Surgical leadership in the era of quality-based payment

Health care reform is changing the way both public and private insurers pay for surgical services. In the process, it also is redefining the role of the surgeon in the hospital operating room (OR).

Historically, payors have compensated surgical providers based on surgery volume. Under the traditional system, payment is based on the total cost of supplies, labor, and other resources required to perform a surgical procedure. Today, U.S. payors are increasingly tying payment to quality outcomes. The goal is to pay for clinical value as evidenced by quality processes, patient outcomes, and cost control. Quality-based payment for surgical specialists is also under consideration.

How does this shift affect surgeons? First, quality-based payment is changing the way hospitals evaluate their surgical staff. Previously, surgeons retained their hospital privileges if they avoided significant clinical or behavioral events. Now, many surgery departments are evaluating surgeons based on quality of care before, during, and after surgery. More importantly, quality-based payment is changing the value of surgical expertise within the financial ecosystem of the hospital. Surgical quality is no longer just a dimension of clinical care; it is a core driver of economic performance. In light of this movement, hospitals are increasingly looking to surgeons to provide organizational leadership in quality improvement.

This choice is a logical one. Surgeons are natural leaders and seasoned collaborators, and as a group they possess an extraordinary desire to improve. The challenge for surgeons will be applying their leadership skills to a wider field. New payment models are calling for more than isolated improvements; coordinated efforts to achieve comprehensive quality gains are required.

What skills and knowledge do surgeons need to be effective quality leaders? The key is to understand (1) the external forces that are shaping the quality landscape, and (2) how to drive the internal organizational processes that affect surgical quality and cost outcomes. The first step is to analyze the incentives, penalties, and opportunities that underlie new payment models.

Six quality-based payment strategies

New payment models developed in the U.S. in recent years illustrate the challenges of identifying and rewarding quality, particularly in the area of surgical care. Payors are experimenting with a variety of approaches to quality-based payment. Prominent strategies include:

Tying payment to evidence-based care processes. One basic approach to quality-based payment is to link financial incentives to specific interventions and processes associated with quality care. The Centers for Medicare & Medicaid Services (CMS) is currently developing this model through the hospital value-based purchasing (VBP) program. Participating hospitals receive Medicare payment bonuses or reductions based on their overall performance on several clinical care measures. Roughly half are process measures drawn from CMS’ Surgical Care Improvement Project (SCIP), including antibiotic and venous thromboembolism prophylaxis. High-quality hospitals (or hospitals that demonstrate significant quality improvement) receive a bonus of up to 1 percent of base operating diagnosis related group (DRG) payments. Low-quality hospitals are penalized up to 1 percent of DRGs. (The program is budget-neutral, with the best taking dollars away from the worst.) The at-risk amount will increase incrementally to 2 percent in fiscal year 2017.1

Penalizing errors and “never events.” Another approach to quality-based payment is to penalize medical errors and preventable complications. Starting in fiscal year 2015, Medicare will begin reducing payments to hospitals with high rates of certain hospital-acquired conditions (HACs), including surgery-related events, such as retained foreign objects, certain surgical site infections (SSI), and deep vein thrombosis (DVT)/pulmonary embolism (PE) after hip and knee replacements. Hospitals that land in the lowest quartile will be subject to a 1 percent reduction in payment.2 Private payors have also adopted error penalties. Cigna, for instance, reserves the option of reducing payment for care related to mediastinitis following coronary artery bypass grafting and SSIs following orthopedic or bariatric surgery.3

Penalizing readmissions. Patients who experience an inpatient safety event are 47 percent more likely than other patients to be readmitted within three months.4 Under the Medicare hospital readmissions reduction program, DRG payments are reduced for hospitals with high readmission rates. The program initially targets care related to myocardial infarction, heart failure, and pneumonia, but it is expected to be extended to certain cardiovascular surgeries starting in 2015. DRG payment penalties are 1 percent in fiscal year 2013, increasing to 2 percent in 2014 and 3 percent in 2015.5

Tying payment to patient satisfaction. In addition to clinical process measures, the Medicare VBP program tracks patient satisfaction using the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey. The
survey—which is administered to a random sample of discharges, including surgery patients—focuses on patients’ perceptions of provider communication and responsiveness. The use of patient satisfaction in quality-based payment is controversial. Presumably, however, maintaining a patient-centered environment built on strong communication will help ensure overall quality and continuity of care.6

Sharing quality-generated savings. Several advanced payment models encourage quality by allowing hospitals and physicians to share in the savings generated by quality improvement. For example, Medicare’s bundled payments for care improvement initiative assigns a target price for defined episodes of care. Provider organizations that achieve lower costs (through reduced complications, lower readmissions, better resource use, and so on) are allowed to retain the full bundled payment. The shared savings model is also an element of most accountable care organizations (ACOs), including the Medicare Shared Savings Program and many private ACOs. Given the high cost of surgical complications, success under any of these arrangements will hinge upon surgical quality.

Tying payment to clinical outcomes. Payors are also developing methods for tying payment directly to patient outcomes. Directly linking outcome to payment is a challenging goal, but payors have expressed a strong interest in creating payment models that are based on quality results, not just quality processes. In 2015, for instance, the VBP program will add a composite patient safety measure that takes into account postoperative PE/DVT, sepsis, and wound dehiscence. Looking forward, the value-based update model that the American College of Surgeons (ACS) is in the process of developing would use clinical data registries to link Medicare payment to true surgical outcomes.

The payment models discussed in this article represent a spectrum of design strategies, ranging from a narrow focus on specific care interventions and adverse events to strategies for evaluating the full impact of care on patients and costs (see figure). It is important to note the following two facts about all these models:

  • Many programs and proposals incorporate design elements from several different models. For instance, the Medicare Shared Savings Program and many private ACOs have incorporated patient satisfaction metrics into performance measures.
  • While the surgical profession is developing models that will allow surgeons to participate directly in quality-based payment, hospitals are mediating the initial impact. As illustrated earlier, new incentives and penalties primarily target hospital payments. Hospitals, in turn, are developing ways to identify and reward surgeons who help them achieve payment-favored quality goals.


The bottom line is that an effective response to quality-based payment must encompass not only efforts to improve clinical care in the surgical suite, but also initiatives to optimize the entire hospital surgery department. To be able to lead this transformation, surgeons need to master the entire range of organizational processes that affect surgical outcomes. Our experience in a large hospital OR shows that the key is to identify and control all of the processes that contribute to safe, quality surgery.

Case study: Leading process improvement in the OR

Advocate Lutheran General Hospital is a tertiary care hospital in suburban Chicago, IL, that has a longstanding commitment to quality care. In 2007, Lutheran General joined the ACS National Surgical Quality Improvement Program (ACS NSQIP®). As part of the facility’s commitment to the ACS NSQIP philosophy, surgery department leaders launched several new initiatives designed to enhance OR processes and outcomes.

The initiatives were based on the concept that a surgical procedure is the endpoint of multiple processes. Each process contributes to a safer outcome. For instance, pre-anesthesia testing yields important information about patient comorbidities. Workflows in central sterile produce surgical supplies that, if properly sterilized, reduce the likelihood of a costly postoperative infection. Time, of course, is a critical dimension. The window of opportunity for many of these processes is relatively short, and it all but vanishes during the operation itself. As with any system of processes, the key to a good outcome—a safe, quality surgical procedure—is to control all the variables. The goal at Lutheran General was to enhance surgical outcomes by controlling variables in the following four areas.

Information. Information is a critical component of surgical safety and quality. In surgical services, information enters the system through the scheduling process. Hospitals need to ensure they have scheduled the correct patient, for the correct procedure, on the correct surgical site. Unfortunately, scheduling is poorly controlled in most ORs. Typically, scheduling staff will accept case requests via any route—phone call, fax, e-mail, or in person. Some schedule requests include full, accurate patient information, whereas others lack important detail. Surgery department leaders at Lutheran General recognized the opportunity to improve information capture by creating a single-path scheduling system. Under the new system, surgeons and their office staff are required to use a standardized fax form for all schedule requests. The form includes mandatory fields for capturing procedure details, patient comorbidities and other risk factors, anesthesia requirements, test orders, special equipment needs, and other valuable details.

The department also implemented a software system to manage documentation. The system receives all incoming faxes, digitizes the content, and indexes patient and procedure information. As additional documentation comes in—for example, imaging studies, lab results, and consults—the system assembles a comprehensive file for every case. Clinical staff members review each item upon arrival and triage content appropriately. The new scheduling/documentation process ensures all case information is available as needed throughout the preoperative process and on the day of surgery.

Patient risk factors. Although the importance of controlling risk factors is widely understood, different organizations use a wide variety of approaches to identify patient risk. Lutheran General addressed this problem by creating a standardized, evidence-based process for pre-surgical testing. The heart of the system is a pre-anesthesia testing (PAT) center that coordinates all patients preoperatively. Shortly after a case is scheduled, a member of the registration team contacts the patient by phone. Depending on the results of the telephone screening, the patient is triaged to either a normal prep timeline or scheduled for additional interventions. PAT staff use standardized testing protocols developed through collaboration between the anesthesia and surgery departments. The protocols prescribe test pathways and lab and imaging guidelines for normal and high-risk patients. An anesthesiologist performs a chart review for all high-risk patients and reviews all abnormal test results. PAT nurses actively monitor and manage cases starting three days before surgery. Standard protocols also identify medications to hold pre- and post-procedure. The new PAT process helps ensure that patient risk factors are effectively identified and completely managed before surgery.

Final assembly. Most manufacturers incorporate a final quality assurance inspection into the production process. In the case of surgery, performing a quality check after a procedure is obviously of limited value. Quality assurance needs to be incorporated into the surgical process before the procedure itself. Lutheran General addressed this need by developing a process known as the “daily huddle”—a 35-minute meeting that takes place every day at 2:00 pm. The meeting is attended by representatives from anesthesia, PAT, nursing, materials management, central sterile processing, and other perioperative services. After reviewing current-day issues, participants examine cases scheduled for the next day to verify that required tests are complete, required equipment will be available, and any specific risks have been addressed. Participants also evaluate the schedule as a whole to ensure effective flow of staff and resources. When a problem comes to light, staff members resolve the issue promptly or reschedule the case.

Controlling communication. Several national safety organizations have identified poor communication as a leading factor in medical error. Obviously, communication problems block the flow of information, including important information gathered preoperatively as well as critical information about what is occurring intraoperatively. In 2010, Lutheran General joined several other Advocate Health hospitals in a broad-spectrum effort known as the Safer Surgery Initiative. The initiative included several components aimed at improving OR communication. One was crew resource management (CRM), an aviation safety methodology that has made inroads into surgery in recent years. Surgeons, anesthesiologists, and nurses received training on sharing information, raising safety concerns, respecting colleagues, and other skills of effective communication. The hospitals also adopted a modified version of the World Health Organization’s surgical safety checklist to support team communication and ensure consistent adherence to quality practices.

The initiative included changes aimed at improving communication postoperatively. Lutheran General implemented an anonymous error reporting system and took steps to encourage a “just culture” that facilitates non-punitive efforts to solve quality problems. Overall, the Safer Surgery Initiative helped improve surgical quality by ensuring that key information is communicated before, during, and after surgical procedures.

When Lutheran General launched these initiatives, the facility already had very good outcomes on a broad range of quality measures. Nevertheless, the surgery department’s efforts to control the processes that “feed” surgery resulted in significant improvement in a number of key metrics. The following outcomes data are based on ACS NSQIP reports:

  • Blood clots: Lutheran General’s baseline for DVTs was 3.3 percent prior to implementing ACS NSQIP. By the end of 2007 (the hospital’s first year in the program), the rate had been reduced to 0.8 percent. In the fourth quarter of 2011, the DVT rate was down to 0.3 percent.
  • Urinary tract infection: Starting from a baseline of 6.7 percent, the urinary tract infection (UTI) rate was reduced to zero by the end of 2007. The average quarterly UTI rate in 2011 was less than 0.4 percent.
  • Kidney failure: The renal failure/insufficiency rate for surgery patients was 1.4 percent in the first quarter of 2007. In 2011, the average quarterly rate for this complication was less than 0.2 percent.
  • Respiratory outcomes: In the first quarter of 2007, 2.6 percent of patients were on a ventilator longer than 48 hours, and 3.9 percent developed pneumonia. In 2011, the average quarterly V>48 rate was less than 0.3 percent. The postoperative pneumonia rate was 0.0 percent throughout the entirety of 2011.
  • SCIP measures: Performance on SCIP measures has improved significantly, increasing from a compliance rate of approximately 85 percent to overall compliance exceeding 99 percent. Currently, Lutheran General exceeds national performance on 9 out of 11 SCIP measures.7

These gains have boosted overall surgery department quality from very good to exceptional. In 2010, the ACS cited Lutheran General for achieving the lowest rate of postoperative complications of all participants in ACS NSQIP.

Cutting costs, improving efficiency

Process initiatives have also helped Lutheran General improve performance on quality measures that affect costs. Lower complication rates have contributed to a reduction in length of stay (LOS) for surgery patients. For instance, Lutheran General’s LOS for complex aortic surgeries is approximately five days, compared with a U.S. average of approximately nine days. Rehospitalizations are also down. The U.S. 30-day readmission rate for surgery patients was 12.7 percent in 2009.8 Based on internal data, the Lutheran General rate was 9.3 percent in 2012 and trending downward, despite serving a high-acuity surgical population.

Comprehensive process improvement has also increased surgery department efficiency. Thanks to better initial information capture, stronger document management processes, standardized preoperative testing, and the daily huddle “quality check” process, fewer patients have unresolved issues on the day of a procedure. As a result, last-minute case cancellations have declined. Based on internal data, the same-day cancellation rate at Lutheran General decreased from 4.2 percent to 0.7 percent between 2009 and 2011. This, in turn, has helped the surgery department control costs by minimizing wasted supplies, staff time, and OR capacity.

Valuable model

Lutheran General is not the only hospital to implement comprehensive perioperative process improvement. Hospitals across the country have used this approach to improve surgical quality and control costs. Of what value is the model to surgeons?

One benefit of the process-based approach is that it complements other improvement methodologies focused on best practices and continuous measurement and reporting. Surgical department leaders can achieve significant improvements by coupling procedure-focused changes with broad, systems-focused interventions. Comprehensive perioperative process improvement may even be the key to realizing the value of specific clinical processes, which by themselves do not seem to produce automatic outcome improvements.9

Another benefit of this approach is that it enables a comprehensive response to payment reform. Comprehensive organizational improvement has positioned Lutheran General to achieve excellent process metrics under the VBP program, minimize non-reimbursable never events, reduce re-hospitalizations penalized under the Medicare hospital readmissions reduction program, and control the full range of costs (complications, readmissions, supplies, labor, and so on) that are critical to success or failure under bundled payments and ACOs. The process-based approach also will help Lutheran General perform well under any future payment system focused on clinical outcomes, especially one built on ACS NSQIP domains. Indeed, perioperative process improvement at Lutheran General and other Advocate Health hospitals has already led to gains under private payor contracts. Surgeons who operate at Lutheran General and other system hospitals have access to gainsharing incentives negotiated through the system’s physician health organization, Advocate Physician Partners.

Ultimately, the value of this approach for surgeons is that it provides them with an opportunity to lead the response to payment reform. Surgeons—collaborating with anesthesiologists, hospitalists, and nurses—are in an excellent position to define the future of surgery by taking responsibility for the entire chain of perioperative processes. Surgeons who accept the challenge will not only provide better surgical care but will help build efficient and effective surgical service organizations that emerge from health care reform on a stronger footing than ever.


  1. Department of Health and Human Services. Centers for Medicare & Medicaid Services. Fact sheet: Hospital Value-Based Purchasing Program. Available at: Accessed March 11, 2013.
  2. Civic Impulse, LLC. H.R. 3590 (111th): Patient Protection and Affordable Care Act. Available at: Accessed March 8, 2013.
  3. America’s Health Insurance Plans, Center for Policy and Research. Innovations in Patient Safety: Health Plan Initiatives to Prevent Healthcare-Acquired Conditions and Help Patients Transition Smoothly from Hospital to Home. August 2011. Available at: Accessed March 5, 2013.
  4. Friedman B, Encinosa W, Jiang HJ, Mutter R. Do patient safety events increase readmissions? Med Care. 2009;47(5):583-590.
  5. Medicare Payment Advisory Commission. Report to the Congress: Promoting Greater Efficiency in Medicare. Available at: Accessed March 11, 2013.
  6. Epstein RM, Fiscella K, Lesser CS, Stange KC. Why the nation needs a policy push on patient-centered health care. Health Aff (Millwood). 2010;29(8):1489-1495.
  7. Medicare. Timely & effective care: Surgical care details. Available at: IL. Accessed March 8, 2013.
  8. Dartmouth Institute for Health Policy & Clinical Practice. U.S. hospitals, facing new Medicare penalties, show wide room for improvement at reducing readmission rates. Press release. Available at: Accessed March 5, 2013.
  9. Stefan MS, Pekow PS, Nsa W, Priya A, Miller LE, Bratzler DW, Rothberg MB, Goldberg RJ, Baus K, Lindenauer PK. Hospital performance measures and 30-day readmission rates. J Gen Intern Med. 2013;28(3):377-385. Epub 2012 Oct 16.

Tagged as: , , , , , , , ,


Bulletin of the American College of Surgeons
633 N. Saint Clair St.
Chicago, IL 60611


Download the Bulletin App

Get it on Google Play