The most commonly heard comment in healthcare these days is that we have to move from paying for volume to paying for value. While it may sound trite, it also turns out to be pretty true. Right now, most healthcare services are paid for on a fee-for-service basis – with little regard for the quality of that service. We clearly need to move towards value-based payments (sometimes referred to as pay-for-performance or P4P).
Although a few folks remain skeptical about whether VBP/P4P can work (as though our pay for volume strategy is working out so well), asking whether we should pay for volume versus pay for quality no longer seems like a particularly interesting question.
The far more compelling and difficult question is how best to pay-for-performance? As I have written before, we need bold experiments with new payment models that employ three key principles: putting real money on the table, focusing on outcomes, and keeping the reward system simple (i.e. the better you do, the more you should get).
One such new payment model is the value-based purchasing (VBP) program from CMS, the largest payer of hospital care in America. It’s a modest program but an immensely important one. It is modeled after the Premier Hospital Quality Incentives Demonstration (HQID), which ran for 6 years and had modest effects on hospital performance on process measures and no effect on patient outcomes.
Despite these disappointing findings, the U.S. Congress, in crafting the Affordable Care Act, modeled VBP closely on HQID. The incentives in the program are small (currently at 1.25% of total Medicare payments) and still more heavily weighted towards process measures than outcomes.
The key question for VBP is whether it will work – whether patients will be better off because of it. We don’t know and realistically, we won’t for another year or so.
But what we do know is that two years into the program, certain hospitals seem to be doing well and others, not so much. Yes, the incentives are small and my guess is that any impact will be very modest as well. But, it’s still worth taking a look at how different types of hospitals are faring under VBP.
So we ran some numbers.
Over the past decade, there has been yet another debate about whether pay-for-performance, the notion that the amount you get paid is tied to some measure of how you perform, “works” or not. It’s a silly debate, with proponents pointing to the logic that “you get what you pay for” and critics arguing that the evidence is not very encouraging. Both sides are right.
In really simple terms, pay-for-performance, or P4P, can be thought about in two buckets: the “pay” part (how much money is at stake) and the “performance” part (what are we paying for?). So, in this light, the proponents of P4P are right: you get what you pay for. The U.S. healthcare system has had a grand experiment with P4P: we currently pay based on volume of care and guess what? We get a lot of volume. Or, thinking about those two buckets, the current fee-for-service structure puts essentially 100% of the payments at risk (pay) and the performance part is simple: how much stuff can you do? When you put 100% of payments at risk and the performance measure is “stuff”, we end up with a healthcare system that does a tremendous amount of stuff to patients, whether they need it or not.
Against these incentives, new P4P programs have come in to alter the landscape. They suggest putting as much as 1% (though functionally much less than that) on a series of process measures. So, in this new world, 99%+ of the incentives are to do “stuff” to patients and a little less than 1% of the incentives are focused on adherence to “evidence-based care” (though the measures are often not very evidence-based, but let’s not get caught up in trivial details). There are other efforts that are even weaker. None of them seem to be working and the critics of P4P have seized on their failure, calling the entire approach of tying incentives to performance misguided.
The debate has been heightened by the new national “value-based purchasing” program that Congress authorized as part of the Affordable Care Act. Based on the best of intentions, Congress asked Medicare to run a program where 1% of a hospital’s payments (rising to 2% over several years) is tied to a series of process measures, patient experience measures, and eventually, mortality rates and efficiency measures. We tried a version of this for six years (the Premier Hospital Quality Incentives Demonstration) and it didn’t work. We will try again, with modest tweaks and changes. I really hope it improves patient outcomes, though one can understand why the skeptics aren’t convinced.Continue reading…
A report published by the Institute of Medicine (IOM) on high-value health care attracted attention when it was issued last June. Authored by a group of eleven leading hospital executives, A CEO Checklist for High-Value Health Care describes programs at various hospitals that resulted in quality improvements and lowered costs. The report has a section called “Yield,” quantifying the extent of these improvements. These programs sound notable, and in fact I know some of the executives and hospitals involved, and would vouch that many significantly improved patient care.
But the report is less impressive when it tackles the cost side of the value equation, especially when it names cost control outcomes like: “days cash on hand increased from 180 to 202,” and “multiple years of 4-5 percent [hospital] margin.” Clearly, the hospitals improved their own bottom lines, but by how much did patient bills decrease? The hospital executives don’t account for that in the “yield.”
It seems this report defines “high-value” to mean highly valuable to hospital CEOs. Strikingly, though, the authors do not find it necessary to explicitly say so anywhere within the report. Perhaps they simply assume that a high-value checklist for hospital CEOs is automatically high-value to CEOs in other industries that are paying for services from hospitals. No offense to these well-meaning and highly accomplished hospital executives, but that is not always the case. Purchasers don’t see high-value health care in hospital cash flow or profit margins. They see value when they get the best service at the best price.
From reading recent headlines, one might easily get the impression that hospitals are resistant — or at least ambivalent — in their pursuit and adoption of accountable care initiatives.
Are Hospitals Dragging their Feet on Accountable Care?
Commonwealth Fund: “only 13 percent of hospital respondents reported participating in an ACO or planning to participate within a year”
KPMG Survey: “(only) 27 percent of [health system] respondents said current business models were either not very or not at all sustainable over the next five years”
Health Affairs: “Medicare’s New Hospital Value-Based Purchasing Program Is Likely To Have Only A Small Impact On Hospital Payments”
The Bigger Picture
Do hospitals today perceive their current business model on the metaphorical “burning platform” — when the status quo is no longer an alternative?
The answer from the headlines above might suggest “no”, but I believe the correct answer is “not yet, but it’s inevitable”. Hospitals are feeling the heat, but it’s just not yet hot enough to jump off the platform and abandon existing business models.
These days, I’d never consider trying a new restaurant or hotel without reading the on-line ratings on TripAdvisor or Yelp. I seldom even bother with professional restaurant or travel critics.
Until recently, there was little patient-generated information about doctors, practices or hospitals to help inform patient decisions. But that is rapidly changing, and the results may be every bit as transformative as they have been in traditionally consumer-centric industries like hospitality. Medicine has never thought much of the wisdom of crowds, but the times, as the song goes, they are a-changin’.
Even if one embraces the value of listening to the patient, several questions arise. Should we care about the patient’s voice because of its inherent value, or because it can tell us something important about other dimensions of quality? How best should patient judgments be collected and disseminated – through formal surveys or that electronic scrum known as the Internet? And what are some of the unanticipated or negative consequences of measuring patient satisfaction and experience? All of these questions are being debated actively, and some newly published data adds to the mix.
For the past few years, Medicare has been administering the HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) survey to a random sample of 300-1000 patients discharged from every U.S. hospital. Results are now posted on Medicare’s Hospital Compare website. Starting in late 2012, hospital payments will be on the line, as part of Medicare’s pay-for-performance program, known as “Value-based Purchasing” (VBP).
Take a look at the chart below. It shows representative prices for a knee replacement for different patients in different settings. The most shocking thing about the chart is that prices for essentially the same procedure are all over the map. Here are some obvious questions:
- Why is the price of a knee replacement for a dog — involving the same technology and the same medical skills that are needed for humans — less than 1/6th the price a typical health insurance company pays for human operations? Why is it less than 1/3 of what hospitals tell Medicare their cost of doing the procedure is?
- How is a Canadian able to come to the United States and get a knee replacement for less than half of what Americans are paying?
- How are Canadians getting knee replacements in the U.S. able to pay only a few thousand dollars more than medical tourists pay in India, Singapore and Thailand — places where the price is supposed to be a fraction of what we typically pay in this country?
- Why do fees U.S. employers and insurance companies are paying vary by a factor of three to one, when foreign, and even some U.S., facilities are offering a same-price-for-all package?
It’s amazing how often people cannot see the forest for the trees. Think how many volumes have been written trying (and failing) to explain why our health care costs are so high. Sometimes the answers to complex questions are more easily found by asking the simplest of questions.