Believe it or not, Congress finally agreed on something. On March 26th, the House passed legislation to repeal Medicare’s physician payment formula known as the sustainable growth rate (SGR), which compensates Medicare providers based on “activities and treatments,” and replace it with a payment system based on value (or outcomes relative to associated costs) instead of volume of care. This is commonly known as the move from “fee-for-service” to “fee-for-outcomes” (also known as “fee-for-value” or “value-based care”). If all goes well, the bill is expected to pass the Senate and be signed by the President by the end of April.
Changing the established fee-for-service healthcare model will not come easy or cheap. Funds needed to cover the cost of repealing and replacing the SGR are estimated to be approximately $13.5 billion annually over the next 10 years, most of which would be needed to offset payment cuts under the existing SGR formula. Not surprisingly, details on funding still need to be worked out.
Congress has already spent nearly 15 years and $150 billion providing short term SGR “fixes” avoiding a shift to outcome-based pay to further avert payment cuts to Medicare providers that some contend would compromise patient care. These short-term fixes are an example of Congress treating the symptoms rather than the disease.
Several things must happen in order to successfully shift from a fee-for-service to a value-based pay model. However we get there, getting to a value-based model is essential. It will not only save tens of billions of dollars per year in healthcare spending, but will also create innovative new companies and technologies, hopefully improving healthcare for all Americans.
Moving from a “fee-for-service” to a “value-based care” system allows the healthcare industry to focus on preventative measures that should improve the quality of care for all Americans. (Image Source: AP/Rob Carr)
For additional insights into the changes needed to implement such a system, we reached out to Patrick Dunham, CEO of Curant Health. Founded in 2000, Curant Health treats tens of thousands of patients every year through its medication management protocols. Dunham offered the following four recommendations:
Standardize the definition of value that takes into account the savings opportunity associated with improved health outcomes. Value can be illustrated by using the simple equation of value equals outcomes divided by costs. For decades our system has attempted to increase value by cutting the denominator in this equation – costs. Most would agree that we’ve reached a point where further cost reductions creates a risk of declining outcomes. No value is realized when the outcomes numerator decreases in parallel with a decrease in the costs denominator.
Develop payment models designed to positively impact outcomes. There is greater value potential in considering the savings impact generated by improved outcomes on overall costs than can be realized by blindly attacking costs. Every Medicare hospital readmission avoided saves $10,000 – $13,000 – reducing cost, while of greater import, the patient enjoys a higher quality of life – improving outcomes. Greater reimbursement should be considered for preventative services like medication management that drive higher levels of adherence. Providers who demonstrate measurable improved outcomes and cost reductions should be highly compensated in any future payment models. Conversely, those who don’t demonstrate improved outcomes should be appropriately penalized.
Align stakeholder interests and incentivize them the right way. The formulas used to calculate both the cost effectiveness and savings of prevention activities have been the subject of much debate. What’s not up for debate is that Americans use preventive services at about half the recommended rate according to the Centers for Disease Control and Prevention (CDC). For every HIV infection prevented, an estimated $355,000 is saved in the cost of providing lifetime HIV treatment.
One of every five U.S. healthcare dollars is spent on caring for people with diagnosed diabetes. Prevention, through the elimination of cost-sharing for certain preventative services, counseling and screenings can add value by reducing the cost of disease while improving both the length and quality of people’s lives. Incentives should be provided to patients, providers and payers that facilitate and encourage active patient participation in their own preventative healthcare.
Exploit advances in Medication Therapy Management (MTM) to safely reduce overall healthcare costs. In Medication Therapy Management (MTM), a pharmacist evaluates a patient’s prescriptions, lifestyle and how the patient is feeling to identify and resolve issues including: untreated conditions, drug interactions, adverse drug reactions, inappropriate drugs or doses, and whether a patient is taking the medications as prescribed.
An IMS Institute for Healthcare Informatics study, “Avoidable Costs in U.S. Healthcare,” focuses on the capability of pharmacotherapy in reducing overall healthcare expenditures. It estimates that “responsible use of medicines can eliminate at least $214 billion annually in avoidable costs.”
Carving out Medicare’s portion of the $214 billion in wasted medication-related spending leaves an annual savings potential of $42 billion per year. Dunham recommends “providing an incentive for all stakeholders to improve the top line of the value equation (outcomes) by paying proven effective companies to ensure patients take their medication properly and begin realizing a share of the $42 billion of healthcare costs wasted every year. Those savings far outrun the $13.5 billion / year cost of the new legislation.”
So why isn’t every payer, health system and prescriber seeking to provide proven, preventative medication management services and improve patient outcomes as fervently as they are seeking to reduce costs? The likely answer is because our current fee-for-service healthcare system solely incentivizes reduced costs, not improved outcomes. But, with this new legislation, change is hopefully on the horizon.
“Not all of the burden of accountability should lie with the physician,” explains Dunham. “Lawmakers and policy experts should consider the proper use, engagement and role of accountability for each provider type (including clinical pharmacists) and ask, ‘Are all available resources being tapped to positively affect the outcomes and cost variables in the healthcare value equation?’” When those things happen, quality of life and outcomes go up while waste goes down.
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