A nonprofit health care coalition has struck a deal with Doctors Medical Center in Modesto that includes incentive payments if the hospital meets quality standards for patient care and financial penalties if it doesn't.
The California Health Care Coalition says the program eventually could provide millions of Californians better care at lower cost.
Experts say some hospitals that charge the most have poor track records for patients getting infections in the hospital or for complications after surgery. The coalition says it chose to launch its initiative in Modesto because area hospital charges have been among the highest in the nation.
The coalition is made up of employers, labor organizations and union trust funds with 3 million members statewide, including 50,000 in Stanislaus County.
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Within two years, the coalition hopes to have more than 35,000 people in Stanislaus County covered by the agreement. The group will try to negotiate similar deals with other hospitals in the Modesto area, Sacramento, the Bay Area and Southern California, said Sally Covington, executive director of the CHCC.
"We feel it's a very strong contract that will drive meaningful improvements in patient safety, quality, efficiency and price," Covington said.
The agreement is open to employers with self-insured health plans willing to join the coalition. It's not open to employers who purchase coverage from insurance carriers.
According to the coalition, the emphasis on quality should reduce health care costs and benefit patients using Doctors Medical Center.
A single patient acquiring a life-threatening infection in the hospital can run up $500,000 in costs for an extended hospitalization and treatment, said John Glynn, a consultant who works with the coalition. Often, the costs of those problems are paid by the employer's health plan.
Denny Litos, chief executive officer of DMC, said the pay-for-quality improvement incentive is the first he has seen in his 30-plus years in the health care industry.
"It's a unique opportunity to have a coalition of employers, unions and hospitals to work together," said Litos, who believes the hospital can pass the quality test. "This is an opportunity for Doctors Medical Center to create an excellent relationship with the business community."
The CHCC was formed in 2006 to organize public and private-sector employers and labor organizations that are dealing with runaway health care costs and want to see more accountability in the health system. Even before it registered as a nonprofit, its founders held meetings with major employers and labor groups in the Modesto area to discuss solutions.
The coalition said its agreement with DMC includes competitive prices and a process for evaluating improvements in patient care. It designates the CHCC to do quarterly performance reviews for member organizations that implement the contract with the hospital.
Each evaluation will look at data on mortality, infections acquired in the hospital and complications after surgery. Hospitals are required to report this kind of data to federal and state agencies and the Joint Commission, an organization that accredits U.S. hospitals.
59 quality standards
The hospital will be measured against 59 quality standards, such as the American Heart Association guidelines for the care of patients with coronary artery disease. If the hospital is performing well, it could receive hundreds of thousands of dollars in additional payments from employers each year.
Poor quality scores would mean lower than normal payments to the hospital. DMC also would sustain a financial penalty for adverse events that should never happen in a hospital. For example: amputating the wrong leg or a hospital employee assaulting a patient.
DMC wants the coalition to do the evaluation, instead of going through performance reviews every three months with 20 employers.
The first organization to implement the contract with DMC is the United Food and Commercial Workers national trust fund, which provides health benefits for about 4,000 unionized workers at wineries such as E.&J. Gallo and Bronco. The benefits are funded through employer and employee contributions.
Four years ago, the trust fund was sustaining 20 percent an- nual increases in the costs of health care for its members and was concerned about its future. It negotiated an agreement with DMC in which it agreed to steer its members to the hospital in exchange for a discount on bills, said Maurice Hodos, fund administrator.
The fund saved $4 million to $5 million over the term of the contract, he said. When it negotiated to renew the contract this year, the coalition assisted in getting the quality initiative in the agreement.
The trust fund had initial concerns that members would resist the expectation that they use DMC. It required about 70 percent of its members to leave doctors who were associated with Memorial Medical Center and switch to doctors tied to DMC.
"When we educated our members about the difference in patient outcomes, I think we had one or two complaints about making the change," Glynn said.
Other organizations that enter the contract would be expected to encourage employees to use DMC. "It is up to them, but the pricing will be the most competitive for those employers," Covington said.
The coalition says it has tried to talk with Memorial about a quality improvement agreement, but the hospital hasn't expressed interest. Memorial declined to comment for this story.
The CHCC, which is supported by member dues, has been discussing the quality issues with DMC since 2006 and in that time has seen the hospital invest in improving care, Glynn said. For example, it purchased advanced imaging equipment for operating rooms to reduce the number of spinal fusion surgeries that need to be redone.
'Pay for quality'
The "pay for quality" effort is ahead of government initiatives to use financial incentives and disincentives for improving care. The federal government has considered a policy not to reimburse hospitals for Medicare patients who get an infection from dirty instruments or unclean practices in a hospital.
The coalition's membership most likely will take the lead in implementing the contract with DMC, but the group also is talking to nonmember employers, Covington said.
For more information about the "pay for quality improvement" agreement, call Sally Covington at 415-567-4264 or e-mail her at
Bee staff writer Ken Carlson can be reached at firstname.lastname@example.org or 578-2321.