The Department of Health and Human Services threw down the gauntlet in late January when Secretary Sylvia Burwell announced its intention to increase value-based purchasing dramatically in the next few years.
HHS plans to move its payment system to 30 percent value-based in 2016 and 50 percent by 2018. It also plans to have 95 percent of fee-for-service plans include some sort of value and efficiency components by 2018.
The industry has slowly been moving in this direction for some time, nudged further by the Affordable Care Act. But what does it mean for hospital CFOs trying to build budgets based on schizophrenic payment systems? Volume will no longer be king when it comes to gauging success and financial planning.
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The core challenge when converting to a value-based, rather than fee-for-service, system is the lack of consistency in payment measures. Unlike a set fee for a particular DRG code, value is much more ethereal.
"Physicians and hospitals are doing things routinely but don't really know what the ultimate outcomes are," said Doug Fenstermaker, managing partner and executive vice president of healthcare for Warbird Consulting Partners, LLC. "If they did hip replacement surgery, how do they know if the patient was better or worse off after doing it? There are more questions than answers right now."
No gold standard
Perhaps the biggest value-based challenge on the finance side is the lack of a single set of metrics by which to gauge quality. Measures used to pay for quality may vary dramatically across different payers. Medicare, however, could be helpful in narrowing metrics – because where CMS goes, private payers often follow.
Washington State is a prime example of the quality conundrum providers will soon be facing. Early this year, the state legislature identified 52 "starter set" metrics state and private payers can use for value-based purchasing.
Susan Anderson, CFO, CIO and executive vice president of Virginia Mason Hospital and Medical Center in Seattle, said payers are beginning to figure out how to incorporate value-based metrics into their payment models. The Washington state measurements vary widely and track payment, population health and outcome measures. They include everything from Medicaid spending per enrollee to cervical cancer screenings and patient experience.
But providers also have to consider national measures like those CMS has created. The agency will measure 24 metrics in 2016 for its value-based purchasing program. Providers will be rated on their achievement and improvement over time in four areas.
The first is efficiency, such as "spending per patient," which will be weighted at 20 percent of a provider's score. The second metric will be outcomes, including 30-day mortality rates for patients with acute myocardial infarction, heart failure and pneumonia. This metric accounts for 30 percent of the score.
Another 30 percent is patient experience from the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS), which includes communication with nurses, pain management and staff responsiveness. This emphasizes the importance of tracking publicly reported quality measures. The final 20 percent measures process of care, like providing discharge instructions, venous thrombosis prophylaxis for post-surgical patients, and expedient postoperative urinary catheter removal.
Anderson said she has seen a number of payer contracts where quality is incorporated into payment measures. Often a set of six to 10 key measures are used as a carrot for incentives, she said.
"To the extent that different organizations start to coalesce their thinking around a finite number of measures, CFOs are going to have to start paying close attention to those particular metrics," she said.
Prevention is key
Many of the metrics now used revolve around prevention. One group that scores and publicly reports quality measures in the state of Washington is the Washington Health Alliance. Its website, Community Checkup, provides grades for all physician groups in areas like use of generic medications, access to primary care, prevalence of health screenings and diabetes care.
Bruce Fairbanks, director and senior CFO consultant with Warbird, said the challenge for CFOs is tracking preventive care – much of which isn't reimbursed. CFOs will need to measure prevention and other metrics that reduce patient load while trying to ensure financial viability for the organization.
"A CFO will have to see if he or she is going to go bankrupt by being successful – having patients that don't come back or stay in the hospital one day instead of five," Fairbanks said.
Fenstermaker points to the Pioneer program, which was not financially viable for some hospitals. CFOs must track whether they are providing the highest quality of care in a way that is financially viable. Costs relative to services provided will be a key measurement.
This process will be slightly easier at organizations like Virginia Mason, where hospitals and other providers are integrated. This will give hospitals more control over the entire patient experience that could impact payments.
"The jury is still out from a profit point of view whether savings and incentives under value-based payment will equal fee-for-service," Fairbanks said.