Bloomberg Law
May 28, 2019, 8:00 AM

INSIGHT: Containing Health-Costs Requires Measuring, Rewarding Spending Efficiency

David Introcaso
David Introcaso
Strategic Health Care

In a December 2018 Senate floor speech, HELP Committee Chairman Sen. Lamar Alexander stated he was “startled” to learn via HELP Committee hearings held earlier last year that one-third to one-half of all health care spending, currently about $1.2 trillion to 1.8 trillion annually, is spent on unnecessary tests, treatments, and administrative overhead that in sum do not improve our health status.

Though excessive health care spending has been studied or documented at length by the Institute of Medicine and others, Sen. Alexander (R-Tenn.) solicited hospital executives, self-insured employers, state officials and others to recommend steps Congress and the White House should take to contain health care costs or reduce spending or spending growth.

It is anticipated that Alexander will introduce legislation sometime this summer reflecting recommendations the committee has received to contain health care costs. Despite the challenges in measuring for health care value, doing so should be at the top of his list.

Measuring for Value

A major reason Americans are forced to spend or waste annually over $1 trillion or 6% of the GDP has been our failure to design health care payment models that are spending efficient or produce optimal value. To do this we need to measure for value or more specifically measure health care outcomes achieved relative to spending.

It should be obvious to note the purpose of any business is to create value or simply stated provide a solution that others cannot. That the health care industry does not routinely and rigorously measure for value is alarming. That it does not has led us instead to measure revenue.

No one should be surprised therefore that we spend massively more on health care than any other developed country or currently over $3.5 trillion or 18% of GDP annually. To paraphrase W. Edwards Deming, every system is perfectly designed to achieve exactly the results it gets.

That we do not measure for value is somewhat ironic since federal health care policy over the past several years has been consumed with transitioning Medicare, the market maker, from fee for service to “fee for value” or “value-based payments.” For example, payments to Medicare hospitals are determined by the Value-Based Purchasing (VBP) Program. Physician reimbursement under MACRA (the Medicare Access and CHIP Reauthorization Act) financially rewards, CMS explicitly states, “high value.”

The word “value” is used nearly 100 times in the latest Medicare Advantage (MA) Call Letter to describe the program’s 2020 regulatory rules and the word is used over 50 times in the most recent HCPLAN (Health Care Payment Learning Action Network) publication describing advances in value-based, otherwise termed alternative payment models (APMs). Among related efforts, MedPAC is currently recommending consolidating the four current hospital quality incentive programs into what the commission terms the Hospital Value Incentive Program.

Confusing Quality With Value

What sadly passes for value is measuring quality and spending separately (or alternatively confusing quality with value). This approach, that fails to correlate quality and spending or measure simultaneously, has produced perverse effects. For example, the hospital VBP program rewards low spending hospitals despite having demonstrated poor quality performance.

With quality unrelated to spending, accountable care organizations (ACOs) receive shared savings payments despite demonstrating subpar quality while superior quality performing ACOs that do not spend below their benchmark receive no financial reward.

Concerning MA, star quality ratings have been gamed via contract consolidation or cross walking. (As a related aside, though we have one Medicare program, payment incentives all differ: VBP has no quality performance threshold; ACOs do though weak; and, unlike ACOs MA plans receive a bonus for superior quality.)

That these programs pay bonuses independent of quality performance means they are poorly disguised cost containment efforts. This is particularly irritating to participating providers since they are collectively required to spend tens of billions on reporting, effectively futilely, quality measures.

Administrative burden along with the lack of outcome measures in quality measurement sets—for example, there are none in the current ACO measure set—led MedPAC in a rare moment of candor to state in its June 2014 report, “Medicare’s current quality measurement approach has gone off track.”

Paying for Random Savings

Worse still, we should not expect providers to participate in value-based payment arrangements that put them at financial risk when at best there is only a loose connection between performance and reward. Paying for what amount to random savings has caused ACO providers to sarcastically define the program as “benchmark bingo.”

At-risk payment models, particularly when termed value-based, need to be designed to allow moreover for the predictive and persistent demonstration of efficiency. To do this or to get there we, again, need to measure for value.

The importance or necessity to measure for value has not been lost on some. Uwe Rinehardt use to explain valueless care made evident by unwarranted regional spending variation via the quip, “the finest health care in the world costs twice as much as the finest health care in the world.”

Michael Porter argued in 2010, “The failure to adopt value as the central goal in health care and to measure value are arguably the most serious failures of the medical community.” This has “resulted in,” Porter added, “ill-advised cost containment, and encouraged micromanagement of physician practices which impose significant costs of its own.”

To his credit in 2012 Porter helped to form the International Consortium on Health Outcomes Measures (ICHOM). Though ICHOM’s work is largely unknown or unappreciated in the U.S., the Consortium has created more than 20 outcome-based quality measure sets, that measure full care cycle outcomes and costs, covering 45% of the disease burden in high-income countries in order better design payment models and ultimately improve value to the consumer or patient.

Participants in California’s Integrated Healthcare Association, not unlike Massachusetts’ Alternative Quality Contracts or Oregon’s Coordinated Care Organizations, are now rewarded based on resource use or spending—in conjunction with quality achieved. The administration’s proposal to reference price drugs is based on economic value assessments European countries conduct.

Just recently, Bob Berenson and Paul Ginsburg argued modifications be made to the physician fee schedule to better allow for paying for value, i.e., that the fee schedule better reflect APM’s advertised goals. They also recommend the Physician-Focused Payment Model Technical Advisory Committee’s (PTAC’s) authority be expanded to advise CMS how to better align the fee schedule with the delivery of high value care, for example, allowing providers to address social determinates of health.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

David Introcaso, Ph.D., is vice president of regulatory policy for Strategic Health Care, a Washington-based health care policy firm. Previously, David worked at AHRQ, ASPE, for congressional leadership and has consulted for clients ranging from the American Public Health Association to UnitedHealth Group.

This column reflects to opinion of the author and not necessarily of any of the author’s clients.