A Courageous First Step

This article was first published in The Health Care Blog.  It is co-authored by Bob Kocher and Farzad Mostashari.

Earlier today, Health and Human Services (HHS) Secretary Sylvia Mathews Burwell announced that HHS is doubling down on the historic shift taking place across the health care industry towards value-based care, and is setting a target of having 50 percent of Medicare payments under value-based care arrangements by 2018.

 This would mean that in less than three years, around a quarter of a trillion dollars of health care spending would be made to providers who are being compensated not for ordering more tests and more procedures, but for delivering better outcomes – keeping patients healthier, keeping them out of the hospital, and keeping their chronic conditions in check.

This shift will address a central problem of the US health care system, one that lawmakers and policy experts on all sides of the issue agree is a key contributor to runaway medical inflation.

The logic is straightforward: by simply paying for the volume of services delivered, every provider has a strong incentive to do more — more tests, more procedures, more surgeries. And under this system, there is no financial incentive to maintain a comprehensive overview of patient care – to succeed by keeping the patient healthy, and health care costs down.

In making this announcement, Secretary Burwell took a step that many within HHS had been advocating quietly for years, and which many outside it have advocated more loudly.

Skeptics may ask: what does this accomplish? And why announce it now, when health care costs are already rising at the slowest rate in decades?

As someone who has served on the frontlines of the policy and the practice of this transformation, the answer is clear: because dispelling disbelief and uncertainty about this shift “from volume to value” among decision-makers in the health care industry will be key to sustaining progress.

Part of the reason for the spending slowdown is the fear among some health care executives that their “build-it-and-they-will-come” fee-for-service model may not last. According to the Federal Reserve Bank of St. Louis, health care construction, on a continuous upwards trajectory for years, dropped sharply in 2009, and even as the rest of the construction industry rebounded, dropped again in 2013. The ubiquitous cranes building new hospital wings and proton beam pavilions have paused ever so slightly as uncertainty reigns.

But imagine if this announcement by the world’s largest payor is joined by private sector leaders, signaling urgency and determination. The skeptics and the straddlers will have a definitive answer, and it will accelerate the transformation already underway. Innovation in how healthcare is delivered can succeed only if there is a sustained commitment to change to go along with the technological advances in data and analytics that have revolutionized other sectors.

This is doubly important. There are still too many organizations deeply embedded in today’s payment models, who have chosen to wait and see if this value-based care movement is a passing fad.

Many have dipped a timid toe, or hedged their bets with low-regret moves like buying up practices and forming organizations that are Accountable Care Organizations (ACOs) in name only. These actions consolidate a health system’s referral base, but administrators have no intention of reducing costs, which are their revenues. Put differently, these “ACO squatters” say there are embracing new payment models, but remain stuck in the mentality of the do-more, get-paid-more system.

Unfortunately, this strategy is already too widespread, and likely to grow as long as large organizations are allowed to continue in “one-sided” (upside only) shared savings models, as recently proposed by CMS. It’s also a major reason why so few hospital-sponsored ACOs have actually achieved savings bonuses. Defensive moves by hospital systems provide a veneer of action, while consolidating regulator-blessed market dominance that can raise local prices without improving quality at all.

Without a doubt, the goal announced today by HHS will motivate widespread, real change across both the public and private health care sphere. But in order to achieve the spirit of the transformation – and not simply check the box of meeting numerical goals – I would suggest an additional metric to accompany the headline number.

In addition to tracking all dollars paid out under value-based systems (like the “fee for service” revenue generated by hospitals with an ACO contract), HHS should also separately count how much money was actually awarded or taken away as part of value-based contracts. The headline number will give a picture of how many providers are participating in value-based care programs; the second number will give a clearer policy goal of increasing the number of providers that are actually succeeding in these arrangement. This additional objective would discourage the “ACO squatting” described above, and challenge participant providers to embrace not simply the letter of the regulations, but the spirit of the program.

“You can give them a big number and you can give them a date, but don’t give them both.”

That was the sly advice on target setting given by a career bureaucrat to a newly appointed agency head. Bureaucracies protect themselves against embarrassment and deflect scrutiny, especially when they feel attacked, and the leadership of the Department of Health and Human Services (HHS) has felt intense scrutiny since the earliest days of the Obama Administration. In that light, HHS Secretary Sylvia Mathews Burwell’s announcement today of a target for reforming healthcare payments is both astonishing and courageous.

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