Health Care Industry Moving Toward Paying for Value Over Procedures

December 27, 2018 Updated: December 27, 2018

WASHINGTON—Health and Human Services (HHS) Secretary Alex Azar was at a rehab hospital accompanying a relative when several nurses there started complaining to him about Medicare staffing ratios.

“I said, ‘What’s a staffing ratio?'” he said at an AXIOS event in Washington on Dec. 13.

They explained that it was the number of nurses that have to be on the floor at any given time.

He got Seema Verma, the Centers for Medicare & Medicaid Services (CMS) administrator, on the phone.

“We regulate that?” he asked her.

Yes, she told him.

“What we ought to be saying is that if my relative walks out of the rehab hospital, you get paid this much. If my relative is in a wheelchair [when they leave], you get paid this much,” he said of the provider-payer relationship. “[And] we aren’t going to micromanage how you do that.”

What he is describing is the department’s goal of transitioning from “paying for procedures and sickness to paying for outcomes and health,” which can also be described as paying for value over services.

The idea behind paying for better health outcomes is that it removes the incentive for providers to increase profits by overtreating patients, at times to their detriment, and allows medical doctors to focus on what they all swear to when they take the Hippocratic oath—to treat the ill to the best of their ability.

This way of paying providers isn’t new. The Center for Medicare & Medicaid Innovation, created by the Affordable Care Act to test alternative payment models, has come up with more than 40 new models.

Under President Barack Obama, the department had ambitions to have 50 percent of all CMS payments be alternative by 2018, but the Trump administration has instead chosen to focus on how effective the models are instead of meeting an arbitrary target.

While CMMI was tasked with researching such models to stave off the rising costs of health care, it is also becoming increasingly popular in the private sector as well.

Earlier this month, a group called the Health Care Transformation Task Force said in a report that 47 percent of the business of its private-sector payers and providers was in value-based payment arrangements by the end of 2017. That is up from 41 percent in 2016 and 30 percent in 2015.

“There is growing evidence that value-based care leads to better health, better care, and reduced total cost,” said Fran Soistman, the chair of the Health Care Transformation Task Force.

She said task force members have a goal of reaching 75 percent by 2020.

Soistman is also the executive vice president and head of government services at Aetna, which estimates that by 2021, 59 percent of all payments will be value-based.

A survey by the Health Care Payment Learning and Action Network found that in 2017 some 34 percent of all payments, both public and private, were value-based, about one-third of which were from the private sector. That is up from 23 percent overall in 2015.

Medical schools are also starting to train students to think about how to provide “high-value, cost-conscious care.”

The American Medical Association (AMA) is working with some 32 medical schools in its Accelerating Change in Medical Education Consortium to bring schools up to speed with trends in the industry.

“Health care payment is moving away from volume-based reimbursement to a system that prioritizes value,” a report by AMA states. “In the wake of this trend, assessing and managing cost and value in health professions education is critical.”

Blue Cross Blue Shield (BCBS), which launched its Blue Care Total Distinction program in 2015, uses Accountable Care Organizations teams of medical professionals who work together to comprehensively treat a patient while taking on the risk and sharing in the savings of the cost of their care. It also uses patient-centered medical homes, which aren’t homes so much as models of care where the care of a patient is coordinated by a primary care physician.

BCBS says it has seen “measurable improvements” from the two models in managing chronic diseases in 96 percent of the nationally consistent, industry-quality measures it has tracked, and that it has decreased costs by 35 percent.

Evaluating Value

One of the ways CMS has tried to encourage value is to cut down on the amount of regulations and paperwork that plague physicians, which take up valuable time with patients and increases administration cost and burnout.

Nevertheless, CMS has to measure and track what “value” looks like, and that inevitably requires some paperwork.

It has come up with a “Meaningful Measures” framework that it says targets only the highest priorities that ensure quality, and is updating its reporting requirements accordingly. For example, some of the things it looks at are costs, how many preventable injures occur in a medical facility, and how often someone is admitted to the hospital for unplanned reasons.

The agency recently finalized a rule with a two-year rollout that would change how providers bill for Medicare, which Verma says will lead to a “historic reduction in documentation burden.”

With over 60 million people in the program, Verma said anything that CMS does has a spillover effect on the entire health care market because many private payers base their payment models on those of Medicare.

“I think this regulation is one of the larger changes that have occurred over the past few decades,” said Joseph Antos, the Wilson H. Taylor Resident Scholar in Health Care and Retirement Policy at the American Enterprise Institute. “The Medicare Physician Fee Schedule program … has been very slow-moving.”

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