Updating the U.S. healthcare playbook

April 21, 2015

Shifting from fee-for-service to value-based pay depends heavily on five factors.

DunhamMedicare is in the midst of a seismic shift in how it reimburses providers. On March 26, the U.S. House of Representatives passed legislation repealing the old sustainable growth rate (SGR) formula, which reimburses providers for “activities and treatments.” In its place is a system that pays providers based on patient outcomes. Late in the evening on April 14, the Senate followed suit and overwhelmingly approved the sweeping $145 billion bill. As anticipated, President Obama signed the Medicare Access and CHIP Reauthorization Act of 2015 into law on April 16.

The big question is how converting the system will be funded. Cutting loose the 50 year old fee-for-service healthcare model dragging our system around like Jaws dragging the Orca will not come easy or cheap. Phasing out SGR is projected to cost $14.5 billion per year over the next decade and where that money is going to come from is unclear.

Related:Top stakeholders form task force to accelerate shift to value-based care

Shifting from fee-for-service to value-based pay depends heavily on the following five factors. If successful, this change will save tens of billions of dollars per year in health care spend and improve both patient outcomes and overall population health while invoking a genesis of innovative new companies and jobs.

Define value. Standardize a definition of value that takes into account the aggregate savings opportunity associated with improved health outcomes. This value is illustrated through the simple equation of outcomes divided by costs. The denominator in the equation, “costs,” is inherently defined, while “outcomes” is slightly more subjective and in need of clarity for the formula to work well. Examples of appropriate metrics for outcomes include readmission rates, medication possession rates, medication adherence rates and decreasing viral loads for HIV and Hepatitis C patients.

Pay for better outcomes. New payment models should be designed specifically to impact patient outcomes. For decades our system has attempted to increase value by cutting the denominator in this equation: costs. But you can only cut cost so much before outcomes are affected. When both values decrease at the same time, there is zero net benefit. We are at the end of what can be achieved by blindly attacking costs, but have not yet realized the savings associated with better reimbursement for preventative services and medication therapy management, which boosts adherence. Providers who demonstrate measurable improved outcomes and cost reductions should be rewarded with higher compensation.

 

NEXT: Properly align & incentivize stakeholder interests

 

Properly align & incentivize stakeholder interests. Every HIV infection prevented saves $355,000 in treatment costs, and 20% of the overall U.S. healthcare spend goes to treating diabetes, a condition which is largely preventable. Americans only use preventative services at half the rate recommended by the CDC. Patients, providers, and payers who encourage participation in preventative healthcare should be incentivized by Medicare.

Use the longest lever available to improve outcomes and reduce costs: responsible use of medications. According to an IMS Institute for Healthcare Informatics study, “Avoidable Costs in U.S. Healthcare,” responsible use of medicines can eliminate at least $213 billion annually in avoidable costs.

Medicare’s portion of that $213 billion in wasted spending mentioned leaves a savings potential of $42 billion per year. The Congressional Budget Office (CBO) can alleviate much of this by paying companies that have proven efficacy in ensuring that patients take their medications properly. Those savings far outrun the estimated $13.5 billion annual cost of the repeal.

Related:Value-based formularies take hold

Effective medication therapy management (MTM) has been demonstrated in the real world to improve adherence, and ultimately, outcomes. HIV patients receiving MTM demonstrate greatly reduced viral loads, often improving into the “undetectable” range further resulting in savings of $3,000 per member per year.

Medicare patients recently admitted into home health have been shown to be 86% less likely to have a 30 day hospital readmission if they received preventative MTM services. Providing these services across all eligible Medicare recipients could result in annual savings of $2.7 billion.

Expand the “network of accountability.” Almost all accountability currently lies with physicians. Moving forward, lawmakers and policy experts should consider the proper use, engagement and role of accountability for each provider type (including clinical pharmacists) and ask, “Are all available resources being tapped to positively affect the outcomes and cost variables in the healthcare value quotient?” More specifically, “Does the legislation improve patients’ quality of life by improving medication adherence?” When those things happen, quality of life and outcomes go up while waste goes down.

About: Patrick Dunham is Co-Founder and CEO of Curant Health.