With the majority of talk about healthcare reform centered on the individual / consumer mandate and universal coverage, many are missing another positive change proposed by CMS: value-based purchasing.
Value-based purchasing (VBP) has underlying implications on five themes:
- Measuring the patient experience
- Measuring clinical quality
- Market pricing, especially local market pricing
- Executive and clinician compensation
- The changing role of technology and technological requirements
The essence of VBP is that buyers of healthcare (including individuals and plans) should hold providers accountable for the quality of care provided. Much like consumer satisfaction and pay-for-performance in other industries, healthcare providers are now being held accountable for not only providing the required care, but providing a quality product. However, the question of rating the quality of care is a bit more difficult than showing compliance with a “Six Sigma” type of program. By bringing together outcomes-based data with cost data, it is possible to show an improvement ratio such that increasingly positive outcomes are equated with reduced or targeted spending – below are a few considerations:
- Linking patient satisfaction and quality: Measuring the patient experience is trending toward monitoring key outcomes in 17 clinical measures (including patients’ views on communication with staff and doctors, cleanliness and quietness of the hospital and pain management) across five healthcare categories, including acute myocardial infarction, heart failure, pneumonia, healthcare associated infections and surgical care improvement. Based on a hospital’s score across these measures and categories, this will impact diagnostics-related group (DRG) payments as soon as 2013. By 2014, mortality outcome measures for additional health conditions and hospital-acquired conditions will be included.
- Clinical quality – another important VBP benchmark: As providers are measured and compensated accordingly, top tier providers will begin to quickly separate from the pack. However, critical access hospitals will need to remain accessible, regardless of their quality measurement.
- Market pricing and VBP: With provider compensation schedules initially being implemented as a penalty rather than a bonus, areas with poor outcome metrics will see the cost of providing care rise. Additionally adding to the skewing of local market pricing, an incentives algorithm will be implemented, meaning high performing hospitals will continue to perform better than those being penalized, due to the financial incentives providing new resources for a high performing hospital.
The link between quality of care, the provider’s income statement, and executive and clinician compensation also becomes much more clear and real. As the provider receives additional incentives for increased quality of care, the employees of the provider will likely see performance compensation tied to the quality of care metrics for the hospital. A higher performing provider will attract higher paid experts with better backgrounds, perpetuating the increased quality of care cycle.
Underpinning all of this is the increasing role that technology will play in the healthcare system. In order to document the quality of care metrics, a clear link to data will need to be established at the point of care. This means that data warehousing and analytics will be paramount. Sophisticated pricing and measurements of quality and satisfaction will be derived from the data and technology in use.
Value-based purchasing has the potential to radically alter how both providers and patients view healthcare. Our team is actively advising business leaders and investors with some thinking about how healthcare will cease to be an intangible product that is provided at any cost, focusing instead on how to plan the market dynamics or “rankings” and “customer service”.
Have a great week.