Does Medicare’s value-based purchasing model really create value in healthcare delivery?

Dec. 2, 2019 / By Samuel Young, MD

Value-based reimbursement is the soup du jour in the medical industry these days. How value is defined, however, can vary depending on one’s perspective. Most experts in the field agree that the metric should be comprised of an outcome measure and a cost measure, an example of which is as follows:

Value Delivered = Health Outcomes Achieved / Total Cost of Care

According to renowned strategist at Harvard Business School, Professor Michael Porter, our current system of healthcare delivery does a poor job capturing both the numerator (i.e. outcome data) and denominator (i.e. total cost of care data). With this in mind, one shouldn’t be surprised that CMS value-based payment models, including the Value-based Purchasing (VBP) model, also fall short of the aim to measure and subsequently create value in healthcare delivery at the inpatient hospital level. Let’s examine why a little more closely.

Health Outcomes

The CMS VBP program demands very little from a hospital with respect to the outcome of treatment. The components of the VBP program that aim to assess outcomes include the following:

  • Incidence of Hospital Acquired Conditions (HACs) – to include central line infections, catheter-related UTIs, MRSA bacteremia and surgical site infections
  • Mortality Rates
  • Readmission Rates
  • Complication Rates
  • Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAPS)—27 field questionnaire comprised primarily of questions related to the care experience with only one vague question assessing health (In general, how would you rate your overall health?)

These metrics predominantly measure adverse events in care. All consumers of health care want to receive it within a safe environment, so I suggest we also want to spend our valuable time and money at a facility that provides superior care. The VBP metrics don’t give us much information in that regard.

Total Cost of Care

The VBP program has a singular field to capture total cost of care—Medicare Spending Per Beneficiary (MSPB). The MSPB episode includes Medicare Part A and Part B payments for services provided by hospitals and their associated healthcare providers the three days prior to, during, and 30 days following a patient’s inpatient stay. This measure evaluates how much CMS pays the hospital compared to a national median (or midpoint) hospital, and is modified according to the CMS-HCC risk-adjustment model and geographic payment differences (payment-standardization).

For the composite VBP calculation, a hospital is compared to a benchmark (i.e. its competition) and its own past performance to determine its score. This score dictates whether that facility receives a bonus, a penalty or neither adjustment to its typical fee-for-service (i.e. DRG) remuneration.

A brief perusal of the VBP methodology reveals the following: Provided a hospital is no more expensive, rude or mistake-ridden than the competition (or, provided said hospital showed an improvement in its high-cost, unsafe and rude care from last year), that facility can expect to receive full payment for services rendered (and, maybe, a bonus).

Back to Value

According to the widely recognized methodology to assess value in healthcare delivery, we can create value over a baseline in three ways:

  • Provide a service with equivalent health outcomes at a lower cost of care to the baseline.
  • Provide a service with improved health outcomes at an equivalent cost of care to the baseline.
  • Provide a service with improved health outcomes at a lower cost of care to the baseline.

In my estimation, the VBP methodology is insufficient to determine whether a particular hospital creates better outcomes than its competition. As an example, let’s say Uncle Ervin decided to have a hip replacement at the fictitious St. Clem’s Memorial (SCM). With respect to outcomes assessed by the VBP program, we only know if SCM has a higher readmission or complication rate, and whether or not Uncle Ervin felt he was treated with respect. Additionally, we only know how much it cost CMS to pay for Uncle Erv’s replacement. We have no idea how Uncle Ervin did in comparison to Aunt Jolene who decided to have her hip replacement at St. Elsewhere Community. Additionally, we don’t know if SCM is more cost efficient (i.e. can do the replacement with less variable and/or allocated fixed costs per episode of care) than St. Elsewhere.  

The VBP payment methodology primarily rewards a facility based on its ability to minimize adverse outcomes and excess Medicare charges—neither of which are particular measures of value creation.

Additionally, the VBP program doesn’t provide a direct incentive for a facility to deliver higher value. As a simple modification to the fee-for-service system of remuneration, the VBP program continues to drive the incentive for hospitals to push volume through their doors as long as they can do so in a safe and polite manner.

Let’s assume my argument is sound and the VBP program is not an adequate measure of quality in inpatient hospital health care delivery: What system would work more effectively? I’ll detail a proposed solution in my next installment.

Samuel Young, MD, MBA, FACS, CPE, CHCQM, CRC, is a Clinical Transformation Physician Consultant for 3M Health Information Systems.