Value-Based Purchasing and Healthcare Reform

Authored by Tracey King

Rising US healthcare costs, inadequate access, pervasive underinsurance and lagging quality have forced healthcare purchasers to make significant changes in payment methods. The Affordable Care Act (ACA), signed into law in March 2010, brought about one of the largest American health reform initiatives in history. Central to the ACA is value-based purchasing programs. Physicians, hospitals, ambulatory surgery centers, psychiatric hospitals, rehabilitation hospitals and skilled nursing facilities will all be subject to value-based payments (Fraser, Encinosa & Baker, 2010).

At its broadest, VBP basically refers to any purchasing practices aimed at improving the value of healthcare services, where value is a function of both quality and cost (AHRQ, 2002). Value-based purchasing (VBP) programs are being put into place with increasing frequency for the purpose of rewarding providers for meeting performance goals or showing improvement (De Feo, 2011). Over 150 value-based sponsors offering over 250 programs are in place with most sponsored by private sector health insurance and employer purchasing cooperatives (Fraser, Encinosa & Baker, 2010). For hospitals, a percentage of a hospital’s base operating payment for each discharge or diagnosis-related group (DRG) payment is contingent on the hospital’s actual performance on a specific set of measures (Lubell, 2007).

Van Herck et al (2010) conducted a systematic review of the effect, design choices, and context of value-based purchasing in healthcare. Six recommendations that should be taken into account when running a VBP program were supported by evidence throughout 128 studies include:

1. Selecting and defining VBP targets established upon baseline room for improvement.
2. Making use of process and outcome indicators as target measures.
3. Involving stakeholders and communicating the program thoroughly and directly throughout improvement, implementation, and evaluation.
4. Implementing a uniform VBP design across payers.
5. Focusing on quality improvement and achievement. A combination of both is most likely to support acceptance and to direct the incentive to both low and high performing providers.
6. Distributing incentives at the individual level and/or team level.

Other recommendations that were theory based include a refocus of the program when goals are fulfilled with continued monitoring of scores on old targets to sustain the gains, support participation and program effectiveness by means of adequate incentives, and the provision of quality improvement support and tools.

Boards of directors are instrumental in the existence of a quality-driven culture and have become more strategic to address the challenges of healthcare reform and value-based purchasing. Providers and organizations have implemented numerous process redesign initiatives for the measurement, control, value improvement, and cost reduction of healthcare. Quality management methods have spread rapidly throughout the US with a focus on developing a structure to improve performance (De Feo, 2011). To meet the stringent requirements of demonstrating quality through process and outcomes measures, many healthcare organizations have adopted Six Sigma methodology and lean principles to provide a data-driven and disciplined approach to meet value-based purchasing requirements.

The implementation of healthcare reform and value-based purchasing measures present unique challenges for healthcare organizations and individual providers. Through the adoption of Six Sigma methodology and lean principles, organizations are better prepared to implement innovative programs designed to improve performance and overall quality.

Please contact the Juran Institute at Tina@juran.com for more information on Healthcare Reform.