borgess is already seeing an improvement in the way its physicians collaborate on quality. BQIP empowers medical staff to oversee physician performance, and has offered Borgess’ chief medical officer and chief medical quality officer physician buy-in in areas where they’d never had it before. “It’s good that we didn’t rush this,” he noted. “It’s really about changing how we work with our medical staff. We’d call this a complex physician integration strategy—it’s harder than simply employing a physician.”Looking ForwardAnderson observed that the model pioneered by Borgess could be adapted to meet a multitude of current and/or future needs in the health care marketplace. Although Borgess is an acute care hospital and as such doesn’t work with primary care physicians, nothing precludes them from participating in a similar arrangement. An entity like BQIP could create targeted arrangements with certain physicians or service lines within an organization, aiding in the development of ACOs. A service line gainsharing program could even be instituted. “It’s the structure aligning across specialties,” she said. “A single service line strategy isn’t going to move clinicians forward on participating in a shared savings payment.” With changes mandated by health care reform starting to kick in, she said, the time is ripe for hospitals to begin repositioning themselves to succeed. “There are going to be winners and losers in the next few years, because these provisions are set up to be financially neutral for CMS,” she said. “Hospitals that are positioned now to be more proactive about improving their quality are likely to earn back more than the one percent that’s their takeaway. This structure, we hope, is going to position Borgess very well for these changes.” Cat Vasko is editor of HealthCXO.com.