The Big Sky Summit on Value in Healthcare was over six weeks ago but seems like a lifetime. Literally, the coronavirus pandemic has rocked our world. The unique role of the health system in our society is in the spotlight as never before, and the concept of value is likely to change as a result. To all on the frontline and the countless teams that support them, we are grateful for your purposeful work and prayerful for your safety. –Paul
On February 27th and 28th strategy leaders from seven prominent health systems convened in Big Sky, Montana to discuss prospects for value-based purchasing in the U.S. health system. Paul Keckley, Ph.D., Managing Editor of The Keckley Report, facilitated the group’s discussion which was jointly hosted by Keckley and Lumeris.
PART ONE: THE CONTEXT OF VALUE IN THE U.S. HEALTH SYSTEM
The economic concept of “value” is widely accepted as the measurable relationship between the price paid for a product or service and the benefit derived from the purchase. In most industries, the concept of a cost-benefit correlation is foundational to performance comparisons and competitive positioning between organizations.
In developed health systems of the world, cost-benefit analyses for comparisons of drugs, diagnostic tests and care management protocols are widely used. Policies that prioritize high-value approaches to care are the basis for how providers are paid and evaluated. It is codified in their systems of health.
But in the U.S. system, a formal process for comparing cost-benefit analyses and rewarding high value performance is rare. Why? There are three major reasons:
1. The U.S. system is fragmented so data about costs and benefits are not readily accessible. The delivery and financing of health services in the U.S. system, and the elements in its supply chain, are operated independently. The payment system in the U.S. is complicated and pluralistic: Medicare, Medicaid, Veterans Health, Indian Health, private insurers and employers are responsible for 90% of health spending, and each calculates what it pays providers based on proprietary analyses of costs to determine reimbursement. And each leaves some portion of these costs to individuals to fund as co-pays, premiums and non-covered out of pocket spending. Payers protect their cost-analyses as proprietary intellectual property.
Likewise, there are no uniformly accepted measures of benefit, aka outcomes. Each sector defines its own, and most use process measures as a surrogate for clinical outcomes since many factors impacting actual results are unknown.
2. Costs bear no resemblance to prices in the U.S. system. Each organization calculates its direct and indirect costs differently and sets prices accordingly. Complicating matters, providers (hospitals, physicians, post-acute providers, allied health professionals et al) and payers (insurance plans, Medicare, Medicaid, and employers) disagree on the fundamental notion of value and restrict access to analytics that might facilitate a uniform understanding of the relationships between costs and prices for the full range of patient interactions.
3.Payer-provider distrust: Payers think costs are unnecessarily high and believe fee-for-service incentives and providers’ market clout are root causes, and providers want to be left alone. Thus, the trend toward value-based purchasing in healthcare has been slow to gain traction but remarkably certain: payers are increasingly putting pressure on providers to assume financial risk for the patient care they provide, and providers are reluctantly participating to protect access to patients and their rates.
The Third Wave of Value-based Purchasing in U.S. Healthcare
Wave One: Pay for Performance: Efforts by payers to negotiate value-based payment arrangements with providers are not new. In the 90’s, large employers and private insurers offered incentives in “pay for performance” programs that rewarded some and penalized others. Methods were crude (risk adjustment, adverse selection, validity and reliability of cost and outcome data) and providers were only marginally impacted. Most participated, with little to risk and incremental revenues to be gained.
Wave Two: Capitation: Private insurers, recognizing marginal savings in prior pay for performance initiatives, launched a second wave of value-based purchasing centered on capitated payments in the late 90’s. Capitating narrow networks of providers with strong primary care gatekeeping, payers were effective in shifting financial risk to providers and in some cases, generating savings. Health costs slowed but the public’s distrust for “managed care” became palpable. Insurers retreated from capitation but recognized that financial incentives drove physician behavior.
Wave Three: Alternative Payments and Medicare Advantage: From these waves—pay for performance and capitation—two conclusions were reached by policymakers, health services researchers and economists:
1. physicians control the majority of health spending so a focus on changing their behavior is needed and
2. most physicians are dubious about accepting financial risk unless they think they are fairly compensated and care for their patients is not compromised.
In Wave Three, Medicare played the key role and the passage of the Affordable Care Act (2010) was key. The law used two strategies to bend the cost curve:
In the ACA, three pilot programs featuring alternative payments were authorized: the Medicare Shared Savings Plan (MSSP), aka accountable care organizations (ACO), Bundled Payments for Care Improvement (BPCI), and Patient Centered Medical Homes (PCMH). Each required providers to be organized as clinically integrated networks (CIN) to share data and facilitate care coordination for their patients. Each afforded providers the opportunity to share in Medicare savings that resulted from their efforts. But shared savings for many were not realized and Medicare spending did not slow. Nonetheless, in some markets, CINs were quite successful.
The second major cost-containment strategy in the ACA is Medicare Advantage (Medicare Part C). It is an alternative to Medicare Fee-for-Service offering seniors featuring narrower provider networks, wider supplemental benefits, care coordination and enhanced services. It is a popular program among seniors and is expected to enroll 50% of total Medicare enrollment by 2025.
Both represent major efforts by Medicare to shift financial risk to providers. Both require physician organizations to be clinically integrated, data literate and innovative in how care is provided. And both require providers to assume financial risks. It assumes that fee-for-service business shrinks and value-based purchasing becomes the primary source of payments to providers led by Medicare.
In the current environment, the premise of reducing health costs without compromising outcomes is widely accepted. How that’s achieved is a work in process. It constitutes the transition from volume to value that is a significant and growing opportunity for Medicare, Medicaid, employer and private insurers. It’s the basis for value-based purchasing in healthcare and the focus of the group’s discussion in Big Sky.
PART TWO: DISCUSSION ABOUT THE FUTURE FOR VALUE-BASED MODELS
Discussion: The Pursuit of Value in Healthcare: Where are We Now?
Participants believe that government and private insurer initiatives to replace fee for service with alternatives based on value are necessary and likely to accelerate in the near future. But the group acknowledged reluctance of many provider organizations to fully embrace value-based performance because it’s riskier, potentially disruptive to their organizations, or unnecessary to an organization’s long-term sustainability in certain markets. A one-size-fits-all view of value-based purchasing applicable to every market is short-sighted: the transfer of risk to health systems is dependent on local market conditions and competitor positioning.
“After 10+ years the industry still doesn’t agree on the definition, target, or goal of creating more value. That’s a problem”
“Who benefits from a shift to value? Who will define it? Over what period of time will it be calculated? It’s not so simple.”
“The government is driving toward value but hasn’t yet found effective solutions. Existing solutions favor payers and transparency but lack big ideas to bring all stakeholders together.”
“Every market is different. Participating in shared risk with payers or standing up an ACO is dependent on the long-term market opportunity. In some situations, negotiated fee-for-service might be appropriate. It’s situation specific.”
Discussion: Alternative Payment Models: What’s Their Future?
Participants believe changes in the current cadre of alternative payment models sponsored by Medicare will remain central to its strategy. Changes to rules of participation, measures of savings and quality, and structural characteristics in each are expected. Some believe Medicare Advantage offers the optimal route to value-based purchasing for provider organizations. And all believe private insurers, Medicaid and large employers will feature alternative-payment models in their benefits designs to expand value-based purchasing.
“Alternative payment models are being adopted by large employers, private insurers and state Medicaid programs to accelerate the shift away from fee for service to value. Each of these has slightly different features, often posing operational compliance challenges to providers that negate savings.”
“There’s no doubt fee-for-service is yesterday’s news. Tomorrow, how value-based payments find their way into how, where, and by whom care is delivered, is the news to watch. Large, regional integrated systems of health will have an advantage.”
“MA has the most potential, with the ability to take risk, risk-adjustment, defined quality measures, supplemental benefits, etc., and is the entry point on which to chart a course to value.”
“In our organization and in our market, building our own Medicare Advantage plan was necessary to organize health services and care coordination effectively while creating a competitive advantage…whether an organization partners with a private insurer or develops its own plan, MA is a central feature in our value strategy.”
Discussion: Two Core Strategies for Health Systems in Value-based Positioning
In addition to the urgency of escalating health costs, participants identified two primary capabilities that health systems would find necessary/advantageous to their value-based purchasing strategies: strategic partnerships with private insurers for sponsorship of a health plan and employment of primary care physicians. Participants were mixed in whether a partnership with an existing private insurer was better than self-sponsorship, but six of the seven system strategists said plan sponsorship was an essential element in their strategy. For health systems, Medicare Advantage is considered the most attractive/least risky line of business compared to Medicaid, group or individual lines of business.
“Full risk is necessary in order to optimize value. Capitation is inevitable for health system payments.
“The conflict between payers and providers, and the notion that over time the distinction will disappear. “Payers have a headwind while providers have a tailwind, physician aggregators threaten to commoditize hospitals.”
“Vertical integration and data ownership are driving markets.”
“PCPs are central to value but the model will need to evolve to remain relevant (particularly with the younger generation, which is less likely to seek a PCP relationship). We need to embrace technology more effectively in primary care i.e. AI, telehealth), figure out ways to better engage consumers while still providing a very human touch, and manage teams of care.”
“The PCP will need to manage teams that provide “whole person care” Including social determinates of health, behavioral health, mindfulness, etc. to help bring costs down.”
“We’ve radically changed our primary care model serving Medicare Advantage enrollees: in some cases, their panel size is 200 patients, and by managing this population aggressively, we’ve seen huge cost savings.”
Discussion: Deterrents to Value-based Purchasing
The group identified several barriers to expansion of value-based purchasing strategies by providers:
tools and physician leadership necessary to prompt physician behavior conducive to risk-sharing
lack of recognition of successful value-based initiatives
operating capabilities and infrastructure necessary to assume risks and market uncertainty.
“Changing physician behavior, especially PCPs accustomed to fee for service, is challenging.
Some have been practicing in the same model for decades. They can’t be expected to change without significant incentives and support.”
“Education for this new model of care doesn’t exist at most medical schools and will need to be learned in residency and on the job.”
“Some organizations have done a good job in managing risk and implementing value-based care, but they get little recognition. The success stories don’t get the attention they should”
“Performance data shared by physician leaders with their clinician peers is key to changing physician behaviors.”
“Requires real incentives to change physician behaviors and real down-side risk gets their attention.”
“Physicians influence physician behavior but physician leadership is often problematic.”
CONCLUSIONS AND NEXT STEPS
There is widespread acceptance that the status quo is non-sustainable and the shift from volume to value inevitable. There is also recognition that the circumstances for each system will define how fast and in what form each will respond.
The group sees two immediate opportunities to advance their preparedness and facilitate strategic effectiveness in their organizations:
Summit continuation: Participants believe regularly scheduled Summit sessions would be valuable to them i.e. data, trend analysis and case studies.
Media coverage: Some participants believe the transition to value is hampered by inadequate or misleading media attention. They suggest the Summit showcase case studies in industry media.
EXHIBIT A: PARTICIPANTS
Drew Rector, Chief Strategy Officer, HealthFirst
Ross Armstrong, Senior Vice President and Market Head, Lumeris
George Sauter, Chief Strategy Officer, John Muir Health
Helen Macfie, Chief Transformation Officer, MemorialCare
Craig Enge, Senior Vice President, Lumeris
Doug Welday, Chief Financial Officer, Northshore
Mark Wakai, Chief Population Health Officer, Providence Health & Services
Dan Juberg, Vice President, Strategic Partnerships, Lumeris,
Gabe Parra, Chief Strategy Officer, Samaritan Health Services
Paul Keckley, Managing Editor, The Keckley Report
Matt Nolan, Vice President, Strategic Partnerships, Lumeris
Laura Tauber, Executive Director Self-Funded Health Plans, University of California Office of the President
John Fryer, Vice President, Strategic Partnerships, Lumeris
Grant Lasson, Chief Strategy Officer, University of Utah