Value-Based Purchasing

You are currently browsing articles tagged Value-Based Purchasing.

How Health Reform will affect Hospital’s Business Strategy

January 19, 2012 in Health Reform, Hospitals, P4P | No comments

For many years, fee for service payment was the status quo. FFS model encourages hospitals to adopt the following strategies to maximize market share and profits:

  • Centered on short-term acute care
  • Focused on specialist alignment
  • Driven by a volume-based service-line strategy
  • Using expensive medical equipment purchases to encourage physician referrals
  • Attracting patients with new construction in support of market share growth
  • Short-term acute hospitals focus on profitable service lines such as oncology, cardiology, neurology, and orthopedics.

Specific examples of this growth are abundant.  In Indianapolis, all four of their hospital systems built coronary surgery centers at a combined cost of $210 million.  A community hospital 15 miles north of the city opened a smaller, open-heart surgery program.  In Cincinnati, nine hospitals performed open heart surgery. Eight Boston Hospitals Have da Vinci System, which may indicate that robotic surgery may be used for marketing purposes.

However,  health reform has started to change these trends.  Medicare is instituting more bundled payment (e.g., dialysis payments)  rather than pure fee-for-service.  Further, Medicare’s Shared Savings Program (MSSP)  aims to use Accountable Care Organizations (ACOs) to coordinate patient care improve quality and reduce the rate of growth in health care spending.

How will hospitals respond to the changing market landscape?  One way hospitals can improve their margins is to only treat healthier patients to improve their performance in the case where risk adjustment methods are imprecise.  Also, provider mergers may be a trend. Access larger populations will lessen risk providers must bear under new payment models.  Larger size also means that hospitals can negotiate better rates with suppliers.  Hospitals will likely sell redundant or non-core assets.

Hospitals will also adopt new technology to better manage care. For instance, Henry Ford Health System in Detroit uses an embedded specialized software called RadPort in its electronic physician order entry system that prompts physicians to enter specific information when ordering radiology tests.  The pilot, funded with a CMS grant, will see whether these prompts will reduce utilization levels.

Tags: , , ,

Medicare reducing reimbursement for low-quality docs

January 16, 2012 in Medicare, P4P, Physician Compensation | 4 comments

In 2015, Medicare will begin implementing a value-based purchasing (VPB) program for physicians.  Initially the program will target only certain physicians and groups of physicians, but by 2017 all physicians is participate in this program.

The VBP program will evaluate physicians along two broad dimensions: quality and cost.  In the final rule:

Section 1848(p) of the Act requires the Secretary to ‘‘establish a payment modifier that provides for differential payment to a physician or a group of physicians’’ under the physician fee schedule ‘‘based upon the quality of care furnished compared to cost *** during a performance period.’’ The provision requires that ‘‘such payment modifier be separate from the geographic adjustment factors’’ established for the physician fee schedule. In addition, section 1848(p)(4)(C) of the Act requires that the value modifier be implemented in a budget-neutral manner.

 

Quality

The current quality measures to be used include:

  1. The measures in the core set of the Physician Quality Reporting System (PQRS);
  2. All measures in the Group Practice Reporting Option (GPRO) of the Physician Quality Reporting System; and
  3. the core measures, alternate core, and 38 additional measures in the Electronic Health Records (EHR) Incentive Program measures.

Cost

The current measures of cost CMS is using are total per capita cost measures and per capita cost measures for beneficiaries with four chronic conditions (COPD; heart failure; coronary artery disease; and diabetes).

By January 2012, however, CMS will choose an episode grouper which can evaluate physicians based on episodes of care. Specifically:

Section 1848(n)(9)(A) of the Act requires us to develop by January 1, 2012, an episode grouper that combines separate, but clinically related items and services into an episode of care for an
individual, as appropriate.

Other Issues

One of the main problems of the physician VBP is attribution of patients to doctors. In managed care organizations, patients are assigned a primary care doctor or gatekeeper who are responsible for the patient’s overall care. In Medicare, the patient can see any willing provider; because the primary care doctor cannot restrict the patient’s choice of care, it is more difficult to hold them responsible for the care. Specifically, Medicare beneficiaries never have to choose a primary care doctor, so identifying the doctor to be ultimately responsible for each patient’s overall care is difficult.

Physicians require additional information to understand why the received the VBP scores they did. For this purpose, CMS will create Physician Feedback Reports, confidential reports providing more detailed information of the underlying factors which produce these scores.

For the VBP modifier in 2015, CMS will use 2013 as the initial performance period 2013. This means that payment adjustments in 2015 will be on care provided 2 years ago. Although evaluating physician performance, allowing for appeals and adjusting payments takes time; two years is a long lead time.

Tags: , , , , , , ,

Medicare Physician Payment Adjustments

November 21, 2011 in Healthcare IT, Medicare, P4P, Physician Compensation, Quality | No comments

The Medicare billing system is complex.  There an alphabet soup of acronyms, (e.g., RVUs, CPT, HCPCS, GPCI) and each of these affects payments in different ways.  In addition to the standard payment terms, Medicare is also creating additional payment incentives.  These payment incentives fall into three broad categories:

  • Quality reporting
  • e-Prescribing (eRx)
  • Electronic Health Records (EHR)

CMS’s Physician Quality Reporting System (PQRS) allows physicians to report the quality of care their patients receive. Physicians can report PQRS measures through claims, registries, or EHR systems.  To incentivize physician participation in the PQRS, CMS has adopted incentive payments.  In 2012-2014, Physicians who meet the PQRS participation requirements will receive a 0.5 percent payment bonus.  In 2015 through 2017, however, who do not submit a sufficient number of PQRS measures actually will receive a payment reduction.

In addition to the PQRS incentive, beginning 2012, Medicare eligible professionals who are not successful electronic prescribers under the eRx Incentive Program to a payment adjustment. This payment adjustment applies to all of the eligible professional’s Part B-covered professional services under the Medicare Physician Fee Schedule (MPFS). From 2012 through 2014, the payment adjustment will increase with each new reporting period. Accordingly, for 2012, eligible professionals receiving a payment adjustment will be paid 1.0% less than the Medicare Physician Fee Schedule (MPFS) amount for that service. In 2013 and 2014, the payment adjustment increases to 1.5% and 2.0% respectively.

A table summarizing these incentive payments is below.

Year PQRS eRx
Incentive Payment MOC Incentive Sucessful
2011 1.0% 0.5% 1% N/A
2012 0.5% 0.5% 1% -1%
2013 0.5% 0.5% 0.5% -0.5%
2014 0.5% 0.5% N/A -2%
2015 -1.5% N/A N/A N/A
2016 -2.0% N/A N/A N/A
2017 -2.0% N/A N/A N/A

CMS also offers physicians incentive payments to adopt EHR.  Incentive payments can be as high as $18,000 per year or $44,000 over a five year period.

Tags: , , , , , ,

Medicare’s Agenda for Hospital Accountability

November 14, 2011 in Hospitals, Medicare, P4P | 1 comment

CSC provies a nice overview of some of Medicare’s hospital quality initiatives. These initiatives include a value-based purchasing (VBP) program, reduced reimbursement for excessive hospital readmissions, and reduced reimbursement for hospital-acquired conditions (HAC).  Each of these three broad quality initiatives is described in more detail after the jump.

It is important to note that these quality initiatives are not voluntary and affect hospital payments through adjustments to the base DRG rate. Broadly, measures fall into three categories: i) claims-based, chart-abstracted, and patient satisfaction (i.e., HCAHPS).  Many of these quality measures will be part of the Inpatient Quality Reporting (IQR) program and will included in the Hospital Compare website.

Also, Medicare is implementing these three programs on top of similar programs which include:

  • Non-payment for care to treat specific HACs (see here)
  • A Medicaid program which also will not pay for care to treat HACs (see here)
  • Mandated review by QIOs of hospital readmissions within 31 days to assess standards of care and potentially recommend denial of payment (see here)

 

Read the rest of this entry »

Tags: , , , , ,

Health Reform’s Value-Based Purchasing Provisions

February 28, 2011 in Health Reform, P4P, Quality | No comments

The Affordable Care Act of 2010 includes a number of provisions to study and/or implement value-based purchasing (VBP) programs in the United States’ health care system.  These provisions target Medicare payment policies in particular.  Today I review a Robert Wood Johnson (RWJ) article which provides an overview of the ACA provisions related to VBP.

There are four Sections of the ACA which I will focus on: Section 3022, 3007, 3013, and 3021.  Let’s get to it.

  • Section 3022 calls for a Medicare Shared Savings Program, which would provide payments specifically for new accountable care organizations. The legislation specifically requires measurement and assessment of quality as reflected in clinical processes and outcomes, patient and caregiver experience with care, and utilization reflecting efficiency and effectiveness of care, such as hospital admissions for ambulatory care sensitive conditions.

The House also asked the Institute of Medicine (IOM) to study the value issue in two ways. First, the IOM would conduct a study that would explore whether Medicare‘s current geographic payment adjustments for the prices paid to physicians and hospitals, which are designed to reflect differences in input prices, are accurate and to propose specific improvements, if any.  At Acumen, I am currently working on designing an alternative approach to calculating geographic payment adjustments for hospitals.   Second, and broader in scope, the IOM would conduct a companion study on geographic variations in the volume and intensity of services and recommend how to incorporate “quality and value” metrics into Medicare payment systems.

Because much of the House health reform bill‘s language was lost when Congress decided to use the Senate bill as the basis for final legislation, permitting only a few House amendments to be brought as part of reconciliation bill amendments, the House compromise was not included in the Affordable Care Act. Subsequently, the secretary of the Department of Health and Human Services (HHS), Kathleen Sebelius, committed in writing to congressional members of the Quality Care Coalition (members representing lower-spending districts) that she would commission the IOM study as called for by the House. Recently, the IOM announced formation of the study panel, which has already begun  meeting.

The Affordable Care Act includes a Senate provision that would pay for individual physician services based on a “value index” assigned to physicians according to their quality and costs:

  • Section 3007 creates a new “value-based payment modifier,” which, starting in 2015, will be used to provide differential payments based on quality and cost of care. Since the payment adjustments are to be budget neutral, some physicians would receive bonuses and others penalties under this provision. Presumably, the IOM‘s study will be influential in determining how CMS might apply a value-based payment modifier.

I am also is also working on this project, evaluating whether episode grouping software can be used to evaluate physician cost efficiency levels.  Previous reports I have worked on are available here.  Further, the Act continues to advance the notion of bringing value into payments made to physicians, hospitals, and other providers through established payment mechanisms:

  • Section 3013 provides for the identification of gaps in quality measures and authorizes (but does not appropriate) funding intended to fill those gaps, relying on collaboration between CMS, the Agency for Healthcare Research and Quality (AHRQ) and the National Quality Forum, which will be primarily responsible for identifying the measure gaps. Priorities are to be given to the following areas: i)  health outcomes; ii)  functional status; iii) coordination of care; iv) meaningful use of health IT; v) safety; vi) patient experience; vii) efficiency; and viii) disparities.

The RWJ article continues, “While this work proceeds, the current pay-for-reporting and pay-forperformance programs—labeled as value-based purchasing—for physicians and hospitals will be extended and expanded. The most advanced is the program for hospitals; FY 2013 measures will include measures for five conditions and patient experience as measured by the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS). FY 2014 will include measures of efficiency.”

  • Section 3021 creates a Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services to test payment and service delivery models that reduce costs while preserving or enhancing the quality of care provided under Medicare, Medicaid, and CHIP, and funds it at $10 billion every 10 years. The legislation specifically suggests pursuing models that transition providers away from fee-for-service and toward comprehensive pay

Source:

Tags: ,

Oregon’s Test of Value-Based Purchasing

February 2, 2011 in Health Insurance, Quality, Value-Based Purchasing | No comments

More quality at lower cost has been the mantra of payers for many years.  But how do we make  this goal a reality?

Value-based insurance alters cost sharing structure so that beneficiaries have low levels of cost sharing for cost-effective services and high compayments for low value items.  I report by Joan Kapowich (2010) looks at Oregon’s public employee benefit boards decision in 2010 to adopt an improved value-based insurance design system.  ”Oregon’s Public Employees’ Benefit Board and Educators Benefit Board design and purchase benefits for the two largest employee groups in the state: 128,000 state and university employees and dependents, and 155,000 public education employees and dependents.”

The revised value-based purchasing structure eliminates cost sharing for 17 preventive services.  For instance, patients have $0 out-of-pocket costs for periodic health appraisals; vaccinations;  screenings for breast, cervical, colon, and prostate cancer; and tobacco and weight management programs.  Copayments for generic drugs were minimal.  All these services fall into Tier 1 coverage.  ”Tier 2 is a standard commercial plan designed to include cost sharing. Tier 3 is designed to reduce the use of preference-sensitive or supply-sensitive services but not to impede access to essential care…Tier 3 includes a separate deductible, higher out-of-pocket maximums, and a coinsurance percentage double that of tier 2 for specific types of care, including emergency room visits; arthroscopy; hip and knee replacement; hysterectomy; magnetic resonance imaging, computed tomography, and positron emission tomography scans; upper endoscopy; coronary angioplasty and stents; and spinal surgery.”

Yet these plans did face some opposition.  For instance, using the term “preference-sensitive” or  ”supply-sensitive” did not fly with patients.  Instead, the board renamed Tier 3 as the “additional cost tier.”  In addition, treatments and hysterectomies were originally included in Tier 3 coverage, but this move was considered “too contentious” and they were moved to Tier 2.  The reasoning: “Certain cardiac treatments are performed for emergency care, and certain hysterectomies are performed for cancer care. Emergency treatments and cancer care were excluded because they require prompt treatment.”

Will the VBP work?  The spending and patient outcome measures from 2011 will reveal the results.

Tags:

Value-Based Cost Sharing

February 4, 2009 in Asymmetric Information, Health Insurance, Optimal Ins (Theory) | No comments

Many policy experts have been proponents of value-based cost sharing.  Under value-based cost sharing, medical care that is seen to provide a higher marginal benefit to the patient will have lower coinsurance rates than medical care with lower marginal benefits.  If value-based cost sharing would be implemented, preventive care should have low coinsurance rates because of the subsequent health benefit.

This seems like a very attractive way to design health insurance benefits, but a paper by Pauly and Blavin (JHE 2008) asks if value-based cost sharing is truly a novel concept.

First, under perfect information, there is no reason to have value-based cost sharing.  In this case, patients should internalize the marginal benefits–now and in the future.  ”When all agents have perfect knowledge of patient illness states and benefits of care, optimal coinsurance should be zero; insurance should take the form of a fixed dollar (indemnity) payment to cover the full cost of care when care is cost-effective, and should pay nothing in circumstances in which care has benefits that fall short of cost.”

Under asymmetric information, however, patients may make naive decisions.  For instance, patients may decide to forgo preventive care because the do not realize its long-term health benefits.  Coinsurance rates must still be designed to balance the twin goals of risk sharing and averting moral hazard.  Lower coninsurance rates will incentivize patients to get needed care.  However, designing coinsurance rates solely based on the marginal benefit of the procedure may not be optimal once we take into account that patient moral hazard may increase medical care above optimal levels.  

Pauly and Blavin also note that under asymmetric information, “it may now be the more price responsive service that should get the cost reduction, since lowering its cost sharing will have a larger effect in terms of moving it closer to the ideal level than would be the case for a less responsively demanded service.  That is, if patient ignorance resulting in underestimation of benefits from care in a given setting is severe enough, the direct relationship between price responsiveness and optimal cost sharing should be reversed.”

Yet just because value-based cost sharing can work does not mean that is the only solution.  Instead of spending money to reduce coinsurance rates, insurance companies or policymakers could spend money to inform consumers of the true benefits and costs of different types of medical care.  This is especially true of medical services that are not price responsive; where the only way to convince patients to undergo these potentially uncomfortable procedures is to increase information dissemination.  For instance, most people would prefer not to undergo a colonoscopy even at a price of 0.  The only way to convince patients that the procedure is needed is by information dissemination.

Value-based cost sharing is not a magic bullet, but may be a useful technique in the presence of asymmetric information.

Tags: , , , ,

Value-based pricing

November 27, 2007 in Academic Articles, International Health Care Systems, Pharmaceuticals | Permalink

In February of 2007, the UK’s Office of Fair Trading (OFT) recommended reform to Britain’s current Pharmaceutical Price Regulation Scheme (PPRS). The PPRS sets maximum and minimum profit levels from the sale of branded drugs to the NHS. The PPRS allows companies freedom to set prices as they please on new substances, but restricts subsequent prince increases. A system of price cuts has also been instituted as well, yet it is likely that firms take these future price cuts into account when making their original pricing decisions.

Reform

Are there any other options? Simeon Thornton (Health Econ 2007) argues that a value-based pricing (VBP) scheme would be superior. In VBP, the NHS would pay pharmaceutical companies based on the value of the pharmaceutical to the patient base. One question is how value is determined. Thornton proposes cost effectiveness studies, which in effect means that the government or academics will determine the price.

Pricing will also be allowed to vary by subgroup since people with certain diseases may benefit more from a disease than others. Also, incremental improvement will be encouraged since marginal improvements in treatment will receive higher payments.

This program does seem to be an improvement. It is dynamically efficient since pharmaceutical companies will be paid more for more cost effective treatments. Further, if it turns out patients do not like the medicine and no one takes it, then NHS will not be paying a lot for failed drugs. Also, after generics are available, the price will adjust downward.

In the static environment, the pharmaceutical company will capture all the consumer surplus since price will equal marginal benefit. However, as time passes and generics enter the market, a large consumer surplus will occur.

The major impediment of this reform is the problem of any centralized system: information. How will the NHS determine cost-effectiveness? Will it be impartial? Will the conclusions be manipulable by interested parties? These questions are easy to answer theoretically, but very difficult to predict empirically.

Tags: , , ,