Creating a Value-Driven Healthcare System

There is widespread agreement that the health care system today does not provide good value, where "value" is defined as the combination of both quality and cost. A variety of studies have demonstrated that there are serious problems with the quality of health care, ranging from failure of many patients to receive services of proven value, to unacceptably high rates of medical errors, adverse events, iatrogenic illness, etc. At the same time, the cost of health care has reached unaffordable levels, which is a major cause of high rates of uninsurance across the country.

One of the fundamental impediments to improving value in health care is that efforts to improve quality and reduce cost in health care are often perceived as being at odds with each other:

  • Patients often believe that lower cost means lower quality, and that efforts to reduce cost will require "rationing" or restrictions on their ability to receive needed care.
  • Payers often believe that higher quality means higher cost, and providers often request higher payments to support initiatives to improve the quality of care delivery.

Yet in industries other than health care, consumers routinely reap the benefits of higher value from both improved quality and lower cost. In health care, there are easily identified examples where improvements in quality and cost are possible. For example,

From Volume to Value

  • Healthcare-Acquired Infections and Other Adverse Events. Numerous studies have shown that unnecessarily high rates of preventable adverse events occur within hospitals and other health care settings. In most cases, payers pay more when these events occur, and patients suffer from them, often seriously. Clearly, reducing these adverse events would be a win-win for both quality and cost.
  • Hospital Admissions and Readmissions. Numerous studies have also shown that a large number of hospitalizations are preventable, particularly among patients who have what are known as "ambulatory sensitive conditions," such as asthma, chronic obstructive pulmonary disease, congestive heart failure, diabetes, etc. In addition, a high proportion of people who are hospitalized are readmitted within 30 days, frequently for the same condition that they were admitted for or for a complication or infection resulting from that initial admission. Again, payers pay more when these admissions and readmissions occur, and patients suffer from them. And again, reducing admissions and readmissions represents a win-win for both quality and cost.

The problematic incentives in current healthcare payment systems are increasingly recognized as one of the major barriers to addressing these kinds of problems. Under current payment systems, physicians, hospitals, and other healthcare providers gain increased revenues and profits by delivering more services to more people, which in turn fuels inflation in healthcare costs. Research has shown that more services and higher spending do not result in better outcomes; indeed, it is often exactly the opposite. But what is even more troubling is that current payment systems often financially penalize healthcare providers for providing better quality services. Providers frequently lose revenues and profits if they keep people healthy, reduce errors and complications, and avoid unnecessary care. This not only leads to many of the problems in healthcare quality which exist today, but impedes efforts to improve quality, by forcing a tradeoff between a healthcare provider's financial well-being and the quality of their services. Although not all quality and cost problems are caused by payment systems, and not all quality and cost problems can be resolved by changes in payment systems, it is clear that in many cases, payment reform is at least a necessary element of efforts to increase the value provided by the nation's health care system.

Fortunately, many people now believe that there are better ways to pay for health care - ways that give healthcare providers more responsibility for increasing quality and controlling costs of services, without penalizing them financially for treating sicker patients. Systems called "episode-of-care payment" involve paying a single price (a "case rate") for all of the services needed by a patient for major acute episodes (such as a heart attack or a hip replacement), regardless of which providers are involved, instead of multiple fees for each specific service provided. Systems called "risk-adjusted global fees" and "condition-specific capitation" go a step further and pay healthcare providers a single fee for all of the outpatient care needed by their patients, particularly those with chronic diseases, in ways that reward the providers for keeping their patients healthy and for reducing duplicative and unnecessary healthcare services.

Implementing these kinds of improvements in payment systems holds significant promise for improving the quality and reducing the cost of health care. But there are a number of important issues that need to be addressed, and a variety of challenges which need to be overcome, in order to move them from concept to reality. In particular:

  • Which health care providers, if any, are able and willing to accept new payment structures and deliver value-based care?
  • How should the use of high-value providers and services be encouraged? What protections are needed to ensure appropriate quality for patients?
  • How can payers and providers be encouraged to participate in new payment and delivery systems? How similar do different payers' systems need to be?
  • What kinds of pilot projects are needed to test new payment systems?
  • What community-wide structures are needed to support payment reform?

The Center for Healthcare Quality and Payment Reform is working to address these and other issues by:

  1. Identifying and encouraging action on major opportunities for improving quality and decreasing costs (i.e., increasing value) in the health care system. In many cases, the clinical approaches are known, and the benefits - both in higher quality and reduced cost - are clear. But current healthcare payment systems and organizational structures impede, rather than facilitate, implementation of these solutions. The Center works to clearly identify these structural barriers, develop proposals for removing them, and encourage implementation of the needed changes.
  2. Identifying and encouraging changes in healthcare payment systems to reward, rather than penalize, efforts to improve value in healthcare delivery. The Center for Healthcare Quality and Payment Reform works to develop the details of policy changes that give healthcare providers more responsibility for increasing quality and controlling costs of services, without penalizing them financially for treating sicker patients. In addition, the Center develops specific proposals for more modest changes to payment systems that can be used as transitional steps toward these ultimate payment structures.
  3. Identifying and encouraging changes in organizational structures and relationships among healthcare providers needed to improve value in healthcare delivery. The Center works to identify creative approaches to organizational structures that can maintain or improve quality while maintaining or reducing costs, i.e., a value-driven healthcare system.

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