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HHS expanding a failed program

The Department of Health and Human Services (HHS) recently announced it will expand Value Based Payment (VBP) programs that currently account for 20 percent of Medicare payments to 30 percent by 2016 and 50 percent by 2018. While VBP is supposed to improve quality and lower costs by paying for the value and/or quality of services, rather than the volume of services, multiple studies, including some by HHS, show that VBP programs have not worked. In practice they place tremendous burdens on physicians and distort the physician-patient relationship. This flawed experiment will impact all Americans since Medicare is a benchmark for all U.S. health insurance. 

The common denominator of VBP programs is the consolidation of independent providers into groups to supply care for a fixed payment. The groups keep savings and risk losses if costs differ from the payment. VBP programs include “Alternative Payment Models” like Accountable Care Organizations (ACOs) — large, provider-led groups (hospital, physician or other healthcare organizations) that coordinate patients’ care; Bundled Payment arrangements for episodes of care (e.g., a global payment for knee replacement); and Population-Based Payment where providers bear the risk of loss by receiving a fixed payment per patient to provide care for a year or more. 

{mosads}HHS is doubling down despite the findings of its own commissioned 2014 RAND study, which reviewed a decade of experience with VBP programs and found mixed and minimal effects on quality and costs. It concluded that, “we still know very little about how best to design and implement VBP programs to achieve stated goals and what constitutes a successful program.” HHS specifically proposed expanding two Obamacare programs initiated in 2012, the Medicare Shared Savings ACO program and the Pioneer ACO program that have had significant attrition (41 percent of Pioneer participants dropped out) and only generated significant savings in less than a third of participants. Quality improvements have also been hard to demonstrate. 

In practice, VBP is a confusing array of programs that providers struggle to follow. Each program requires providers, under threat of monetary penalties, to report a laundry list of metrics that bear little or no relationship to improved health outcomes. Individual physicians and small physician groups lack the resources to purchase and maintain the information technology that HHS requires for VBP. They cannot afford extra staff to fulfill all the reporting requirements. Smaller physician groups also lack the experience and resources to assume the financial risk that is an integral part of VBP arrangements. As a result, VBP is transforming the traditional model of medical practices owned and operated by physicians into a model with large, hospital-led networks that employ physicians. 

When medical providers become risk-bearing entities they replace the fee-for-service model’s incentive to do more with an incentive to do less. Physician employees have to balance their professional duty to pursue the best interests of patients and their employers’ goal of minimizing costs. 

Not surprisingly, major insurers and large health networks are lauding the move to VBP. Insurers seem anxious to get out of the underwriting business and become administrators for healthcare networks and employers who will bear the risks of loss. Health networks like the consolidation and pricing power that VBP brings. Yet, research shows that healthcare consolidation and market concentration lead to increased prices — as economic theory would predict — with little or no offsetting benefits. Price increases, not overutilization of resources, account for most of the growth in healthcare spending. 

Imposing “value” from on high does not work. Competition is the best way to control costs and improve quality and that requires interactions between purchasers and providers of healthcare. Patients and other purchasers of healthcare can assess and demand value by directing expenditures toward providers who supply higher quality at lower cost without government intervention. Businesses, as purchasers of their employees’ health insurance, have started to do this by negotiating bundled payment arrangements with high quality, low cost, “centers of excellence” for specified surgical procedures. Other business initiatives cut costs and decrease employee sick days by coordinating care between existing, independent providers for their sickest employees. Individual and small group health insurance purchasers are now also being forced to assess value.

Patients are now confronting higher out of pocket costs (co-insurance, copays and deductibles) both on and off the healthcare exchanges. When patients are forced to contemplate cost they become more interested in their full range of options. They become motivated to compare the costs of competing providers and consider alternative services. Seniors in Medicare Part D have shown they are capable of comparing costs and selecting cheaper, equally effective medicines. Private companies will likely arise to provide quality/outcomes data the same way Consumer Reports now rates cars. Price and quality information will become readily available on the internet and providers will have to innovate to attract patients. In the end, patients will be better at determining what’s of value to them than D.C. bureaucrats.  

Joel Zinberg, M.D., J.D., F.A.C.S., a visiting scholar at the American Enterprise Institute, is a practicing surgeon at Mount Sinai Hospital and an associate clinical professor of surgery at the Icahn School of Medicine.

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