Comparing payor performance

to enhance health outcomes

A new McKinsey tool enables payors to identify where
their performance is weak, what they can do to
improve it, and which peer organizations they can learn from.

49

Paul Betts; Farhad

In many countries, health outcomes vary

they can ascertain which ones have lessons

Riahi, MD; and

markedly across regions, often in ways

to teach them.

Siddharth Shahani

that do not correlate with health care spending.

The use of evidence-based interventions

The Payor Health Index was originally devel-

also varies markedly. These variations in out-

oped in England but has since been adapted for

comes and care delivery are coming under

use in several other countries, including the

increasing scrutiny from a range of stakeholders,

Netherlands, Saudi Arabia, and the United States.

including payors, government officials, and

More recently, McKinsey has been developing

the general public.1 These stakeholders share the

a similar tool to help health systems determine

concern that some patients are being given

what their priorities should be.

substandard care. Many are also troubled about

the economic impact of substandard care,

In this article, we will describe how and why

since high-quality care, particularly for chronic

the Payor Health Index was developed,

diseases, often lowers future health costs.

what results it provides, and how payors can

For payors, substandard care is particularly

use the results to improve health outcomes.

worrisome, because their core mission

is to fund care delivery and thereby improve

Variations in care delivery

public health.

As the focus on health care quality has increased

around the world, even highly developed

But reducing variations in outcomes and care

countries have discovered that they experience

delivery is no simple task. Payors have little

wide regional variations in health outcomes.

or no direct control over some of the factors that

In France, for example, infant mortality

strongly influence health outcomesespecially

ranges from a low of 1.4 per 1,000 live births in

social determinants, such as education level

Corse to a high of 4.5 per 1,000 in Alsace.2

and employment status. Payors can influence the

Similar differences are seen in many other

extent to which providers use evidence-based

countries (Exhibit 1).

interventions, which have been proven to enhance

health outcomes. But few payors take a rigor-

Regional variations have also been noted in

ous approach to identifying which results they

other health outcomes, including cancer survivor

most need to improve, which interventions

rates, cardiovascular death rates, and years

they should promote, or how they can find exam-

of life lost to chronic conditions. In England, for

ples of best practices to emulate.

example, we identified an almost ninefold

difference among the regions in the number of

1For another look at how

increased transparency into

health outcomes and care
delivery is affecting health
systems, see How hospitals
can respond to increased
quality transparency, p. 58.
2National Institute for Statistics
and Economic Studies,
France, 2007.

We have developed a proprietary analytic

life years lost to diabetes (Exhibit 2). The dif-

framework to help payors take on this challenge.

ference cannot be fully explained by how much

This framework, McKinseys Payor Health

the regions spend on health care (Exhibit 3).

Index, enables payors to determine which health

outcomes to focus on first, as well as which

What does help explain the variations in out-

interventions and other actions would have the

comes are differences in underlying risk

greatest impact on those outcomes. In addi-

factors and the use of evidence-based inter-

tion, the index allows payors to identify other

ventions. For example, both teenage pregnancy

organizations in similar circumstances so that

and smoking during pregnancy are known

50

Health International 2009 Number 8

Health International 2009

PHI
Exhibit 1 of 6
Glance: Within France, Sweden and Italy, levels of infant mortality vary by region.
Exhibit title: Variations in infant mortality
Exhibit 1

Variations in
infant mortality
Within France, Sweden, and
Italy, infant mortality rates vary
by region.

Infant mortality under age 1 (deaths per 1,000 live births by region)
France

Sweden

Alsace
Lorraine
Champagne-Ardenne
Haute-Normandie
Ile-de-France
Nord-Pas-de-Calais

4.5
4.5
4.4
4.2
3.9
3.8

Aquitaine
Picardie
Franche-Comt
Languedoc-Roussillon
Pays de la Loire
Provence-Alpes-Cte dAzur
Midi-Pyrnes
Centre
Rhne-Alpes
Basse-Normandie
Bourgogne
Auvergne
Poitou-Charentes
Bretagne
Limousin
Corse

Above country average

3.8
3.8
3.6
3.5
3.5
3.4
3.4
3.4
3.3
3.2
3.0
3.0
2.9
2.6
2.5

Italy

Gotland
Kalmar
Norrbotten
Vsternorrland
Blekinge

4.8
4.4
3.7

Dalarna
Jnkping
Srmland
Vstmanland
rebro
Halland
Gvleborg
Jmtland
Vstra Gtaland
stergtland
Skne
Vrmland
Stockholm
Kronoberg
Uppsala
Vsterbotten

3.7
3.3
3.3
3.3
3.2
3.2
2.9
2.8
2.8
2.8
2.7
2.7
2.6
2.6
2.5
2.3
2.3

Calabria
Sicilia
Basilicata
Puglia
Campania

5.4
5.1
4.7
4.6
4.3
4.2

Lazio
Valle dAosta
Friuli VG
Emilia Romagna
Abruzzo
Lombardia
Trentino AA
Marche
Piemonte
Veneto

3.9
3.7
3.5
3.4
3.3
3.1
3.1
2.9
2.8
2.6
2.6

Liguria
Toscana
Sardegna
Molise

2.6
2.0

2.2

1.4
Average = 3.6

Average = 2.8

Average = 3.7

Source: National Institute for Statistics and Economic Studies, France, 2007; Central Bureau of Statistics, Sweden, 2007;
Health for All Database, Italy, 2005

risk factors for neonatal mortality. In Australia,

How the Health Index was built

the teenage pregnancy rate is six times higher

We began work on the Payor Health Index after

in some regions than in

3Australian Institute of Health

and Welfare, 2007.

4Healthcare Commission:

Acute Trusts 2007/08

National StandardsSmoking
During Pregnancy.
5D. Giorgi et al., Mammography
screening in Italy: 2005
data and 2006 preliminary
data, Epidemiologia e
Prevenzione, 2008, Volume 32,
Number 2, Supplement 1,
pp. 722.

others.3

In parts

noticing the differences in health outcomes

of England, only 4 percent of pregnant women

in the various regions of England. We wanted

smoke; in other areas, one-third of pregnant

to find a way to analyze and compare the

women do.4 Likewise, early detection with

performance of Englands primary care trusts

mammography can improve survival for women

(PCTs)the payors responsible for health

with breast cancer. In Italy, the percentage of

care in the regionsso that we could help them

eligible women who regularly undergo mammog-

improve their results.

raphy is twice as high in some regions than in

others.5 Similar variations in risk-factor

We focused on Englands payors because

prevalence and evidence-based intervention use

they have been tasked explicitly with

can be found in countries around the globe.

improving health outcomes in their covered

Comparing payor performance to enhance health outcomes

51

populations. Furthermore, theylike payors in

we use to investigate those disease areas? We

other publicly funded health systemsmust

defined important disease areas as those that

bear the long-term costs of health care provision.

are highly prevalent and have a strong impact on

For such payors, it can often be less expensive

overall public health. (Colds, for example,

to provide high-quality care than to address

are very common but have little impact. AIDS

the complications that eventually arise when such

significantly affects patients but has a fairly

care is not offered.

low prevalence in most economically advanced

countries.) We used publicly available data

In developing the Payor Health Index, our first

because we wanted to study all of Englands

Health
International
2009
payors using the same source information.
step
was
to answer two
questions: what were
PHI most important disease areas to study, and
In total, we used almost a dozen different demothe
Exhibit
2
of
6
graphic and clinical databases.
what publicly available data sources could
Glance: In England, as in many other countries, differences in health outcomes are
not easily explained.
Exhibit title: No standard outcomes
Exhibit 2

No standard
outcomes
In England, as in many other
countries, differences
in health outcomes are not
easily explained.

Disease area

Outcome metric

Primary-care-trust (PCT) outcomes

Average

Distribution across 152 PCTs

Coronary heart
disease

Standardized
mortality ratio

104

Highest
80th percentile
20th percentile
Lowest

Diabetes

Years of life lost

per 10,000
people

4.8

Highest

Stroke1

% deaths
within 30 days
of admission

26

Infant
mortality

5-year relative
survival %

Deaths in first
year per 1,000
live births

1 International

64

5.1

6.2
3.1
1.6

Highest

42

80th percentile
20th percentile

30
23
8

Highest
80th percentile

74
68

20th percentile
Lowest

60
56

Highest
80th percentile
20th percentile
Lowest

Classification of Diseases (ICD) 10 codes I61-I64: intracerebral hemorrhage, other nontraumatic intracranial
hemorrhage, cerebral infarction, stroke not specied as hemorrhagic or infarction.
Source: Payor Health Index

14

80th percentile
20th percentile
Lowest

Lowest
Cervical
cancer

147
119
89
58

10.8
6.1
4.0
2.3

52

Health International 2009 Number 8

Health International 2009

PHI
Exhibit 3 of 6
Glance: The number of deaths from diabetes does not correlate with spending.
Exhibit title: Health versus spending
Exhibit 3

The number of deaths from

diabetes does not correlate with
per-patient spending.

Relationship between primary-care-trust (PCT) spending on diabetes and deaths from diabetes in each PCT
6
Deaths from diabetes mellitus as a % of
all diabetic patients in a PCT

Health versus spending

r2 = 0.0024

5
4
3
2
1
0

200

400

600

800

1,000

1,200

PCT spending on diabetes per

diabetic patient,
r2 is the proportion of variance explained by a regression.
Source: Payor Health Index

The result was a list of 11 disease areas:

Our next step was to identify the factors that

cardiovascular disease, diabetes, cancer, asthma,

could explain the regional variations in

stroke, chronic obstructive pulmonary disease,

these outcomes, such as the use of evidence-based

pediatric health, sexual health, geriatric

interventions, the available resources (for

health, mental health, and alcohol/drug abuse.

example, the number of physicians), and under-

For each of these areas, we then defined the

lying population risk factors (such as smoking

most important health outcomes to study, using

rates and eating habits). Because we were

published clinical studies as a guide. Some

using publicly available data, we could not always

of these outcomes reflected patients current

analyze the factors likely to have the strongest

health status (for example, hypertension

and asthma prevalence). Others indicated how

impact on outcome variations (see sidebar,

Understanding current data limitations, p. 55).

often preventive services were being deliv-

Nevertheless, we were able to quantify a dozen or

ered (the percentages of women whose breast

more metrics for each disease area. We then

cancers were detected at an early stage, for

used this information to create, for each PCT, an

instance, or of elderly patients who were given

individual index for each disease area.

pneumococcal vaccination). In still other

cases, the outcomes reflected the relative success

What the Health Index tells a payor

of treatment (for example, years of life lost,

The index for each disease area is presented in

survival without permanent disability, percentage

a simple visual format designed to convey

of low-birth-weight deliveries).

a great deal of information quickly (Exhibit 4).

Comparing payor performance to enhance health outcomes

53

Health International 2009

PHI
Exhibit 4 of 6
Glance: Metrics on cancer health can be grouped into four major categories.
Exhibit title: Cancer health index
Exhibit 4

Cancer health index

Scores,
15

Metrics on cancer health

can be grouped
into four major categories.

A. Outcomes

Metrics

PCT1 figure

Average,
all PCTs

Highest
performer

SMR3

102.7

102

73.5

2.62
1. Cancer mortality2

Units

5-year survival

2. Lung

6.4

6.3

8.0

3. Colon

46.6

47.8

55.0

4. Breast

76.8

78.6

82.3

5. Cervical

63.8

64.3

73.7

6. Prostate

58.0

67.1

75.6

7. Breast

69.0

62.1

74.7

8. Cervical

81.0

80.0

88.6

9. Cervical

76.1

69.6

81.1

82.3

73.3

84.1

98.8

99.0

100.0

12. 2-week

99.6

99.7

100.0

13. 62-day

88.0

91.6

100.0

35.6

19.9

1.2

6.5

6.4

9.1

16. Medical oncologists FTE4 per

0.2
100,000 population

1.0

5.3

26.6

17.6

Detected early

B. Interventions 4.59
Screening coverage

C. Resources

10. Breast

1.98
11. 31-day

Wait for treatment

14. MRI long

waiters2

15. Proportion spent

on cancer

D. Risk factors

2.79

1 Primary

17. Estimated smoking

prevalence

27.1

care trust.
gure = good performance.
mortality ratio.
4Full-time equivalent.
2Low

3Standard

Source: Payor Health Index

First, it tells a PCT how well it is doing on each

The metrics are grouped into four major

metric studied. In addition, it provides national

categories: outcomes, interventions, resources,

averages for each metric, as well as the results

and risk factors. In addition, the individual

achieved by the highest-performing payor on each

scores for each metric in a category are combined

metric. This format enables a PCT to ascertain

into a global score for that category, which

how its cancer mortality rate, for example, com-

enables a PCT to compare its performance

pares with the national average, as well as

at a glance with that of other payors. The

by how much it could lower that rate if it were

global scores range from 1 (low performance)

to achieve results comparable to those of

to 5 (high performance).

the highest-performing PCT.

54

Health International 2009 Number 8

Health International 2009

PHI
Exhibit 5 of 6
Glance: Payor performance typically varies by disease area.
Exhibit title: Mixed performance
Exhibit 5

Mixed performance

Outcome score (1 = poor, 5 = good)

PCT1 A

Payor performance often

varies by disease area.

PCT B
4

PCT C
4

Cardiovascular
Cancer
Mental health
Sexual health
Drugs/alcohol
Child health
Diabetes
Stroke
Elderly health
Asthma
COPD2

1Primary

2Chronic

care trust.
obstructive pulmonary disease.

Source: Payor Health Index

For example, a PCT that has comparatively low

blue. In our experience, however, no payors

mortality from cardiovascular disease and

perform ideally, and thus some white

coronary heart disease, as well as a low prevalence

always appears. The proportion of the diamond

of diabetes, hypertension, and obesity, would

that is white, and the areas where the white

be given a high global score for cardiovascular

appears, indicate how much of a problem a payor

outcomes. To receive a high global score for

may have. For example, if the only large area

cardiovascular interventions, the PCT would have

of white appears at the bottom of the diamond,

to show, among other things, that it is doing

the payor may not have a problem at all; the

a good job controlling blood pressure and choles-

white simply indicates that its resource allocation

terol levels in its population. High scores for

in that disease area is small. This could be

risk factors and resources would indicate that the

appropriate if the prevalence of risk factors in

PCT has minimized the risk factors in its

its population is low, if it is using evidence-

population (by reducing smoking rates, for

based interventions appropriately, and if it is

example) and has sufficient resources to provide

achieving good results (the payor could devote its

high-quality care.

resources to disease areas with greater needs).

Conversely, a payor with a lot of white only at the

Finally, the global scores are graphed into

top of the diamond has a major problem,

a diamond. A PCT performing ideally

because it is achieving poor outcomes while

would have a diamond that is almost entirely

expending significant resources.

Comparing payor performance to enhance health outcomes

55

We have found that the performance of most

change first. In addition, it helps payors identify

payors is mixed; they tend to do well

peers that are achieving better outcomes,

in some disease areas and poorly in others

which then allows them to learn from their peers

(Exhibit 5). Very few payors score well

and improve their own performance.

across the board. This is an important point to

remember, given the paucity of outcomes

Pinpointing what to focus on

data available in most countries. The fact that

The experience of three PCTs, all of which had

a payor achieves good results in one area

scored poorly on breast cancer outcomes,

(for example, cardiovascular disease manage-

illustrates the kind of help the Payor Health Index

ment) does not guarantee that it will

can provide. The first PCT discovered that its

achieve similarly good results in other areas.

screening rate (the percentage of women

who regularly receive mammograms) was only

How payors can use the results

Understanding
current
data limitations

half the national average; it was therefore not

The wealth of data the Payor Health Index

surprising that the PCT s early detection and

provides is often invaluable to payors. The index

five-year survival rates were low. For this payor,

enables them to determine which disease areas

the challenge was to determine how it could

and which outcomes to focus on, as well as

better reach out to the women in its community

which underlying factors they should attempt to

to persuade them to undergo mammography.

At present, both the health data gathered directly by payors

and the information that is publicly available have two
important limitations that must be kept in mind when payor
performance is being compared: availability and reliability.
These limitations do not prevent us from comparing
performance, but the comparisons would be stronger if the
available data were more robust.

information, such as family history of breast cancer

or the presence of genetic markers. In most communities,
information about smoking rates in women is available,
but smoking is a much, much weaker risk factor for breast
cancer than family history or genetic markers.

Availability. Throughout the world, efforts to monitor the

quality of care are in their infancy, and thus the data
that providers are required to report to payors are incomplete
and somewhat arbitrary. In some cases, the metrics
were selected simply because they are easy to measure,
rather than because they are the best predictors
of outcome.
An even greater problem with data availability is that many
types of information are not being systematically collected.
Breast cancer provides a good illustration of this problem.
Currently, few, if any, payors or government agencies are
collecting basic demographic information from women about
age at first period, total number of pregnancies, or age at
menopause. They are also failing to collect more sophisticated

Reliability. Publicly available information is not always as

reliable as we would like. For example, it may have
been derived from relatively small surveys conducted over
a brief period of time, and errors may have crept in as
the numbers were extrapolated upward. Alternatively, the data
may have come from a large-scale (for example, national)
survey, but the local population may not be a representative
sample of the national population.
Because of these limitations, the risk factors and interventions
included in the Payor Health Index are not always the ones
that would have been best to use; some were simply the best
available. We strongly believe that payors should demand to
be given better information. This may be easier to achieve with
providers than with local governments, but it is something
payors should strive for if they want to improve health
outcomes.

56

Health International 2009 Number 8

The second PCT had a higher-than-average

their population is too rural (or too urban), its

screening rate but a lower-than-average

average age is too young (or too old), and so

early detection rate. The cause of this anomaly

forth. In actuality, this is rarely the case.

was not immediately evident. It is unlikely

There are many meaningful ways to categorize

that the wrong women were being screened,

payors into peer groups.

because the guidelines for patient selection

are very clear. The PCT is currently investigating

For example, we segmented all of Englands

whether its providers equipment may be

PCTs into nine sets, based on each communitys

malfunctioning and whether radiologists may be

deprivation level and its risk factors for diabetes.

reading the mammograms inaccurately.

We then looked closely at the three sets

of PCTs that had a high number of diabetes

The third PCT had a different problem: both

risk factors to see how their performance

its screening rate and its early detection

compared (Exhibit 6). As expected, performance

rate were markedly above the national average,

within each set varied widely. However, the

but its five-year breast cancer survival rate

relative level of deprivation (low, moderate, or

was below average. When the payors chief exec-

high) had very little impact on performance; in

utive looked into the problem, she discovered

fact, the PCT with the highest performance was in

that it most likely resulted from the regions

a highly deprived community. These findings

fragmented network of oncology providers. Best-

support our contention that payors can learn

practice payors use a high-volume provider

from their peerseven their peers in more

typically a regional cancer centerthat offers

deprived communities.

high-quality services, including breast surgery,

radiotherapy, and chemotherapy.

Using the Health Index in other settings

Since we first developed the Payor Health Index,

We have seen similar results in other disease

we have adapted it for use in other countries.

areas. Occasionally, the Payor Health

In each case, the purpose and approach remained

Index highlights underlying factors that a payor

the same, but we tailored the index either to

has little or no control over (the number of

better reflect locally available data or to provide

single-parent families in a community, for exam-

greater focus on, and a more extensive set

ple). Even in these cases, however, it provides

of metrics for, disease areas of particular concern

helpful information because it enables the payor

(for instance, cancer and diabetes).

to make better decisions about how to combat

certain conditions. A payor that wanted to

More recently, we have begun to develop a similar

improve its asthma outcomes, for instance, could

tool, which we have dubbed Health Insights,

realize that it needed to enlist the help of other

for use in health systems. The aim of the Health

organizations, such as housing authorities

Insights is to provide health system executives

and environmental agencies, in order to reduce

with the intelligence required to make the most

some of the risk factors for that disease.

effective use of their health care budgets. Health

Insights is designed to permit comparisons

Identifying peers to learn from

both within and across health systems; it allows

Many payors claim that their circumstances are

executives to measure how well the regions

too unusual to permit easy comparisons:

within their own systems are doing, as well as

Comparing payor performance to enhance health outcomes

57

Health International 2009

PHI
Exhibit 6 of 6
Glance:
Exhibit title: Payor performance varies even within peer groups

Exhibit 6

16

Even within peer groups,

payor performance varies.

14
Diabetes mortality, years of
life lost per 10,000 people

Performance varies

Each dot represents a different payor

12
10
8
6
4
2

High risk factors

High deprivation

High risk factors

Some deprivation

High risk factors

Low deprivation

Source: Payor Health Index

how well their systems compare with the health

systems in other countries. This tool assesses
the resources spent, outcomes achieved, and key
drivers of performance, and it identifies the
areas most in need of improvement. Our hope is
that the executives who opt to use Health
Insights will develop into a peer community
of regional health leaders who share experiences
with and learn from one another.

Around the world, increasing attention is being

paid to both the cost of health care and the
quality of care delivered. As a result, it is doubtful
that many countries will continue to tolerate
the wide regional variations in health outcomes
that are seen today. The Payor Health Index
and its offshoot, Health Insights, can help
payors and health systems identify where their
performance is weak, what they can do
to improve it, and which peer organizations they
can learn from.

Paul Betts, a senior research analyst with McKinseys

health care practice in London, works extensively with
Englands National Health System. Farhad Riahi, MD,
a principal in the London office, leads McKinseys work
on clinical health economics. Siddharth Shahani, a
research analyst at McKinseys Health Systems Institute,
currently focuses on making health information comparable across different health systems.