Capitol Ideas

CSG Knowledge Center

Research Services

MLC Policy Resolutions

Stateline Midwest



Paying for value, not volume, in health care: States experimenting with reforms that deliver more-efficient, high-quality care

by Kate Tormey ~ September 2014 ~ Stateline Midwest »
In most industries, consumers pay more for receiving more goods and services.
But in health care, more isn’t necessarily better — sometimes it’s just more expensive, some policy experts say.
That’s why states around the country are currently testing new ways to deliver and pay for health care, with the goal of fostering quality, cost-effective services.
“Right now there is an effort in the states to get away from simply paying fees per service without linking payment to quality,” says Michael Stanek, a policy analyst with the National Academy for State Health Policy. “There is lots of inefficiency and fragmentation of delivery that can drive up health care costs.”
Such a dramatic shift from the fee-for-service system, which has been used for decades in the United States, won’t happen overnight, experts say. But they agree that states are the ideal laboratories for testing new delivery models that could transform health care.
‘Triple aim’ of health reform
Sometimes delivering more-efficient health care is simply about stepping back and thinking about what a patient needs to lead a healthy life.
Take the example of “Mrs. Johnson,” an anecdote that Illinois Department of Healthcare and Family Services director Julie Hamos uses to describe a significant change her state is making to its Medicaid program.
Johnson was elderly and had limited mobility after a hospital visit, so returning to her home without extra help would have been daunting, and potentially dangerous.
She was assigned to a managed-care company that handles Medicaid cases. The company made a home visit and found a host of potential health hazards and problems: unsteady front steps, unfilled prescriptions, and outdated glasses that limited her sight. Plus, her food stamps had been stolen.
“All of these issues are very typical for someone in Medicaid,” Hamos says. “She had no home support and was left to just sit in her house by herself.”
But managed care dealt with all of the various issues that were identified — right down to fixing those wobbly front steps — “not because they are a charitable organization, but because it was cheaper to do all of the above than to have [Mrs. Johnson] end up in the hospital or a nursing home,” Hamos says.
That’s the theory behind coordinated care: treating all of a patient’s needs, including preventive and specialty care, chronic-condition management, behavioral-health treatment and social services. Experts and policymakers agree that this type of care helps achieve the “triple aim” of health care reform: improving patient satisfaction, achieving better outcomes, and reducing the cost of care.
But the current health care system doesn’t provide much incentive for providers to collaborate in this way and treat the whole patient, Stanek says.
“The goal [of value-based purchasing] is to tamp down on the payment-based motivation in the fee-for-service system and instead reward quality, not volume,” he says.
While the goals are not new, the federal government and states are trying out new approaches to rewarding value in health care.
New provider groups forming
Illinois, along with many other states, has long enrolled Medicaid beneficiaries in managed-care plans, which first became popular in the 1990s.
Proponents of these plans, commonly known as health maintenance organizations, or HMOs, offer price stability because states pay a flat fee per enrollee. This is often referred to as a “capitated” payment, and in exchange, the HMO is responsible for covering the cost of a patient’s care, even if it exceeds the fee.
Critics, however, have argued that managed care has its faults: Patients have fewer choices of providers, they say, and quality is sometimes sacrificed in order to keep costs low.
In Illinois, serious budget constraints required a new and innovative approach, Hamos says. In 2011, lawmakers passed sweeping Medicaid-reform legislation that will significantly change the way Medicaid is delivered to enrollees and paid for by the state. By early next year, at least half of the program’s 3 million enrollees will be enrolled in either traditional managed care or three completely new types of provider arrangements.
“Not everyone was sold on managed care being the best and only solution,” says Hamos, a former state legislator, “and Medicaid had to be redesigned.”
“We wanted to see if we could invent some different models and see what worked the best.”
Unlike managed care, the new delivery systems in Illinois are being organized by groups of health providers themselves. They will provide an array of services for a Medicaid enrollee — everything from laboratory work to inpatient care.
One type of new provider network will be called an “accountable care entity.” The name comes from the fact that the network of physicians, nurses and other professionals agrees to be responsible for a certain number of patients’ care, eventually in exchange for a set fee per member. But it will be up to the providers themselves to find innovative ways to keep costs down, because if they don’t, they won’t be profitable.
This arrangement is sometimes called “full risk” because the provider or group of providers are responsible for not racking up more charges than the flat fee they receive; indeed, the more cost-efficient they are, the more they keep in revenue.
Another example is dubbed a “care coordination entity,” and it has the same basic purpose: to take on a set of Medicaid patients and manage their care. It, too, must find ways to offer the best care at the lowest price, because reimbursement is based in part on whether providers meet quality goals. If they don’t, part of their fee is withheld.
All in all, these new models differ from fee-for-service, under which providers receive payment for every individual service, regardless of outcome.
The Illinois experiment will allow policymakers to look at the different models and gauge their strengths and weaknesses, Hamos says. Residents who receive Medicaid are already getting letters asking them to choose a plan; if they don’t, they’ll be assigned to a new plan.
Different populations will have varying options, depending on factors such as geography and enrollment category (seniors or children and families, for example).
Regardless of their details, all of the new plans will have the same goal: to better coordinate care for Illinois Medicaid beneficiaries.
“We believe that the financial incentives are aligned with quality health care,” Hamos says. “If Mrs. Johnson has a mental illness ... it is going to cost the plan more if they don’t take care of those needs early and provide preventive care.”
Collaboration is key to savings
Illinois is not the only state in this region experimenting with new models of health care delivery and payment.
“States are moving in the same direction Medicare is moving: using shared savings initiatives, accountable care organizations and shared financial agreements,” Stanek says. “These are strong carrots to promote collaboration.”
Iowa, for example, included some value-based programs last year in a Medicaid reform initiative. The legislation was a compromise aimed at providing the state an alternative to simply expanding Medicaid under the Affordable Care Act; Iowa’s plan was then approved under a federal waiver.
The Iowa Health and Wellness Plan will use three key delivery systems to care for low-income Iowans. In addition to using traditional managed care, the state will provide special “care coordination” payments to primary-care practices. These fees are in addition to reimbursement for actual care, and are designed to help reimburse primary-care practices for taking a more active role in their patients’ overall care.
For example, these primary-care doctors would make sure patients are seeing specialists for chronic conditions or behavioral-health care, ensure that medications from multiple providers are safe and effective when taken together, and prevent duplicate tests from being ordered by different providers.
Under the Iowa legislation, too, Medicaid beneficiaries will be served by accountable care organizations, which will integrate clinical services with other social services.
Qualifying ACOs will receive bonuses, for example, in exchange for
These are just some examples of how one state is choosing to measure and incentivize quality.
“Value-based purchasing links payment in some way to the quality of care,” Stanek says.
“For example, accountable care organizations are based on a shared savings approach: [the plan] has to show it achieved savings, but it has to prove that it hasn’t harmed quality.” But with so many different areas of health care, determining the definition of “quality” can be a challenge.
In Illinois, the state built certain quality requirements into contracts with its new provider-led medical groups. Most of the benchmarks will be measured against claims data, which Hamos acknowledges isn’t a perfect method. These data explain which services providers are completing, but individual outcomes (such as whether a diabetic patient’s blood sugar was stabilized) are not available.
The state will convene a panel of experts and stakeholders to pare down the long list of metrics and identify the indicators that give the most accurate picture of how providers are performing.
“The way to change the behavior of providers to have higher quality is to have fewer metrics and to be consistent [across the health system],” Hamos says.
Minnesota has had a statewide quality-reporting system in place since 2009. One way the system is being used is to tie providers’ payments to their performance on a set of 10 quality measures. The initiative is a Medicaid pilot project and rewards physicians based on outcomes, patient experience and service delivery.
A program in Michigan is taking a slightly different approach, using already-established national measures of quality. The Primary Care Transformation Project offers monthly, per-member incentives to providers and is largely based on the Healthcare Effectiveness Data and Information Set — a tool used by more than 90 percent of America’s health plans to measure performance on care and service.