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President's Corner

A bi-weekly column from the Office of the President

Go Ahead – Pay Us for Performance

Jan. 23, 2006 10:34 AM | Author: By Ellen-Earle Chaffee | Updated: Nov. 17th, 2008 9:26 AM
I have the privilege of serving on the board of directors for MeritCare Health System. One of the many benefits is the opportunity to take a closer look at how health care works as a vital service industry and think about how health care and higher education are similar or different. Often, a perspective or solution in health care has potential value for higher education, and the reverse.

MeritCare is a non-profit organization, VCSU is a public one, and the two types have many similarities in terms of purpose. Both sectors depend for their very existence on the expertise and leadership of a large group of highly educated professionals, especially faculty and physicians. Many of those professionals think and act more like independent entrepreneurs than like "employees," making management a different kind of activity than in the private sector.

Both health care and higher education are facing rapidly spiraling costs and increasingly severe demands for accountability and cost reduction. Both are funded in very complex, multi-dimensional ways in which the client (student or patient) does not usually pay directly and completely for services rendered. Instead, insurance, student financial aid, and other payers act as intermediaries. Therefore, clients judge services with no knowledge of their true cost. Furthermore, both the quality and the efficacy of the services rendered are very difficult to assess.

For reasons like these, it is nearly impossible to define a "bottom line" measurement of the value these organizations provide. A rapidly growing number of state, national, and institutional efforts are underway, however, to dramatically improve both the measurement of quality and the relative cost for health care and for higher education. The goal is to hold each organization and each industry accountable to provide the best services at the lowest cost.

In health care, the movement toward "pay for performance" (P4P) is growing stronger daily. In effect, health care providers that are effective and efficient would receive more revenues from the various payers. This has occurred with higher education in other states to a very limited degree so far.

So I read a recent national higher education study report with particular interest. The study defined performance in terms of participation in higher education, undergraduate degree productivity, doctoral degree productivity, graduation rates, and success in acquiring competitive research funds. The authors were looking for states that scored high on those dimensions with relatively little funding.

According to their research, 'Relative to their levels of funding per FTE student, Utah, North Dakota, California, Arizona, Colorado, and South Dakota are the best at serving their adult populations aged 18 to 44 with a high school diploma but no college.' Interestingly, North Dakota is in the overall top six states, but not on the top lists for most productive subcategories: public research sectors, public baccalaureate and master's institutions, and two-year institutions. I take that to mean that states with one or two "top" performance subcategories fell down significantly in the other areas, whereas we have high (but not top) performance in all areas.

North Dakotans are getting a terrific deal with their higher education system, and this study demonstrates the fact.

Patrick J. Kelly and Dennis P. Jones, "A New Look at the Institutional Component of Higher Education Finance: A Guide for Evaluating Performance Relative to Financial Resources." NCHEMS News, January 2006, pages 2-7. Available online at www.higheredinfo.org/analyses.
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