Value Based Healthcare Payments

Robert-Rowley_avatar-100x100What Kind of IT is Needed?

Robert Rowley, MD

Twitter: @RRowleyMD

The trend toward value based payment for healthcare services is gaining momentum. For better or for worse, we have paid for health care in the U.S. on a fee-for-service basis – from the perspective of providers (doctors, hospitals, etc.), that means that the more you do, the more you make. Except for efforts around managed care, where a fixed capitated (per-member-per-month) fee is paid to risk-taking organizations for a defined population of patients (the HMO model), fee-for-service has been at the core of how we do business in healthcare.

Traditional Medicare, based on a fee-for-service model, has experienced cost escalation year-over-year. One way of mitigating this faster-than-inflation escalation of Medicare costs was the Sustainable Growth Rate (SGR) formula, which ratchets down the dollars-per-unit of service to partly offset the growth in units of service that are billed by healthcare providers. That would have meant that each year, Medicare payment rates would have been lowered – with the adverse outcome that more doctors would refuse to participate in Medicare, and access to enrollees would be more limited.

Each year, Congress has come up with last-minute postponements in SGR, with the results that the SGR formula is seen by many as a fundamentally broken process.

Against this backdrop, the recent news that both houses of Congress are intending to work together to scrap the broken SGR formula, and replace it with a more permanent solution is very significant. Notable among the key points on the SGR discussion is to “improve the physician payment system to reward value over volume, ensuring beneficiaries and taxpayers receive value for the money spent.”

Value based pay for performance

Simultaneous to this shift in federal circles toward a more value-centered method of paying for health care, similar shifts are being seen in the managed care market. In California, HMO care has mainly been deployed through large, sophisticated risk-taking medical groups and IPAs (the “delegated model”), where these groups receive fixed payments from HMO insurers and assume responsibility for rendering quality healthcare. Since 2001, the Integrated Healthcare Association (IHA) – a consortium of HMO insurers, hospital systems and medical groups – has set criteria for evaluating and measuring performance, and has facilitated a Pay For Performance (P4P) method where good-performing groups get paid a bonus by health plans over-and-above their base capitation rates. This is a business model for quality.

Since the inception of P4P, the focus has been mainly of measuring and improving quality. However, for a number of reasons, this has not bent the cost-escalation curve. Now, the IHA is moving toward a new methodology, referred to as Value Based P4P, where the rewards are not just based on quality and other measures, but also on the total cost of care (hospital, outpatient, ancillary and pharmacy costs). Medical groups that participate in the IHA are looking at how to re-tool themselves to take on this new challenge.

What kinds of health IT do we need?

Clearly, these two examples of major system changes (there are other examples, to be sure) illustrate the growing momentum toward a healthcare delivery system that needs to measure and be accountable for quality, while keeping track of the total cost of healthcare delivered. It is a fundamental paradigm shift that runs underneath the headlines.

So what kinds of health IT tools will be needed for this new direction of healthcare delivery?

We have come a long way in moving healthcare documentation from paper to electronic platforms in the past several years. In 2007 somewhere around 7% of ambulatory doctors’ offices used Electronic Health Records (EHRs), and most of them were closely associated with institutions and medical centers that provided them. In 2013, over 50% of doctors in the U.S. were using certified EHR systems.

Moving from paper to EHRs has been a significant step forward. However, health data remains largely siloed, residing within the institutions that created them. There has certainly been consolidation – linking hospitals with community physicians (mostly through local community health information exchange mechanisms), and creating “enterprise charts” for patients within unified delivery systems. But we still have a long way to go.

The two main areas where modern health IT will be needed for the changes toward value-based reimbursement might be thought of as these:

  1. Tools to measure the health status of populations. This is a combination of Clinical Quality Measures (CQMs), which are population-based measures showing how different providers are faring with respect to managing their patients’ conditions, and Clinical Decision Support (CDS), which are patient-specific prompts letting the provider know what recommended things are due at the time of service. These tools need to measure cost as well as quality.
  2. Tools that facilitate care collaboration. As healthcare delivery becomes more accountable, it must become more collaborative. There need to be tools that support real-time communication between healthcare providers, allowing conversations to take place that have access to shared, universal patient data. Further, patients need to be able to participate in these conversations, and give proper consent for access to their data.

To elaborate a bit more on the second point: a collaboration platform is more than just a shared patient record (though, certainly, a shared patient record is part of it). A universal PHR (Personal Health Record), though a step in the right direction, is still currently a library that one needs to go to in order to pull data that is in there (and whose usefulness is a function of the number of subscribing inputs).

Collaboration is more real-time, more dynamic. It needs to be a mobile-first technology, more than a web-first one. It needs to be able to capture bits of conversation back and forth between care team members (including the patient), sharing cumulative patient data. That data is populated by the conversation content as it accumulates, in addition to EHR data pulled from each participating provider.


How we pay for healthcare is changing. The fee-for-service approach, a hallmark of U.S. healthcare traditionally, is being phased into a system that pays for value over volume. We see this in some major trends – the discussion at the federal level of replacing the broken SGR formula with something more value-oriented, and the shift in managed care toward Value Based P4P.

The technology needs for this new paradigm will be different. Of course, we need health data to be on electronic platforms. These platforms will evolve to serve the institutions that deploy them, and will contain CQM and CDS capabilities, as well as cost-visualization capabilities that include all areas where cost is generated (hospital, outpatient, pharmacy and ancillary) – such systems will show you “what you have done”, somewhat retrospectively.

Just as important (arguably, even more important) are technologies that facilitate care collaboration. This is patient-oriented, provider-driven, cross-institutional, mobile-first, nimble, and data-centered. Such systems will show you “what you are doing”, not in retrospect, but in real-time and going-forward. Needless to say, this is where my current interest is focused.

This article was original published on Dr. Rowley’s blog. It is republished here with permission.