Monday, 16 March 2015 15:20

Value-Based Purchasing Heating Up

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One of the many objectives of the Patient Protection and Affordable Care Act is the successful transition from a volume-based healthcare payment system to one that pays for value. Well, to that end, things have really started to heat up!

Last month the U.S. Department of Health and Human Services (HHS) announced some pretty ambitious goals for the healthcare industry. By 2018, the Department wants 50 percent of Medicare payments based on quality of care. This is the first time in the history of the Medicare program that such specific goals have been set for provider payments. 

The plan is by 2016, which is less than a year away, 30 percent of all Medicare provider payments will fall under some form of alternative payment model – which includes accountable care organizations, patient-centered medical homes, or bundled payments.

One additional goal is for "virtually all" Medicare fee-for-service payments to be tied to quality and value eventually. This will be either in the form of bonus payments or reductions in payments.

There is concern in the healthcare industry that this will have a serious financial impact on all smaller hospitals and physician groups. Many are already struggling to survive cuts in reimbursement. As we are seeing in the industry, these actions clearly favor the larger hospitals and integrated health systems.  

Regarding the payment overhaul, the Centers for Medicare & Medicaid Services (CMS) has stated that the change is being made to push the healthcare industry toward greater value-based purchasing (VBP) rather than continuing to reward providers for the amount of care delivered, regardless of the quality of care. Of course, the other reasons are the impact Medicare spending has on the federal budget and the size of the federal deficit.

Now for reality check. How is the industry doing in this transition? 

Well, fewer than 800 of the 1,700 hospitals that earned bonuses from this program will actually receive extra money, according to a Kaiser Health News analysis. That’s because the others are being penalized through two other Medicare quality program initiatives: one penalizes hospitals for having too many patients readmitted for care, and the other lowers payments to hospitals at which too many patients developed infections during their inpatient stays.

When all these incentive programs are combined, the average bonus for large hospitals — those with more than 400 beds — will be approximately $213,000, while the average penalty will be about $1.2 million, according to estimates by The Advisory Board, a consulting company based in Washington, D.C. For hospitals with 200 or fewer beds, the average bonus will be about $32,000 and the average penalty will be about $131,000. 

Now, at the same time, CMS is driving VBP at the federal level. In January, a group of top U.S. health systems, payors, and stakeholders announced the formation of the Health Care Transformation Task Force, a private-sector alliance aimed at accelerating the healthcare industry's transformation to value-based care.

The Health Care Transformation Task Force is a 28-member organization that includes 20 insurers and provider organizations. Providers include Partners HealthCare, Trinity Health, Advocate, Dartmouth-Hitchcock, Dignity Health, and OSF HealthCare, to name a few. Payors involved include Aetna, Blue Cross Blue Shield of Massachusetts, and Blue Shield of California, as well as groups such as the Pacific Business Group on Health. As you can see, this is a pretty formidable group of organizations. They have committed to putting 75 percent of their business into value-based payment arrangements within the next five years.

The task force first plans to improve the accountable care organization (ACO) model, develop a standard system for bundled payments, and focus on improving the delivery and coordination of high-cost care services. They have already released a set of recommendations to improve ACOs. The Task Force also plans to develop additional recommendations for Congress, CMS, and the private sector on new delivery and payment models, best-practice tools, and benchmarks.

The group has 14 guiding principles. The most significant, from my perspective, is the following:

“Healthcare costs should not continue to crowd out other vital national investments. Growth in total health costs, both public and private, should be at or below the overall rate of GDP growth.”

This is the first time I can remember the cost of healthcare being considered in the larger picture of total spending, both public and private, for all of the goods and services our country produces. If past experience is any indication of future performance, regardless of what the investment companies’ commercials say, some dramatic changes in providers’ operating practices will have to occur. And this means that all providers, hospitals, physicians, and others will have to work together to reduce costs to manage with lower payments. 

Another key principle is the following: “Data is essential to driving the success of care coordination and should be provided at a sufficiently granular level by those private and public entities currently holding it to allow for standardized and ad hoc reporting by care coordinating entities.”

I think we can all agree that good data is essential to the success of value-based payments. The data needs to be at a much more detailed level than is available now, however, and it needs to be easily shared in real time. This is the only way to develop a long-term, cost-effective healthcare delivery system.

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 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.

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Last modified on Friday, 20 March 2015 13:28

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.