Building the Business Case for Value-Based Care

Harold D. Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, discusses a fundamental barrier to shifting payment models in healthcare: Some providers mistakenly think all they have to do is tweak existing fee-for-service billing structures without understanding what drives costs in the underlying payment system.

The shift away from volume-based, fee-for-service billing towards value-based reimbursements is gaining momentum and will be largely in place over the next few years. And yet a surprising number of healthcare providers really don't grasp the details of how value-based reimbursements work.

Harold D. Miller, president and CEO of the non-profit Center for Healthcare Quality and Payment Reform, says many providers mistakenly believe that all they have to do is tweak existing fee-for-service billing structures without identifying potential savings or understanding what drives costs in the underlying payment system.

Miller, the author of a Robert Wood Johnson Foundation-funded report called Making the Business Care for Payment and Delivery Reform, spoke with me this week about what providers must do to build an effective business case for value-based care. The following is an edited transcript.

HLM: Where are we on the fee-for-service/value-based care timeline?

Miller: It could be the dominant model within the next five to 10 years, but it is a matter of how quickly physicians and in particular physicians in hospitals meet with the purchasers of care— the employers— to work that out. It's about how soon both side come together and create the win, win, win that is good for patients, providers, and purchasers.

HLM: What are the stumbling blocks on the road to value-based care?

Miller: Most health plans and Medicare are trying to change the way care is delivered and reduce costs by piling on pay for performance and shared savings on top of fee-for-service. The problem is that if you don't change the underlying payment system, you don't change the incentives and the barriers that it creates.

For example, one of the best ways to keep people with chronic disease healthier and out of the hospital is for a physician practice to hire a nurse to educate and encourage patients to call when they have a problem. The problem is that doctors don't get paid for nurses and they don't get paid for answering phone calls. So practices are forced to lose money under fee-for-service to deliver better care, even though it would actually save money by keeping the patients out of the hospital.

HLM: Is value-based healthcare a particularly challenging sector?

Miller: Every patient is different, but on the other hand, how do health insurance companies operate? The law of large numbers says that on average, patients are fairly similar. You don't have to deliver the exact same treatment to everybody to estimate on average what it is going to be like.

If you get the unusually expensive case—the patient who is an outlier with unique health problems— that is what insurance is for.

On the other hand, saying 'We shouldn't be giving an MRI to everyone who comes in with lower back pain. Most of them should probably go to physical therapy first.' That is something you can do across a broad number of patients. That is going to save money on average and probably be better for the patients.

HLM: Is there common ground for fee-for-service and value-based models that providers can build on?

Miller: A lot of the payment reforms that are being done actually build on fee-for-service. The idea is you don't just leave it in place and try to pile something on top. The problem with fee-for-service now is that it says you get paid the exact same amount to do something whether you do it well or poorly and whether or not [or whether] there are complications or infections that occur. And in fact you may get paid more.

But you don't fix fee-for-service by sticking little penalties or bonuses on top. You have to change the fundamental way it is delivered.

For example, for patients who have health problems, we are looking at payments based on the patient's condition and not based on exactly the procedure you used. A good example is delivering a baby. You get paid more to do a caesarian section than you get paid than a vaginal delivery. Yet the vaginal delivery takes longer, and is better for the mother and the baby.

So why do we now have a 33% C-section rate in the country? Because the fees we pay are not based on the actual value.

HLM: Why does value-based care create so much unease among many providers?

Miller: A lot of the anxiety comes because people don't have the data. You have to have access to good data and in most cases healthcare providers can't do that. Medicare has only just recently started to release data, so that someone could actually do the kind of analysis that I recommend in my report.

Most health plans treat their data as a proprietary secret, but there are a number of communities around the country that have multi-payer claims databases where people can do these kinds of analyses.

HLM: Why should providers welcome the switch to value-based care?

Miller: You could actually do better in a value-based payment model. People have the perception that somehow it is going to be worse, but the sooner you get into it the better you may be able to do because you are able to capture a lot of the value out there now that isn't being captured.

Rather than staying in fee-for-service and hoping you may get a small increase in fees or that you don't get a cut in fees, it's better to ask 'Can I redesign care in a way that would allow me to be paid significantly more?'

Medicare has done a demonstration that has been operational now for several years called the Acute Care Episode Demonstration that bundled together hospital and physician payments for orthopedic and cardiac procedures and the physicians were able to earn up to 25% more than their standard fee-for-service payments by being able to redesign care and reduce the costs. That is far more of an increase in pay quickly than you could ever get by simply staying in the existing fee-for-service model.

HLM: Who should be at the table when providers build the business case for value-based care?

Miller: Step No. 1 is changing the way care is delivered. It is the physicians on the front lines who have to say 'Where do we think we are actually doing too much of something we shouldn't do or that we are not providing good care to the patients?'

Then you have to get the COO or the CFO to say 'Let's work the numbers.' Typically, you don't find those two parts of organizations working together. Doing spreadsheets is not the physicians' skill and providing care is not the CFO's skill. But if you can get them to come together, that is where the magic happens.

You say to physicians 'Where do you think you could redesign care if somebody gave you the flexibility to be paid differently, to be paid for things that you aren't being paid for today?' When I talk to physicians, they all have ideas but nobody asks them.

The typical approach is that physicians say 'Pay me for these things that you don't pay me for today.' The health plan, Medicare, employers or whomever says, 'Wait a minute. That will increase costs if you are going to be paid for something new.' If you think it is going to be better, run the numbers to see if it actually will save money. What will you do less of and what will that save?

Get everybody in the room. Get their ideas. Figure out which subset appears to be the most promising. Do the detail work and go to payers to put it in place. If you can show success then that encourages people to do more. Not every case will it be a savings proposition.

Which of those things is there really a business case for, and if there seems to be a business case then let's do a finer analysis to show that and take it to the payers to say 'how about a deal here?' Even if you can't get the perfect data, using approximate data to at least see if it looks like a business case then tells you which things to focus on.

HLM: How soon could a value-based model see a return on investment?

Miller: For many of these things, the savings can happen very quickly. A lot of what has been done in healthcare has been desirable, but has a long-term payoff. There is a lot of focus on better management of diabetes and hypertension; all very desirable but it doesn't save a lot of money this year.

On the other hand, if you focus on people going unnecessarily to the emergency room and getting unnecessary tests and [you] figure out how to redesign that care, you save money immediately because you are avoiding the unnecessary care. Thirty day re-admissions are a perfect example.

HLM: Who do providers speak with on the payer side?

Miller: The focus will differ. Medicare doesn't have a whole lot of interest in maternity care, whereas for businesses and Medicaid maternity care is in many cases their biggest expenditures. Everyone is interested in chronic disease. The distinction I make is between the purchaser and the payer. The purchaser in commercial insurance is the employer.

In fact, 60% of commercially insured employees in the country are in self-insured employer plans. The deal you are working out is actually with the employer and not the health plan. All the health plan is doing is processing claims. One of the challenges for commercial health plans is that value-based isn't necessarily a good business proposition for them. They may have to incur costs to change the payment system, but the savings don't go to them, they go back to their self-insured accounts.

HLM: What influences will insurance exchanges and consumer-driven healthcare play in the business case for value-based care?

Miller: It could be a potential advantage if different provider organizations get beyond this fairly narrow shared-savings model to the point where they are actually able to take accountability for populations of patients and can price that.

They could go on the exchange and allow people to sign up for this ACO and pick a primary care physician there and work with the coordinated set of docs at a lower cost and higher quality than simply picking a generic health plan. It's kind of halfway between the traditional HMO/PPO models. You are picking who you want to lead your care. You don't necessarily have to be limited to once set of docs or have a gatekeeper for everything.