Tag: value-based purchasing

Why bundled payments haven’t worked

I found this NEJM perspective article really interesting and want to make a few comments on it.

The background for this new bundled payments initiative is that CMS has been trying out bundled payments in a voluntary capacity for a while, and they have lowered costs only slightly but paid out a lot more than that in bonuses.

If I keep talking about how important bundled payments are, does that mean this is evidence against what I’ve been saying?

That’s an important question. We tend to subconsciously ignore or justify or minimize or forget information that is dissonant with our worldview, so it’s something I have to be deliberate about avoiding.

And, in this case at least, these data fit exactly with what my Healthcare Incentives Framework would predict.

The only way to sustainably improve the value delivered by our healthcare system is by increasing value-sensitive decisions, which will enable higher-value providers and insurers to win more market power, which translates into more profit.

And bundled payments don’t achieve that by themselves.

For a value-sensitive decision to be made, you need patients to have (1) multiple options, (2) both the price up front and also some information about quality, and (3) they have to pay a little more if they choose a more-expensive provider or less if they choose a less-expansive provider.

So, no, I wouldn’t expect bundled payments to have a big impact immediately and in isolation. But they’re a super important piece of the solution to start integrating permanently into our healthcare system, so I hope CMS keeps up these efforts regardless of the short-term costs and benefits of these programs!

And one last point on the mandatory nature of this new bundled payment program, which is called the Transforming Episode Accountability Model (TEAM). (Man that’s a name that clearly started with the acronym.) I am not totally convinced that mandating hospitals to join a program is a good thing, but it may offer a track to solving one of the other challenges providers always face when they join alternative payment models: non-uniform incentives.

When a provider is rewarded differently from each payer, they don’t have the uniform incentives necessary to really optimize toward any single set of incentives. So even better than mandatory participation in a single bundled payment model would be to get all the insurers together in a region and have them all offer the same model to the providers, and then they have the choice whether to join or not.

And if you could also get the providers to report useful quality metrics and get the insurers to implement some differential cost-sharing requirements for those same care episodes, you’d be well on your way to seeing a region’s value start to dramatically shift upward for those specific services.

Basically, I’m describing the pilot program I designed for Utah as an intern at the Department of Health, but our grant proposal didn’t get funded. That was a heartbreaker. I do think that Departments of Health have a role here as a convener of these various parties to help them solve some collective action problems (in this case, getting uniform incentives for providers when implementing alternative payment models).

These sort of changes are so implementable if only the people running CMS knew about them.

Oh, and for those who have been following this blog for a while, here’s a quick update: I’m still working on revising my Theory of Money series. You’ll know it’s done when I release the summary post that gives an overview of each part in the series.

The True Usefulness of Quality Reporting Is Misunderstood

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Last week I wrote about how cost sharing is misunderstood. This week I’ll continue in the same vein and talk about the same thing but related to quality measurement and reporting.

Quality measurement and reporting is becoming a pretty big thing. Just look at all the different Medicare programs (the big ones being MIPS and APMs) trying to achieve this thing they call “value-based purchasing” (which, in their estimation, seems to mean pretty much anything other than straight fee-for-service reimbursements). These programs involve lots of quality reporting requirements, and then compensation is directly tied to those quality metrics, usually through bonuses for high performers.

But this is the wrong way to use quality metrics.

Before I explain why I believe this is the wrong way, I need to clarify what my goal is with healthcare reform. I am interested in improving the value (Value = Quality / Price) our healthcare system delivers.

This is usually the part where people say, “If you want to improve value, you’ll make a lot more progress by preventing people from getting sick in the first place, so you should focus your efforts on public health initiatives!” Or, others will say, “You need to work on getting more people access to the healthcare system. Solve this issue first, then you can figure out how to improve the system’s value!”

I agree that those are very important issues. And I believe we need to work on both of them as well as this one of improving the value the system delivers at the same time. So I’ll keep writing about these things and figuring out how to fix our healthcare system in all these ways.

Anyway, let’s think about what is going on when a provider does a great job and has really high quality metrics and gets paid bonuses (say, 5% or so on top of what Medicare would otherwise have paid them) as a reward.

If our goal is to improve value, what we’ve just done is taken the higher-value providers and increased their price, which means their value has dropped back down to everyone else’s. Sure, this incentive has gotten us better quality for more money, and yeah eventually we’ll probably have higher quality overall, but it’s going to be at the cost of a lot of consternation of providers as we repeatedly take away their quality bonuses when we raise standards. Overall, this quality bonuses idea is just a frustrating and generally ineffective way to improve value. But I understand why it’s so popular–it’s an obvious way to encourage value.

Is there an alternative? Of course. We need to find some way to reward providers for providing extra quality. But how we do that, that’s the question.

What if we could find a way to get more patients to choose those higher-value providers? This would reward them with more profit, and now the providers with lower value are losing out on money because they’re losing market share. There would be no administrators at fault when a provider makes less money. No top-down program decisions to blame. PLUS, more patients would be getting higher-quality care immediately. That’s a pretty great system.

So, instead of using quality reporting to give administratively determined bonuses, we need to use them to help patients identify the best-quality providers so they can choose to receive care from them. This would involve measuring very different quality metrics–ones that patients actually care about.

Can we do it? I believe we can. There’s a lot to how we could make this happen, and I’ll talk more about that next week.

Context for what “Value-based Purchasing” (VBP) Really Is About

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As I was reading through the ACP’s “Health Care Delivery and Payment System Reforms” paper this week, I was thinking more about the principles underlying this whole “value-based purchasing” (VBP) thing. So, before we delve into the ACP’s opinions on the topic, I thought it would be helpful to give a little context about what VBP really is.

I’ve written about these topics before here and here, and those posts describe somewhat different aspects of VBP and fee for service than what I’m talking about today.

The stated goals of VBP boil down to two things: (1) reward (and thereby improve) value and (2) decrease healthcare spending. If you’re familiar with my Healthcare Incentives Framework, you know I think trying to give providers bonuses for delivering better quality is not a transformational nor a sustainable effort. But what of the goal to decrease spending? Let’s talk about that for just a minute.

Question: Who stands to gain (or, save) the most if healthcare spending goes down? Answer: The person on the hook for paying for it. Paying for healthcare is a shared responsibility between the patient and the insurer, but really the risk for having to cover large healthcare expenditures resides with the insurer. (Yeah, that’s the point of insurance.)

So, if insurers are the ones that stand to benefit the most if healthcare costs go down*, what can they do to make that happen? They don’t directly control what providers do, but can they financially incentivize those providers somehow to find ways to decrease healthcare spending for them?

Yes. That’s what VPB is. And that primarily takes two forms:

First, they can simply pay them extra to reorganize in certain ways that would decrease spending. The insurer hopes the additional investment will result in a lot more savings than they invested. So, an example of this would be when insurers give clinics extra money when they offer expanded services such as after-hours access to doctors, social workers, and care coordinators. Think: patient-centered medical home.

Second, they can shift some of the risk to providers, so providers will make more money if they successfully decrease spending but will also make less money if spending increases. Think: Any “shared savings” plan, such as an ACO.

Now when we talk more about VBP, you will see these two tactics at work. Really, these are the only two tactics insurers can use, so every VBP model is some variation of one or both of them.

*There are some complicating factors in that statement. One is that with the ACA’s medical loss ratio restrictions, they actually don’t stand to gain much if they find a way to decrease medical spending, because they’re required to turn around and send a lof of that extra money they saved back to their enrollees in the form of rebates. It messes with insurers’ incentives to lower the cost of care, and this is one of the many reasons I despise those regulations. Another complicating factor is that insurers make a large amount of their profits (if anyone knows a specific number, I’m all ears) off the stock market by investing the premium money until they need to pull that money back out of those investments and pay for care. So, the more they get paid in premiums, the more they have available to invest in the interim. If all insurers could collude and find a way to keep healthcare super expensive, they would be tempted to do that, especially if they could keep premiums high AND decrease spending at the same time (and keep 100% of the difference). However, that is not a Nash equilibrium–there’s an incentive for someone to cheat the others and make more money than their competitors by lowering premiums and winning all the market share–so I don’t expect it to be a lasting thing even if it is happening informally in certain markets at certain times.