While many see the major expansion of Medicaid and the creation of the federal and state Exchanges as the biggest health care headline in the past decade, we view the emergence of a national accountability model centered on value-based purchasing as the biggest game changer.
For sure, the two go together. Without a focus on value and outcomes, the expansion of health insurance coverage would be destined for failure on both a policy and financial front. The drive toward a national accountability model and value-based purchasing had its roots decades ago with various initiatives. But it came to the fore in the late 2000s in Medicare and has seen significant advancement with the implementation of various Affordable Care Act provisions across all lines of business — Medicare, Medicaid, and commercial. Whether it’s the Star program in Medicare, the drive to improve quality in many states’ anemic Medicaid programs, or the fast-emerging accountability dictates in the Exchange arena, value-based purchasing is sure to define health care well into the future.
In many ways, the emerging value-based model was forged as a compromise between Democrats and Republicans some time ago. Many Democrats, frustrated with the inability to pursue a one-payer system, signed on to using the private delivery system as long as a strong federal lead role prevailed. For their part, Republicans agreed to a strong central role, believing that the private sector should prove its worthiness if it was to be the main vehicle of healthcare delivery in the nation. The huge unfunded liabilities of the Medicare and Medicaid system forced lawmakers to forge ahead on private models and at least push through value-based reforms in the legacy fee-for-service (FFS) systems.
The Centers for Medicare and Medicaid Services (CMS) will drive the move toward value at a national level as it now controls all healthcare policy. The agency directly controls Medicare; it holds the financial purse strings for Medicaid and directs its policies. Finally, it is now in the lead role for Exchanges and directly controls policy in about two-thirds of states.
So what is value-based purchasing? It is the subject of much debate, but in our minds it focuses on three areas:
Compliance accountability. In many ways, CMS and policy-makers see compliance with published regulations and guidelines as the first step in the value-based healthcare world. Without compliance, you can’t get to step two. CMS has finely tuned its regulatory regime in Medicare, and this approach will ultimately be rolled out to all lines of business, including Medicaid and Exchange. Indeed, a plan’s, provider’s or other entity’s inability to show compliance can be a death knell. You literally can be put out of business if the myriad of regulations and policies are not followed. How so? It’s not so much the bite of civil monetary penalties and sanctions (which can be quite severe), but the reputational impacts of non-compliance as well as the suspension of enrollment and marketing that regulators are more and more willing to put in place quickly. With monthly member attrition in government programs somewhat substantial, non-compliance can mean plan enrollments dwindle quickly to unsustainable levels.
Tying revenue to quality. CMS crafted an extremely successful Medicare Advantage Star program in just a few short years. The number of plans with a 4 or greater Star rating has now reached 40%, and savvy Medicare enrollees are now migrating to the best quality plans (over 60% are enrolled in 4- or 5-Star plans). But CMS is not resting on its laurels. The Star program is constantly being refined to push plans to the next level. Indeed, recent changes point to the increasing difficultly of plans to reach and maintain 4- and 5-Star status. About a third of all measures today tie to Part D performance, forcing plans to integrate medical and pharmacy management. About two-thirds of all measures soon will emphasize holistic member experience, not one time closure of given clinical measures during the year.
Lastly, measures are becoming increasingly complex and hard to attain. For example, plans are already grappling with working with providers to reduce hospital readmissions. In the 2016 Call Letter, CMS signaled its intent to soon introduce a measure that will hold plans responsible for preventable hospital admissions. In addition, Star and quality measures are increasingly tied to the level of member benefits. In the past, when plans were simply rewarded with some additional revenue for performance, few took notice as the cost of boosting scores may have out-weighed the added revenue. But in Medicare and soon other lines, the quality bonuses are passed through to members in the form of better benefits. Now, plans must take notice as ignoring quality performance puts them at a significant disadvantage in the marketplace.
Aligning payments with population acuity.In addition to rewarding plans with quality bonuses, CMS and state policy-makers are more and more convinced that the financing scheme must recognize documented acuity in patient populations. With state and federal coffers over-burdened, regulators are seeking to transfer dollars from plans with lower than average risk to those with significant acuity. Thus, risk adjustment has emerged in all lines of business. The hierarchical condition categories (HCC) and RxHCC risk adjustment is long established now in the Medicare Advantage and Part D world. Some 30 states or so utilize various risk adjustment strategies tailored to the Medicaid population, the most popular of which is the Chronic Illness and Disability Payment System (CDPS). And, the Exchanges now have a variant of the Medicare HCC system. Indeed, base bids are becoming extremely tight in all lines of business, making the revenue from risk adjustment a critical part of a plan’s financial success or failure. In addition, concerned with the potential to game the system, regulators are introducing data validation audits that can mean huge financial recoupment if plans cannot document diagnoses submitted to the federal and state governments.
It is difficult for a plan to excel at just one of the three trends outlined above, much less two or three. But unless plans begin to focus on them soon, their very survival over time is in question. In the end, regulators are looking for a Darwinian solution. Poor performers will be rooted out, while others will thrive under these new aligned incentives.