The American Journal of Managed Care August 2011
Value-Based Purchasing: The Evidence
Objective: This report presents evidence about “what works” in value-based purchasing strategies emphasized in national healthcare reform legislation, with a focus on service delivery integration, payment, and value-based insurance design. We review key findings to address the question: What is the evidence that a value-based strategy will improve health outcomes or reduce healthcare costs?
Study Design: This report is a review of peer-reviewed and field-based research associated with several value-based strategies purchasers can use to increase value in their healthcare market decision making: Accountable Care Organizations, Patient Centered Medical Homes, bundled payment methods and incentives, and value-based insurance designs.
Methods: Environmental scans and evidence reviews of value-based purchasing were conducted to inform this report.
Results: Many value-based approaches are new to the healthcare arena, and evidence of performance in improving health outcomes or reducing healthcare costs is limited but increasing as experience with these approaches grows.
Conclusions: Purchasers should be aware that evidence is contingent on market environment and study assumptions in considering specific strategies, and be cautious implementing them. The need for a new measurement paradigm for cost and quality that reaches across the care continuum is evident.
(Am J Manag Care. 2011;17(8):e310-e313)
Value-based purchasing approaches including service integration, payment methods, and value-based insurance design are emphasized in national healthcare reform legislation, but evidence of “what works” varies by strategy and is often inconclusive.
- Purchasers should be aware of evidence about performance, improving health outcomes, or reducing healthcare costs in considering specific strategies, and be cautious implementing them.
- Many value-based approaches are new to the healthcare arena, and evidence of performance is limited but increasing as experience with these approaches grows.
The PPACA legislation calls for implementation of demonstrations, pilots, and programs involving accountable care organizations (ACOs), patient-centered medical homes (PCMHs), payment bundling, and pay-for-performance (P4P) initiatives; extends a gain-sharing demonstration; and, in section 2713(a), calls for the creation of policy to “permit a group health plan and a health insurance issuer offering group or individual health insurance coverage to utilize value-based insurance designs.” We address 3 areas of value-based purchasing developed in the legislation of interest to purchasers: service delivery integration, payment, and value-based insurance design.
Service delivery integration is not a new concept in healthcare. Past examples of similar efforts range from the comprehensive planning legislation of the 1970s to Medicaid’s primary care case management model and from managed care’s integration and behavioral health carve-outs to physician hospital organizations. The results of these early experiences were inconsistent, due to challenges with implementation and measurement of cost savings and outcomes. As of late, there are high hopes for 2 models of service delivery integration: ACOs and PCMHs, which may employ payment bundling methodologies or financial incentives, such as P4P or gain sharing, to encourage providers to reduce cost and improve quality. In theory, these models generate cost savings from reduced hospitalizations and readmissions.
Accountable care organizations are networks or sets of providers and institutions, such as primary care physicians, specialists, and hospitals, which have joint responsibility for the quality and cost of care for a population. This care delivery model combines integration of care across providers to improve coordination and reduce duplication of services, and provides incentives for shared savings and insurance design focused toward population health improvement as strategies to enhance healthcare value. Congress mandated in 2000 that the Centers for Medicare and Medicaid Services (CMS) conduct the Physician Group Practice (PGP) Demonstration to test an ACO-like hybrid payment methodology that combines Medicare feefor- service payments with new incentive payments. The PGP encouraged the coordination of Medicare Part A and Part B services, promoted efficiency through investment in administrative processes, and rewarded physicians for improving health outcomes.2 A US Government Accountability Office evaluation concluded that the care coordination programs initiated by the participants showed promise, but that wider applicability of the payment methodology is questionable. In particular, the large size of the 10 participating physician groups, all with more than 200 physicians, gave the participants “certain size-related advantages that may make broadening the payment approach used in the demonstration to other physician groups and non-group practices challenging.” 2 Beyond the CMS PGP demonstration, few studies have rigorously examined whether ACO-type models do, in fact, improve quality and reduce costs. Given the recent introduction of ACOs, research in this area is limited and additional analysis is needed.
Delivery models where each patient has an ongoing relationship with a primary care provider who leads a team that takes collective responsibility for the patient’s care, PCMHs infuse traditional primary care approaches with service delivery integration through interdisciplinary team-based care coordination to reduce duplicative care, and related payment innovations to control costs and provide quality care. Because PCMH models coordinate the spectrum of patient care needs, they are well suited to leverage innovative communication tools and information technology and new reimbursement structures to realign incentives in favor of providing highquality care efficiently. Like other innovative models of delivery, the PCMH is most advantageous for systems or purchasers that can realize cost reduction benefits from decreased utilization and that are already well connected and technologically advanced. However, the additional administrative costs of integration at start-up may hinder the model’s cost control benefits in the short term.
An evidence base is building for improved quality, but evidence regarding patient and provider satisfaction and decreased costs under the PCMH model is inconclusive. Current research shows the PCMH has been adapted to a wide variety of populations and markets. PCMH examples for Medicaid populations are seen in Community Care of North Carolina and within the large integrated health plans and delivery systems of UnitedHealthcare, Group Health Cooperative of Puget Sound, Intermountain Healthcare, and the Geisinger Health System. An evaluation of Community Care of North Carolina found significant net savings for fiscal years 2004 through 2006. Fiscal year 2006 savings, for example, were estimated at close to $300 million for the state. When compared with fee for service, savings were especially high for inpatient care and for care to patients less than 1 year old.3
Payment methodologies such as bundled payment, financial incentives such as P4P, or gain-sharing approaches may be combined with integrated delivery systems or employed alone to achieve value in healthcare purchasing. Even though bundled payment approaches have been attempted for at least 2 decades, evidence—whether bundling is by episode, condition, treatment, or admission—is sparse beyond studies of hospital care bundling by diagnosis-related groupings. However, select notable studies have been conducted that show promising results. For example, Geisinger’s coronary bypass program, called ProvenCare, is designed as a flat fee payment for surgery and all related care for 90 days after discharge, which places accountability for outcomes on the care team.4 Results showed a 10% reduction in readmissions, shorter average length of stay, and reduced hospital charges. The program achieved a 44% drop in readmissions over a course of 18 months.4
A financing incentive, P4P, rewards providers for achieving the purchaser’s established objectives. Evidence of P4P, especially regarding cost reduction, is mixed.4 The evidence of the effects of P4P on quality improvement is stronger. One systematic review of the literature found partial or positive effects of financial incentives on measures of quality in 5 of 6 studies of physician-level financial incentives and 7 of 9 studies of the provider group-level incentives.5 P4P effectiveness depends on who receives the incentive (individual providers responsible for treatment decision making or health plans), on knowledge of the incentive, and on the level of incentive.
Gain sharing, once controversial but now in popular use, is another approach to reward incentivized behavior. Gainsharing arrangements, particularly those used in hospital and integrated delivery systems, provide bonus payments to physicians and other providers, to reward cost savings resulting from their efforts to reorganize delivery of clinically appropriate care at lower cost, eg, by being prudent in their clinical choices, including selection of procedures, supplies, and devices. The existing studies of individual programs show cost savings, but few studies have rigorously examined this issue. CMS implemented a 3-year demonstration project in 2007 that was extended by the 2010 national health reform legislation. CMS launched another 3-year demonstration with a consortium of 12 New Jersey hospitals and their participating physicians in 2009 that is intended to reduce healthcare costs and improve quality of care.6
Value-based insurance design (VBID) seeks to increase value in healthcare through insurance design and incentives, and includes various strategies and approaches that can be used together or separately in different VBID models. One model of VBID reduces or eliminates cost sharing for services that have strong evidence of clinical benefit in order to improve healthcare quality and efficiency.7 Another model increases cost sharing for services that do not show evidence of clinical benefit. While VBID has broader healthcare system applications, many attempts—and available evidence—involve pharmaceutical benefits. In general, coverage and cost-sharing provisions address the problem of moral hazard, which is the overconsumption of health services in the absence of a consumer having a financial stake due to insurance coverage. By reducing or removing cost-sharing for benefits where utilization is highly desired, as in the case of clinical benefits, VBID leverages the cost-sharing incentives on consumer behavior.
The empirical evidence of VBID is mostly related to select attempts to implement the approach by employers and other purchasers, including Pitney Bowes and Oregon’s Public Employees’ and Educators’ Benefit Boards. For example, Pitney Bowes shifted all diabetes drugs and devices from tier 2 or 3 formulary status to tier 1. This single change in pharmaceutical benefit design immediately made critical brand-name drugs available to most Pitney Bowes employees and their covered dependents for 10% co-insurance, the same co-insurance level as for generic drugs compared with the previous cost share of 25% to 50%.8 A study conducted 2 to 3 years after the policy change found that for plan participants with diabetes total pharmacy costs decreased by 7%, emergency department visits decreased by 26%, and hospital admission rates, although slightly increased, remained below the demographically adjusted Medstat benchmark. Overall direct healthcare costs per plan participant with diabetes decreased by 6%.8 Another Pitney Bowes effort eliminated copayments for cholesterol-lowering statins and reduced them for a blood clot inhibitor called clopidogrel. The change resulted in an immediate 2.8% increase in adherence to statins relative to controls and, for clopidogrel, a 4-percentage-point difference in adherence rate between intervention and control patients a year later.9 Forthcoming evaluations are pending on the University of Michigan’s MHealthy: Focus on Diabetes project and Aetna’s Post-MI Free Rx Event and Economic Evaluation trial.