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Value vs. Volume: Can We Pay for Quality?

Janice Simmons, for HealthLeaders Magazine, December 8, 2009
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Swedish and Premera create a model where the level of payment will be driven by the outcomes that are achieved.

The observation that American healthcare has a payment system that often rewards for the quantity of treatments—and rarely the quality—is hardly new. However, with recent national healthcare reform efforts, a sense of urgency has begun to appear this year that establishing the value of quality healthcare eventually needs to trump generating more volume if the American healthcare system is to remain viable in the near future.

This building pressure can be seen in a series of vignettes. One of those pivotal moments came in September when a bipartisan group of 28 senators sent a letter to President Obama asking him, as he worked with Congress on reform legislation, to emphasize that the need is there to "realign spending in the Medicare program to focus on providing more value to beneficiaries."

Another moment emerged in the summer when the Mayo Clinic, along with several other healthcare organizations, wrote to federal policymakers asking them to reconsider ways to pay hospitals and physicians for value instead of volume. The clinic's suggestion: Institute a value index that takes quality (for instance, clinical outcomes, safety, or patient satisfaction), divides it by costs, and produces a quotient of value.

So what is value? "It means something different to everyone," says Allison Rosen, MD, ScD, clinical director of the University of Michigan's Center for Value-Based Insurance Design in Ann Arbor. One definition she suggests is "improving health as much as we can for the money we spend."

Sometimes providers and payers talk about value and efficiency from the standpoint of "technical efficiency—which means spending the least amount of money to get the same amount of services," she says. But "no health piece" is included here.

Looking at value means reevaluating the traditional fee-for-service system. "When paying fee-for-service, we're paying a lot of money for volume instead of value," Rosen says. "Paying more and more money for the intensive services providers do makes no sense if we don't have any clue whether those intensive services improve health."

But rather than stem costs by paying less, consideration should be given to paying providers "differently," she suggests.

This is what is being tried out in Washington state between Premera BlueCross and a new primary care clinic operated by the three-hospital, 1,245-licensed-bed Swedish Medical Center at its Ballard campus in Seattle.

"We believe that the key to an affordable, better quality healthcare system is change [to] ... the business model that healthcare operates under," says Rich Maturi, Premera's senior vice president for healthcare delivery systems.

"The vast majority of healthcare providers want to deliver high-quality care, and they want to deliver care that is affordable for their patients and to conserve resources as appropriate," Maturi says. "But those intentions are not consistent, however, with the way providers make money. Providers make money by selling units of service, and they make profits by selling high-margin units."

At Swedish's Community Health Medical Home Clinic, Premera will be looking to turn this idea around by eliminating fee-for-service and instituting a capitated medical home model. This is not a health maintenance organization where individuals have to sign up once a year to use it; instead Premera members in its preferred provider organization can use it.

Those electing to receive their primary care at the clinic will be able to receive unlimited access to physician teams that provide preventive care and wellness services, chronic disease management, and other health services. Also, as an incentive to use the clinic, participating members will have their copays waived by Swedish, according to Jay Fathi, MD, medical director for primary care and community health at Swedish.

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