Tuesday, 21 July 2015 05:06

VBP and Cost: How Close Are We to Population Health?

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My friend’s smartphone rang at 5:40 p.m. on a Friday afternoon a couple of months ago. “This is Dr. Green. I just received an email alert about your blood pressure,” the voice on the other end of the line said. “It was very high when you tested it in the waiting room BP monitor and when the MA re-tested it. I sent a prescription over to your pharmacy just now; you should pick it up and take it tonight. And I made an appointment for you to come in for some tests tomorrow morning at 9:30.”

No, this didn’t happen on the planet Pandora, or elsewhere in an alternate universe. Or maybe it did. This kind of preventive, patient-centric healthcare delivery is different enough from today’s norm to qualify as otherworldly. But could it be waiting in the near future for all of us?

Some industry leaders say that capitated, population-based healthcare for all of us is not only inevitable, but close at hand. For reasons I will explain, I am skeptical that we are anywhere near achieving that goal today. But I can certainly understand why people hope we are. There’s broad consensus that the present state of healthcare in the United States is unsustainable, and that putting providers at risk for the health of a defined population seems like the only practical way to put a serious bend into the cost curve.

As VBPmonitor readers know, our healthcare costs twice as much as that of most developed countries, and 50 percent more than the most expensive of the other countries. Furthermore, the slowdown in healthcare costs we’ve experienced over the past few years seems to be over. Costs increased 7.2 percent in the first quarter of 2015 over the first quarter of 2014, a trend that is driven by hospital cost increases of 9.2 percent year over year. Health insurance companies across the country are asking state regulators for 2016 premium increases of 20-40 percent.

Why are we in this boat, and how do we get out of it before it sinks? The “why” is simple. We’re the only developed country in which the government doesn’t do one of three things: a) run the delivery system itself, in whole or part; b) function as a single payer that negotiates provider fee schedules; or c) regulate provider fees across all payors. Any of these choices give our fellow developed countries’ governments enough leverage to constrain prices much better than our government can.

The issue for the United States is that we really, truly don’t want our government to do any of those things. Nationalize the system? Unthinkable. Single payer? President Obama was tempted, but in the end didn’t dare propose it. Regulate fees? No sign that this is catching on beyond a single state, Maryland. That leaves us no alternative but to get serious about “volume-to-value.”

Notwithstanding the growth of managed care, fee-for-service (FFS) remains by far the dominant form of reimbursement for healthcare in the United States. Other countries have FFS reimbursement for some providers, but as noted above, those countries negotiate and constrain fees in ways that our system does not. Furthermore, the extent to which our system breaks payment into discrete, individually priced coded chunks – DRGs and CPTs and E&M codes – is unique to the United States. The incentives this approach creates explain many things that are wrong with American healthcare, from why there is a shortage of primary care physicians (specialists use more expensive chunks) to the decades-old finding that the rate of surgery in any geographical are is directly proportional to the number of surgeons that serve that area, further illustrated by study after study showing that at least 30 percent of care in the United States is unnecessary.

In other words, FFS is the “volume” from which the volume-to-value movement wants to move us away. Yet most of the current public and private sector programs that carry a value-based purchasing (VBP) label don’t actually move us away from FFS. Whether they reward or penalize, they operate in a narrow band at the margin of FFS. This is not to say that VBPs do no good things. My last article for VBPmonitor outlined how programs like Medicare’s readmission reduction initiative force hospitals to manage and coordinate care across the continuum – something absolutely essential for true quality improvement. But to date they haven’t moved us much from volume to value.

There are plenty of signals from the federal government that getting from volume to value is indeed the goal.

  • The three-year timetable announced by U.S. Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell in January 2015 has 50 percent of Medicare FFS payments moving into “alternative payment models” – ACOs, bundled payments, and payments linked to patient-centered medical homes – by 2018, and 90 percent of all Medicare payments linked to quality and value in some fashion by the same year.
  • The “doc fix” legislation contains, starting in 2019, a track that incentivizes physicians to affiliate with alternative payment models under which they accept “more than nominal risk.”
  • Earlier this month, the Centers for Medicare & Medicaid Services (CMS) published a proposal to establish a mandatory five-year test of bundled payments for total hip and knee replacements. The test would involve 800 hospitals in 75 metropolitan areas. The episode of care for the arthroplasty would begin with admission and end 90 days after discharge. The hospitals would bear financial risk for the procedure, the inpatient stay, and all care related to the patient's recovery. The intent is to incentivize the hospitals to work with providers across the spectrum of care to ensure coordinated care and speedy recovery.

But there’s a problem. None of the alternative payment models mentioned in the three-year plan, and none of the others slated for later exploration (such as episode-of-care and at-risk oncology care), have the scale, scope, and proven effectiveness needed to evolve into population-based healthcare payments. Bundled payments and episodes of care are disease-specific. Most patient-centered medical homes aren’t able to control what happens when the patient is admitted to the hospital, where most of the cost of care is incurred. And many ACOs in the Medicare Shared Savings Program (MSSP) are having trouble building the infrastructure required to accept even the modest downside risk that comes with graduation from MSSP Track 1 to Track 2. (The American Hospital Association has estimated that an ACO with a single, 200-bed hospital will spend $5.3 million to get started, with ongoing annual operating expenses of $6.3 million.)

CMS originally planned that ACOs would automatically move to Track 2 after their initial three-year agreements, but it has been forced to allow an additional three years in Track 1 for the vast majority of ACOs that aren’t ready to advance. Jeff Greenfield and Nathan Kaufman noted in a commentary piece in Modern Healthcare earlier this month that “the pattern in these (Medicare) ACO programs is that a small fraction of ACOs generate most of the bonuses … (and) for the majority of ACOs, the return on investment for setting up and operating them is negative and likely to remain so.”

Greenfield and Kaufman also conclude that the commercial ACO deals they’ve studied don’t involve much population accountability. Functionally, they are narrow-network PPOs that cost providers up to 30 percent fee discounts to join, with the opportunity to earn back some of the discount if they meet spending and quality targets. The authors rightly point out that “deeply discounted fee-for-service with a small fraction of payments tied to ‘perfomance’ is not population health.”

To sum up: to move toward population health for all, we first must recognize how costly and time-consuming achieving that goal will be. My friend with high blood pressure is not in an ACO or patient-centered medical home. He is a member of an HMO plan owned by a large, fully integrated delivery system. That care is the culmination of several decades of investment in the culture, systems, and relationships needed to deliver measurably high-quality population health at a cost significantly lower than that of fee-for-service-based plans.

Certainly, new provider entrants in population health can learn from veteran plans’ experience and greatly shorten the timetable. But many will need financial and technical assistance on a scale far beyond what anybody has been willing to provide – and certainly beyond what can be provided by a federal government that at this point in history is unable to muster the funds and the political will to maintain roads, bridges, and the power grid.

I believe we eventually will find a way to get to true population health-based payment. We will have to. The alternatives are nationalization or harsh and very “un-American” regulation.

Winston Churchill once famously remarked that “you can always count on the Americans to do the right thing, but only after they’ve tried everything else.” Today we’re in the “everything else” stage of VBP programs. I can’t wait until we find the courage and determination to start building population health programs that serve all of us as well as one HMO serves my hypertensive friend.

About the Author

Philip Nathanson is the president of Nathanson Consulting LLC. He has held quality leadership positions at CMS, Aetna, and NCQA. His consulting clients include hospital systems, HIM firms and biotech companies. His articles on quality and healthcare management have appeared in Becker’s Hospital Review, H&HN Online, Topics in Healthcare Financing, and other journals.

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Last modified on Wednesday, 22 July 2015 03:59

Philip Nathanson is the President of Nathanson Consulting LLC.  Phil has held quality leadership positions at CMS, Aetna, and NCQA. His consulting clients include hospital systems, HIM firms and biotech companies. His articles on quality and healthcare management have appeared in Becker’s Hospital Review, H&HN Online, Topics in Healthcare Financing and other journals.