You Get What You Pay for: a Look at Transitioning From Volume to Value

You Get What You Pay for: a Look at Transitioning From Volume to Value
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If the U.S. auto industry ran like the country's health care system, all American cars would cost in excess of $100,000, resemble Rube Goldberg machines and break down more than any other cars in the world.

The outcry would dwarf the recent scandal over Volkswagen's emissions software. Yet in the health care industry today, Americans accept a system that, for the vast majority of us, offers fragmented, uncoordinated care, costs much more than in other industrialized countries and yields overall health outcomes that are no better than in those industrialized nations. As a result, the United States spends an extra trillion dollars per year for far too small a benefit.

What's wrong? A big part of the problem is that the American health care system has traditionally been based on a fee-for-service (FFS) payment model. In such a model, government and commercial insurers - or patients themselves, if they are uninsured - pay for each service performed, without holding providers accountable for whether patients get better or worse, much less how much the total cost of care is. This can create an economic incentive for providers to pile on more services and order more tests, even if they provide little additional benefit. It would be akin to carmakers marketing a car based on how many parts it has rather than for how well it drives.

Of course, what matters to most people is how well the car meets their needs and how much it costs. In short, Americans want good value for the money.

It's similar in health care. At Health Care Service Corporation, we conceptually define health care value as the ratio of quality of care to cost. That is:


Quality includes the treatment quality and outcomes of an episode of care, as well as the patient experience. Cost includes the total cost to the patient and the insurer.

To get more value, we need to change the rules of the game to incentivize greater quality and lower costs. This will take a fundamental shift in the economics of health care from a FFS system to a fee-for-value (FFV) system that rewards providers for care that produces better outcomes in a more efficient way.

To be clear, it's not just about making care less expensive. In fact, there are circumstances in which the quality of an outcome can be increased so much that, even with higher costs, we can achieve greater value. We have seen new treatments that can cure previously incurable diseases. These are game changers that can potentially warrant an increase in cost if necessary, though how much cost can be justified is always an issue of debate. More often than not, we can find ways to improve or maintain quality while lowering the overall cost of care.

Whether determining how to lower costs or improve quality, effective measurement is crucial to giving providers and patients the information they need to make high-value health decisions. Assessing cost is relatively straightforward, but all too often when it comes to quality, perfect becomes the enemy of the good, preventing us from settling on measures of quality that are enough to drive reasonable business decisions in a way that is also medically sound. Compounding the problem is the fact that each payer puts forth its own set of quality metrics for providers. A recent study of 48 state and regional measures sets identified 509 distinct measures in use, with only 20% used in more than one program and not a single one common across all programs.

Fortunately, the shift to FFV has begun to catalyze the historically glacial process of quality measure development. Earlier this year, a coalition called the Core Quality Measures Collaboration, which includes CMS, AHIP and its members, the National Quality Forum and several physician organizations, came together to define core sets of measures that would be broadly adopted across different government and commercial insurers. As promising as this is, even more innovative and disruptive approaches are needed to help us shift from simply lowering costs to improving value.

The question is not if we should pursue a FFV health care system but how. It starts with evaluating where we are in terms of value and where we want to go, then devising alternative ways of providing and paying for services that focus on the value of the care, rather than how much care is being provided. We've already started down this path with new value-based care alternative payment models such as accountable care organizations, bundled payments and medical homes becoming more common around the country. There is also interest in retooling and expanding familiar models like HMOs.

Beyond alternative payment models, there needs to be a more collaborative dynamic in the U.S. health care industry, that focuses on a common goal of ensuring all Americans are as healthy as they can be, but recognizes that if we can't do it sustainably, we will have failed in our mission.

Health care is a business, and to serve our customers better, we must change the way we do business. Otherwise, we could end up paying luxury car dollars for clunker health care.

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