January 2011

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE :

A Model for Reform Environmental Scan

Value-based Purchasing

Table of Contents

Consumer Financial Incentives: A Guide for Purchasers ...... 4 VALUE-BASED PURCHASING ...... 1 Information Systems and Web Applications ...... 5 Pay for Performance ...... 1 eHealthInsurance ...... 5 HighMark’s QualityBLUE Initiative ...... 2 Purchasing Consortia and Cooperatives ...... 5 Cost Consequence Analysis ...... 2 The Council of Smaller Enterprises ...... 5 HealthGrades ...... 3 The Disease Management Purchasing Consortium (& Advisory Council) ...... 6 The American Medical Association Physician Consortium for Performance The Washington Prescription Drug Purchasing (WPDP) Consortium ...... 6 Improvement® (PCPI)...... 3 Interventions by CMS ...... 3

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE i SECTION 14 ● VALUE-BASED PURCHASING SECTION ● 14 VALUE-BASED PURCHASING

Value-Based Purchasing – Value-based purchasing (VBP) involves products, money, and information in the context of the services, products, and options that are available, both within and across organizations. Examples of health care purchasers include mail-order distributors, group purchasing organizations, pharmaceutical wholesalers, medical-surgical distributors, independent contracted distributors, and product representatives. VBP include initiatives for quality considerations in health care purchasing; i.e., employer-sponsored quality measurement initiatives in the context of a value-based purchasing strategy. VBP has typically focused narrowly on pay-for-performance, specific diseases, or segments of the population; however, a more general definition of VBP includes a variety of tools to obtain the right kind and mix of health care services at a desired level of quality, at a reasonable cost. The key elements of VBP include contracts that describe the responsibilities of employers as purchasers with selected insurance, managed care, and hospital and physician groups as suppliers; information that supports the management of purchasing activities; quality management for continuous improvements in the process of health care purchasing and in the delivery of health care services; incentives such as pay for performance that encourage and reward desired practices by providers and consumers; and education that helps employees become better heath care consumers. Note: The Agency for Healthcare Research and quality (AHRQ) has published a revealing statement regarding the presence of VBP: “There are a limited number of employers and coalitions acting in a bold and innovative fashion to implement the principles of value-based purchasing. These pioneers are collecting data on both cost and quality, using the data to select plans and providers, and developing financial incentives for employees to enroll in plans with good performance records. Some are also working directly with providers to identify and implement best medical practices. There are a moderate number of employer purchasers who are taking cautious first steps, most typically by asking providers and health plans for information. These dabblers rarely, however, feed that information into actual purchasing decisions. A very large number of employer purchasers are not undertaking any serious initiatives to build quality considerations into purchasing. The do-nothings look to carriers and plans to clamp down on providers' costs, and are largely indifferent to how that is done.”1

VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets? A study in 2006 demonstrated that more A 2005 study indicated that health plan pay-for- A hospital system or a physician group in a community PAY FOR than half of the 252 HMOs surveyed use performance efforts range in size from small pilot can influence how health plans develop their pay for PERFORMANCE pay for performance in their provider programs targeting particular diseases, such as performance programs. Local markets have health plans contracts. Of the 126 health plans with diabetes mellitus, to comprehensive efforts that customize their pay-for-performance programs to pay for performance programs, 90% had comprising separate components targeting primary reflect the willingness of providers to participate, the programs for physicians, and 38% had care physicians, specialists, and hospitals.4 effect of employer interest and influence, data availability, programs for hospitals. The use of pay information technology capabilities, and health plans’ and A recent RAND study of PacifiCare Health Systems, 7 for performance was statistically a large HMO, determined mixed results following providers’ leverage. associated with geographic regions, the one year of reward payments totaling $139M. Their use of primary care providers (PCPs) as findings indicate that benefits in quality are gatekeepers, the use of capitation to pay correlated with the size of the reward.5 PCPs, and whether the plans themselves received bonuses or penalties according STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE 1 SECTION 14 ● VALUE-BASED PURCHASING VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets? to performance.2 Some evidence exists showing that activities taken The Pay for Performance Summit is a to improve quality could actually increase disparities if specific groups are less able to respond to quality National Forum on Pay for Performance 6 and Payment Reform.3 activities than others.

Case Example 1: The purpose of the QualityBLUE QualityBLUE performance indicators and metrics The QualityBLUE Initiative is based in western HighMark’s physician pay-for-performance initiative include: Pennsylvania. is to satisfy consumer demand for 1. Clinical Quality (16 indicators), The type of program should be applicable to other QualityBLUE Initiative information on provider quality and regions based on health plan coverage area. safety, align reimbursement with 2. Generic/Brand Prescribing, performance, and build performance 3. Member Access, excellence in everyday health care 4. Electronic Health Record, operations.8 5. Electronic Prescribing, and 6. Best Practice. Bonus payment is up to 3% of total hospital payment. HighMark’s reports claim a $52M savings and 375 lives saved based on ICU infection rate reduction.

Cost Consequence Analysis estimates the There are 5 key types of economic evaluation for health Cost Consequence Analysis is primarily applied to the COST CONSEQUENCE impact of a treatment on expected care programs: pharmaceutical industry; however, this approach could be ANALYSIS lifetime resource use and costs (including 1) cost analysis, which considers only the costs of 2 or used in a broader health care context. health care costs and productivity losses) more programs being compared; and health outcomes (including life 2) cost-minimization analysis, which seeks to determine expectancy and quality of life) of an the least costly of 2 programs, the outcomes of which individual or population with a particular are judged to be equivalent; disease. Consequence analysis can also 3) cost-effectiveness analysis, which examines the value include the number of quality adjusted 9 of the outcomes or consequences of comparative life-years. programs in terms of quality units (e.g., cost per day of pain avoided), without attempting to put a monetary value on that outcome; 4) cost-utility analysis, which adjusts the outcome units used in the cost-effectiveness analysis by utility scores (scores that weigh the outcomes analyzed in terms of patient preference for the health outcomes achieved); and

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE 2 SECTION 14 ● VALUE-BASED PURCHASING VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets? 5) cost-benefit analysis, which assigns a monetary value to the outcome, allowing comparisons across disease states. Cost Consequence Analysis includes costs and effects that are calculated but not aggregated into quality-adjusted life-years or cost-effectiveness ratios.10

Other Comments Examples of cost-consequence analyses in the published literature include clinical trial data associated with other demographic, quality, financial or other data, which provides the breadth of information required for more accurate decision-making.

Case Example 1: HealthGrades is a health care ratings No studies were reported concerning the outcomes Based in Colorado, HealthGrades provides data organization that offers online associated with the ratings, either for the hospitals or nationally. HealthGrades comparisons of doctors, nursing homes, consumers. and hospitals.11

Other Comments Note: There are several concerns related to the interpretation of their methodology, which apparently is not discussed on their Web site. Perhaps independent verification of their methods would be appropriate.

Case Example 2: The American Medical Association There has been little research to determine the impact of The PCPI was designed to be a national program. developed a Physician Consortium for the PCPI; most of the reports from AMA concern The American Medical Performance Improvement® (PCPI), process issues relating to development of measures, the Association Physician consisting of over 100 national medical use of their data, etc. Consortium for specialty and state medical societies, to enhance the quality of care and patient Performance safety through development, testing, and Improvement® (PCPI) maintenance of evidence-based clinical performance measures and measurement resources for physicians.12

CMS is developing principles to guide the CMS states that it will use a standardized, transparent INTERVENTIONS BY development of a standardized process for set of criteria to evaluate performance measures for CMS selecting, modifying, and retiring inclusion in the VBP program. CMS will align its measures for VBP as mandated by the measure-selection criteria with the criteria used by Deficit Reduction Act of 2005. CMS consensus-based measure endorsers, so that all VBP desires to develop measures that address measures could ultimately be endorsed. the three performance domains identified A national set of standardized measures will be used by the Institute of Medicine: clinical that could apply to all eligible hospitals nationwide, quality, patient-centered care (including and a systematic, transparent process for introducing

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE 3 SECTION 14 ● VALUE-BASED PURCHASING VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets? care coordination), and efficiency. performance measures will be used following The CMS Premier Hospital Quality consultation with relevant stakeholders. CMS is also Incentive Demonstration provides considering a composite aggregate measure instead of 14 financial rewards to hospitals that using individual measures. demonstrate high quality performance in As of July 2009, results of the CMS Premier Hospital a number of areas within acute care. The Quality Incentive Demonstration showed that the demonstration is a partnership between average composite quality scores, which are an CMS and Premier, Inc., a national aggregate of all quality measures within each clinical organization of not-for-profit hospitals. area, improved significantly between the inception of The demonstration rewards participating the program and the end of Year 4. The incentive top performing hospitals by increasing program paid a 2 % bonus on Medicare reimbursement their payment for Medicare patients (275 rates to hospitals performing in the top decile of a 13 hospitals are currently participating). composite quality measure for certain conditions.15

Other Comments There is no agreed upon, standardized set of selection criteria for measures in a VBP or pay for performance. Although the National Quality Forum created consensus recommendations for a comprehensive framework for hospital performance measurement and reporting, these criteria may not be sufficient for VBP. Additional measures are required that are controllable by providers, independent of patient selection bias, which are applicable to the health care continuum.

Case Example 1: AHRQ developed a purchaser guide, the It is difficult to design incentives that will change the Although not specifically designed for geographic Consumer Financial Incentives: A Guide behavior of consumers. In health care, the practice of differences, value-based purchasing market research Consumer Financial for Purchasers, that can be used as a tool traditional marketing and social marketing suggests that tactics include the following: divide large populations into Incentives: A Guide for for employers, health plans, and state people change behavior voluntarily when they perceive segments of people who share common perceptions of Purchasers Medicaid agencies that are considering the new behavior as offering superior benefits to those what is easier and more popular for a particular behavior; implementation of consumer financial of the existing behavior; the new behavior should prioritize and target population segments that are most incentive strategies.16 involve fewer barriers than the existing behavior and the amenable to change and that also provide the greatest new behavior should be supported by people they value. potential for social good; provide products, services, and communications that effectively compete with the perceptions of existing behavior in terms of what is better, easier, and more popular; and monitor and adapt programs to meet changes in the target segment’s perceptions.

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE 4 SECTION 14 ● VALUE-BASED PURCHASING VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets?

The processes that are used to determine INFORMATION the ROI or value associated with an MIS SYSTEMS AND WEB are complicated, and there is no general APPLICATIONS agreement between researchers and practitioners about the best method of arriving at a value statement.17

Case Example 1: This Web site promotes selection of The result is transparency of information about a broad eHealthInsurance is geographically located in 50 states. health insurance for individuals, families, array of health insurance plans (stated 180 health eHealthInsurance and small businesses for research, insurance companies), including a selection of price and analysis, comparison, and purchase of benefit options, availability of customer service health insurance products that meet representatives via a toll free number, online chat, email, consumers' needs.18 or fax.

The purpose of purchasing consortia and Many programs are geographically specific. PURCHASING cooperatives is to allow small employers CONSORTIA AND to have the kind of purchasing clout that COOPERATIVES large employers have in their negotiations with health plans.

Case Example 1: The Council of Smaller Enterprises There is no evidence that this model would be effective The Council of Smaller Enterprises is regionally located (COSE) in Cleveland, Ohio, is a group in different locations or with different health plans. in Cleveland, Ohio. The Council of Smaller purchasing program that includes Enterprises advocacy on legislative and regulatory issues, and networking and educational resources for Northeast Ohio’s small businesses.19 COSE is not a prototypical purchasing co-op because a single health plan has accounted for nearly all of its sales (although COSE now offers a choice of two independent health plans and a number of plan types). The employers, rather than individual employees, choose the health plan.20

STRATEGIC INNOVATIONS FOR AFFORDABLE, SUSTAINABLE HEALTH CARE: A Model for Health System Reform: Environmental Scan ALTARUM INSTITUTE January 2011 PAGE 5 SECTION 14 ● VALUE-BASED PURCHASING VALUE-BASED PURCHASING INTERVENTION AREAS What does the intervention What is the research evidence How applicable to which AND CASE EXAMPLES intend to address? regarding impact of intervention? types of markets? Case Example 2: The Disease Management Purchasing This consortium also has 67 organizational associate No geographical limitations are apparent for The Disease Consortium provides contracting members that have an interest in disease management, Management Purchasing Consortium. The Disease assistance in disease and population including vendors, pharmaceutical companies, venture Management management. The consortium provides capital firms, regulatory and governmental bodies and Purchasing 70% of all current contracted or trade associations, periodicals, consulting firms, implemented outsourced disease and academic medical centers, and executive recruiters. Consortium (& population management programs. They Advisory Council) include 86 health plans, 18 private and public sector employers/retirement systems, 2 unions, and 12 state Medicaid programs, covering a total of 80,000,000 lives.21

Case Example 3: The Washington Prescription Drug The WPDP Consortium offers a free WPDP discount This consortium is limited to Washington State. Purchasing (WPDP) Consortium, card that offers consumers (residents of Washington The Washington administered by the Washington State State) discounts on all prescription drugs (with no drug Prescription Drug Health Care Authority, was created by formulary or preferred drug list) at WPDP participating Purchasing (WPDP) the 2005 Legislature to allow state pharmacies, at prices comparable to those paid by large agencies, local governments, businesses, insurance companies that reimburse pharmacies for Consortium labor organizations, and uninsured or member purchases. underinsured consumers to pool their purchasing power to get better prices on prescription drugs.22

SECTION 14 ● ENDNOTES

1 AHRQ. http://www.ahrq.gov/qual/meyerrpt.htm. (Accessed March 22, 2010). 2 Rosenthal, Meredith B., et al. “Pay for Performance in Commercial HMOs,” New England Journal of Medicine. 355: 18. (November 2006). 3 The National Pay for Performance Summit. March 8-10, 2010. http://www.pfpsummit.com/. (Accessed March 19, 2010). 4 Trude, Sally, Melanie Au and Jon B. Christianson. “Health Plan Pay-for-Performance Strategies,” The American Journal of Managed Care. 12: 9. (September 2006).

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5 Mullen, Kathleen, Richard G. Frank and Meredith B. Rosenthal. “Can You Get What You Pay For? Pay-For-Performance and the Quality of Healthcare Providers,” RAND Journal of Economics. 41: 1. (Spring 2010). 6 Hasnain-Wynia, Romana and Muriel Jean-Jacques. “Filling the Gaps between Performance Incentive Programs and Improvement,” . 44: 3. (2009). 7 Ibid., Hasnain-Wynia, Romana and Muriel Jean-Jacques. (2009). 8 Highmark Press Release. https://www.highmark.com/hmk2/about/newsroom/2009/pr120809.shtml. (Accessed March 30, 2010). 9 Mauskopf, Josephine A., et al. “The Role of Cost-Consequence Analysis in Healthcare Decision-Making,” Pharmacoeconomics. 13: 3. (March 1998). 10 Drummond, Michael F., et al. Methods For The Economic Evaluation of Health Care Programs. New York: Oxford University Press, 2003. 11 Health Grades. http://www.healthgrades.com/. (Accessed March 19, 2010). 12 American Medical Association. http://www.ama-assn.org/ama/pub/physician-resources/clinical-practice-improvement/clinical-quality/physician-consortium-performance-improvement.shtml. (Accessed March 19, 2010). 13 Centers for Medicare and Medicaid Services. http://www.cms.hhs.gov/HospitalQualityInits/35_hospitalpremier.asp. (Accessed March 19, 2010). 14 CMS Hospital Pay-for-Performance Workgroup with Assistance from the RAND Corporation, Brandeis University, Booz | Allen | Hamilton, and Boston University. “U.S. Department of Health and Human Services Medicare Hospital Value-Based Purchasing Plan Development.” (January 2007). Note: The principles developed are consistent with the National Quality Forum’s “Comprehensive Framework for Hospital Care Performance Evaluation”. (2003). 15 “Premier Hospital Quality Incentive Demonstration: Rewarding Superior Quality Care.” Fact Sheet, July 2009. http://www.cms.hhs.gov/HospitalQualityInits/35_hospitalpremier.asp. (Accessed March 19, 2010). 16 Dudley, R. Adams, et al. “Consumer Financial Incentives: A Decision Guide for Purchasers.” Publication No. 07(08)0059. Washington, DC: Agency for Healthcare Research and Quality. (November 2007). 17 Shabati, Itamar, et al. “The Value of Information for Decision-Making in the Healthcare Environment.” In Medical and Care Compunetics 4, edited by Lodewijk Bos and Bernd Blobel. IOS Press, 2007. 18 eHealth Insurance. https://www.ehealthinsurance.com/. (Accessed March 19, 2010). 19 Council of Smaller Enterprises. http://www.cose.com/. (Accessed March 19, 2010). 20 Wicks, Elliot K. “Health Insurance Purchasing Cooperatives,” Issue Brief 567. New York, NY: The Commonwealth Fund. (November 2002). 21 Disease Management Purchasing Consortium International. http://www.dismgmt.com/. (Accessed March 19, 2010). 22 Washington Prescription Drug Program. http://www.rx.wa.gov/consortium.html. (Accessed March 19, 2010). END SECTION 14

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Altarum Institute Systems Change Model

For more information: www.altarum.org or contact Gloria N. Eldridge, PhD, MSc at [email protected].