Monday, 06 June 2016 05:25

Value Based Purchasing – Are We Making Progress?

Written by

G AdamsWell, the $64,000 questions are this: what are the early results of value-based purchasing (VBP), and is the healthcare industry making progress? Some may argue that it is a little too early to tell; however, there are some early preliminary results we can scrutinize.

Let’s start with results from the Centers for Medicare & Medicaid Services (CMS). For the fourth year of the VBP program, CMS announced that more hospitals will receive incentive payments for their base operating MS-DRGs than penalties. In total, 1,800 hospitals will have positive payment adjustments. This is an increase of approximately 600 more hospitals in comparison to reductions in the fiscal year.

For the highest-performing hospitals, the net change in payments will be just north of 3 percent, after the 1.75-percent withhold. On the flip side, the poorly performing hospitals will see the maximum reduction of 1.75 percent. However, a new report from the U.S. Government Accountability Office (GAO) found that the financial and quality effects of the program have been minimal in its first three years. The GAO’s report concluded that almost 75 percent of hospitals had their Medicare payments change by plus or minus one-half a percentage point, with the median bonus and penalty being $39,000 and $56,000, respectively. They also found no discernable positive trends in quality measures performance. However, they did note that trends may change as new quality measures are implemented to the program. One exception was in the area of readmissions, where there has been a positive shift in performance.

So from this perspective, there doesn’t seem to be much of a financial or quality impact from the federal VBP programs to date. Now, this may be related to hospitals still ramping up and changing operational practices to be prepared as VBP becomes a larger component of their total reimbursement. It also could be due to the fact that the VBP targets change and are driven by a hospital’s relative improvement compared to its peers – so over time, the entire industry performance will improve as a result of VBP.

One of the recent CMS initiatives that will drive an increase in the movement towards value-based purchasing is the bundled payment program for hip and knee replacements: the Comprehensive Care for Joint Replacement Model (CJR). As you are probably aware, this is the first bundled payment program that is mandatory in 67 geographic areas, as defined by metropolitan statistical areas (MSA).

Why were these services selected for this program? Well, in 2014, a total of $7 billion was spent by Medicare for these services, covering 400,000 patients. The program will run for five years and is projected to save Medicare $343 million. The savings will be generated by adjusting the target price to be paid to an average regional price, which tends to be lower than current payments. The payments will be transitioned, with one-third of the target price being based on the regional amount in year one, two-thirds in year two, and up to 100 percent in year five. Since this program was only implemented this year, there are no results to report on just yet. It will be interesting to see how hospitals and physicians adapt to the reductions in payments.

In addition to the VBP initiatives occurring on the federal level, the private sector has also been busy moving forward.

On the private sector side, new models of collaboration are emerging between providers and payors. These include the development of integrated network arrangements such as joint ventures between providers and payors, agreements like the ones Aetna and Blue Cross have entered into with providers, and equity investments by providers with health plans. All of these arrangements constitute an attempt to better integrate the delivery of care with the goals of increasing quality while reducing costs.

Another example of such a plan coming from the private sector is the Health Care Transformation Task Force: an industry consortium that brings together patients, payors, providers, and purchaserswith a goal of aligning private and public sector efforts to transform the U.S. healthcare system. The Task Force recently reported that 41 percent of its members’ business, both among providers and payors, was in value-based payment arrangements. This was an increase from 30 percent in 2014. The goal of Task Force members is to have 75 percent of their business be value-based by 2020. However, it is too early to tell whether the movement to a higher percentage of business being value-based will positively impact the quality provided and the cost of care.

Now, back to our original question.

What are the early results of value-based purchasing, and is the industry making progress? The answer is this: the industry is moving forward with the movement to a value-based system, and a greater portion of provider payments are now value-based. With the U.S. Department of Health and Human Services (HHS) setting the tone and moving toward its goal of having 90 percent of Medicare payments tied to quality or value by 2018 (and the private sector following its lead), the industry has moved and will continue to move forward with this transition. The big unanswered follow-up question is this: will this transition result in a more integrated healthcare delivery system, with improved quality at an affordable price? It will require more experience and time before we know the answer.

About the Author

Greg Adams is the chief strategy officer for Panacea Healthcare Solutions and has over 35 years of experience in the field of healthcare, including 20 years’ experience as a hospital CFO. His experience includes financial operations, managed care contracting, physician practice management, patient accounting, patient access, health information management, materials management, and real estate development. Greg is the past chairman of HFMA, having served as the chair of its Board of Directors in 2011-12. In that role he oversaw the services the organization provides to its 40,000 members. Greg speaks extensively on healthcare reform and the transition to a value-based payment system. His speaking engagements include national, regional, and state programs. He has previously served as a member of the National Board of Directors for the Healthcare Financial Management Association from 2002-2005 and as president of the New Jersey chapter in 1997-98. He has also served as a member of the Board of Trustees and chairman of the Finance Committee at St. Ann’s Home for the Aged in Jersey City, N.J.

Contact the Author

This email address is being protected from spambots. You need JavaScript enabled to view it.

Comment on this Article

This email address is being protected from spambots. You need JavaScript enabled to view it.

Greg Adams is the Chief Strategy Officer for Panacea Healthcare Solutions and has over 35 years of experience in the field of healthcare including 20 years experience as a hospital CFO. His experience includes financial operations, managed care contracting, physician practice management, patient accounting, patient access, health information management, materials management and real estate development.  Greg is the Past Chair of the National HFMA, having served as the Chair of its Board of Directors in 2011-12. In that role he oversaw the services the organization provides to its 40,000 members. Greg speaks extensively on healthcare reform and the transition to a value based payment system. His speaking engagements include national, regional, and state programs. He has previously served as a member of the National Board of Directors for the Healthcare Financial Management Association from 2002-2005 and as President of the New Jersey chapter in 1997-98. He has also served as a member of the Board of Trustees and Chairman of the Finance Committee at St. Ann’s Home for the Aged, Jersey City, New Jersey.