"Value-Based" Purchasing Alone Won't Cure Medicare's Ills

As the movement for healthcare reform gathers momentum, Senate Finance Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) have introduced a “discussion draft” of legislation that would link a small portion of Medicare’s hospital payments to the quality of care provided by each facility. Starting in FY 2012, acute-care hospitals that met standardized performance goals would receive a one percent bonus, which would gradually increase to two percent by FY 2016. Hospitals that did poorly on these measures would be paid less to keep the program revenue-neutral.

According to Baucus and Grassley:

The quality measures will be chosen from a list that has been agreed upon by relevant stakeholder organizations, such as the National Quality Forum, as representing the best practices in inpatient hospital care. Initially, the program would measure performance in the treatment of heart attacks, heart failure, pneumonia, and surgical care. It would also measure overall patient satisfaction of hospital care.

None of this is revolutionary. Baucus and Grassley, who are said to be interested in attaching the bill to larger healthcare reform or Medicare legislation, rolled out a similar measure in 2005. CMS recently concluded a three-year demonstration of a similar program with hospitals in the Premier Healthcare Alliance. And the Medicare Payment Advisory Commission (MedPAC) strongly recommended a value-based purchasing program for hospitals in its 2008 report to Congress. Considering the influence of Baucus and Grassley on the legislative process, it seems likely that this proposal — or something like it — will be included in any health-care reform package that has a chance of passage.

The question is how much good it will do. The data from the CMS demonstration project showed that the participating hospitals did improve their quality scores. But it’s unclear what role self-selection had in the outcome, and the publication of their results on a Medicare website might have induced some institutions to buff up their images by focusing on the selected quality indicators.

Hospitals are already aware that they have a lot riding on upgrading their quality improvement efforts and implementing health IT systems. In fact, a new white paper from the Joint Commission on Healthcare Organizations (JCAHO) urges hospitals to “align performance and payment systems to meeting quality and efficiency-related goals” and to “make the business case and sustainable funding to support the widespread adoption of health information technology.”

But in recent testimony by MedPAC Executive Director Mark Miller before the Senate Finance Committee, he made it clear that “fundamental change” was needed to save the Medical Hospital Trust Fund, which is expected to go broke in 2019. While Baucus and Grassley are among those who believe that higher quality will lead to lower costs, Miller talked about the huge variations in Medicare costs across the country, and he noted there’s no relation between the level of spending and healthcare quality. The solution does include the tying of payment to quality, rather than volume, he said, but many other areas also need to be considered.

For example, he noted, price distortions result from Medicare’s reimbursement system, which favors procedures over primary care. This has also helped produce an oversupply of specialists and a reduction in the number of doctors entering primary care, both of which drive up costs.

Also, the lack of advanced clinical information systems in most hospitals and doctors’ offices, he noted, make it difficult for Medicare to obtain the quality data it needs to do value-based purchasing. Also, he said, “Crucial information on clinical effectiveness and standards of care either may not exist or may not have wide acceptance.” As a result, it’s hard to determine what care is appropriate. He also cited the problem of poor care coordination, noting that this is as likely to be an issue in Medicare Advantage plans as in traditional fee for service Medicare.

In light of all this, Baucus’ and Grassley’s proposal is a step in the right direction — but it’s not the cure for what’s ailing Medicare.