Value-Based Purchasing

Brady A. Augustine, Bureau Chief

Medicaid Health Systems Development

Presentation to Florida’s Medicaid Managed Care Plans

January 16, 2008

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Dilbert System Change

…is quality really our top priority?

Part 1.The Real and Growing Problems

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“All great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their

people in their time. This, and not much else, is the essence of leadership.” John Kenneth Galbraith

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It’s a System – not a Person – Problem

Source: Congressional Budget Office. The Long Term Outlook for Health Care Spending: Sources of Growth in Projected Federal spending on Medicare and Medicaid. November, 2007.

(Attributable to Medicare and Medicaid)

…and it is our Problem.

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7000 United StatesGermanyCanadaFranceAustraliaUnited Kingdom

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1980

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United StatesGermanyCanadaFranceAustraliaUnited Kingdom

Source: OECD Health Data 2007

Average spending on healthper capita ($US PPP)

Total health expendituresas percent of GDP

2624

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33

24 23

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<100% FPL 100% to <200% FPL 200% to <400% FPL 400%+ FPL

1996 2003

Percent of nonelderly adults spending 10% or more of disposable incomeon family out-of-pocket medical costs and premiums

Note: Financial burden includes out-of-pocket costs for premiums for private insurance and other health services.Source: J. S. Banthin and D. M. Bernard, “Changes in Financial Burdens for Health Care: National Estimates for thePopulation Younger than 65 Years,” Journal of the American Medical Association, Dec. 13, 2006 296(22):2712–19.

It affects ALL of us…

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2000 2001 2002 2003 2004 2005 2006* 2007*

Net cost of private health insurance administration

Family private health insurance premiums

Personal health care

Workers earnings

Notes: Data on premium increases reflect the cost of health insurance premiums for a family of four/the average premium increase is weighted by covered workers. * 2006-7 private insurance administration and personal health care spending growth rates are projections.Sources: A. Catlin, C. Cowan, S. Heffler et al., “National Health Spending in 2005: The Slowdown Continues,” Health Affairs, Jan./Feb. 2007 26(1):143–53; J. A. Poisal, C. Truffer, S. Smith et al., “Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact,” Health Affairs Web Exclusive (Feb. 21, 2007):w242–w253; Henry J. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 2000–2007 (Washington, D.C.: KFF/HRET).

109%

65%

91%

24%

Percent…and will only get worse.

U.S. health care mediocre across the board: Rich or poor, black or white, Americans get equally shoddy treatmentAssociated Press (March 15, 2006)

Overall, patients received only 55 percent of recommended steps for top-quality care — and no group did much better or worse than that.

We also have a Quality Problem.

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Where’s the Value?

Part 2.Value-Based Purchasing – a

Difficult but Promising Solution

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“You can always count on Americans to do the right thing - after they've tried everything else.” Winston Churchill

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What is Value-Based Purchasing? The concept of value-based purchasing is that buyers should hold providers

of health care accountable for both cost and quality of care. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to identify and reward the best-performing providers.

This strategy can be contrasted with more limited efforts to negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved.

VBPQuality Efficiency

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What is Value-Based Purchasing? (continued)

The key elements of value-based purchasing include: Contracts spelling out the responsibilities of purchasers with selected

insurance, managed care, and hospital/physician groups as suppliers. Information to support the management of purchasing activities. Quality management to drive continuous improvements in the

process of health care purchasing and delivery of health care services.

Incentives to encourage and reward desired practices by providers and consumers.

Education to help beneficiaries become better heath care consumers.

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VBP from a Physician Perspective

Problem “…physicians who want to improve quality of care find that

payment systems often do not provide them with the resources or flexibility needed to do so.”

Solution “ Linking a portion of payments to valid measures of quality

and effective use of resources would give physicians more direct incentives to implement the innovative ideas and approaches that actually result in improvements…”

Source: Mark McClellan, M.D., Ph. D., former CMS Administrator in testimony before House Committee on Ways and Means (July 21, 2005)

What we know…

Health care quality is improving but the quality chasm is still very wide and more money for more services is not the solution…

…but more money for the right services will help accelerate improvement.

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Current Climate

Public sector interest Both at national and state levels

Private sector initiatives Leapfrog group Private insurers National Quality Forum

Medicare Payment Advisory Commission reports Institute of Medicine International comparisons

NHS P4P for primary care since 2003

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White House Executive Order

Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs (8/22/06)1. Increase Transparency In Pricing. 2. Increase Transparency In Quality. 3. Encourage Adoption Of Health Information Technology (IT) Standards. 4. Provide Options That Promote Quality And Efficiency In Health Care.

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Where Do We Go From Here?

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Decision Points What types of incentives? Financial, nonfinancial, or both

What to reward?

Attainment, improvement, or both

Fixed or relative targets

How to pay? Add-on, withhold, corridor, shared-savings

How to reward, if financial? Fixed or relative rewards

What types of measures?

Process, outcome, and/or structure

Preventative, acute, and/or chronic care

What type of adjustment, if any? Risk, stratification, or exclusion

What type of provider? Individuals or groups

What type of data? Administrative or medical record

A Better Look at Funding

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Lessons Learned to Date

Value is “relative” The system is not “zero-sum” – at least 30% of health care spending

is wasteful. VBP puts dollars where they create the most value. Provider involvement on the front-end is necessary Carrots work better than sticks Incentives are not “free money” but compensate providers for value-

added services necessary to appropriately manage care. People do not live in the aggregate (“tyranny of the many”). This can

be addressed either on the front end with appropriate measurement or balanced with the use of outcome measures.

Consistency with Patient-centered care is important

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Lessons Learned to Date Data and rewards should be timely and accurate. Balanced and robust measure sets are helpful. Providers prefer fixed targets and fixed rewards. Finding “medical homes” for patients is very important. “Value Exchanges” and other team approaches improve data and

reduce provider burden. And finally, VBP is only ONE tool in the quality and efficiency

toolbox. VBP complements but does not replace focus on good coverage and benefit policy.

Questions?