Evidence Lacking on Value-based Purchasing in Healthcare

After a decade of experimentation with reforms that give health providers financial incentives to improve performance, relatively little is known about how to best execute such strategies or judge their success.

This article published with permission from The Burrill Report.

As healthcare in the United States moves toward a value-based system where providers are paid based on outcomes rather than the number of procedures, the Department of Health and Human Services (HHS) is looking to implement value-based purchasing across the different types of providers in the Medicare program.

But after a decade of experimentation with reforms that give health providers financial incentives to improve performance, relatively little is known about how to best execute such strategies or judge their success, according to a new RAND study, commissioned by HHS.

The study assessed the state of knowledge about value-based purchasing programs in healthcare and found that evidence, so far, is mixed about whether using such payment schemes can help improve quality and lower costs.

Most of the research on value-based purchasing has examined the effects of pay-for-performance programs that reward physicians and other health providers for improving the quality of care or reducing costs. Research on the impacts of newer value-based payment models, such as Accountable Care Organizations (ACOs) and bundled payments, that create stronger financial incentives for change, is still needed, according to the report.

“The evidence from the past decade is that pay for performance had modest effects on closing the quality gap,” says Cheryl Damberg, the study’s lead author and a senior principal researcher at RAND, a nonprofit research organization. “Newer payment reform models such as ACOs are in their early stage of implementation and little is known at this point about their impacts on cost and quality, and how best to design these programs to succeed in achieving desired goals.

“The new models that are being adopted now have sharper teeth—putting health providers at financial risk for spending above negotiated targets—that may trigger significant changes by providers,” she says.

The RAND report focuses on 3 broad types of value-based purchasing models: pay-for-performance programs that reward health care providers with a bonus or higher payments based on their performance on a set of quality and/or cost measures; ACOs, in which payments are tied to the total cost of the care provided and providers share financial risk and a portion of any savings; and bundled payments that give healthcare providers a fixed payment that covers the average cost of a bundle of services.

The pay-for-performance model was the first value-based incentive model to be widely implemented, with ACOs and bundled payment methods just beginning to be adopted.

Studies done to date on value-based purchasing have been inconclusive, with some showing modest cost savings and quality improvements, and others finding no meaningful changes. In addition, many of the studies about value-based purchasing had design flaws that make it hard to determine whether the intervention had an effect beyond other changes that were occurring in healthcare to cut costs and improve quality, according to the report.

RAND researchers looked at 129 value-based purchasing initiatives, mostly pay-for-performance programs, but also ACOs and bundled payment programs. They assessed design features of the programs, reviewed published studies that evaluated the impact of the programs, and organized a panel of experts to comment on the evidence to date and recommend strategies to build the evidence needed to inform the use of and design of value-based purchasing programs moving forward.

“The newer value-based purchasing models require health providers to build systems of care and coordinate their actions with providers in different settings to manage the totality of a patient's care,” says Damberg. “Given the complexities of care redesign, the need to share information across providers, and the ability to absorb financial risk, it remains to be seen which of these approaches can work and under what circumstances.”

The authors identify 3 areas they see as critical to advance progress on the government’s use of value-based pricing as a strategy for improving the health system: develop a national value-based purchasing strategy; develop a well-defined, coordinated research strategy; and develop a new generation of performance measures that can move transform the delivery of healthcare.

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