What Are the Obstacles?
A number of obstacles are delaying progress in the development of a value-based
purchasing system. Some of these obstacles are technical in nature—involving,
for example, the difficulty of building a community-wide electronic information
system. Others involve community politics and the tradeoffs that inevitably
occur between conflicting goals.
A Sense of Complacency
A primary challenge to efforts to measure quality is overcoming the complacency
that has set in as a result of the recent moderation in the growth of employer
contributions to health care costs, especially for the large employers
that are most likely to have the staff and resources to dedicate to this
issue.
During the past 4 years, the cost of health insurance has risen
an average of 4.0 percent per year, in contrast to increases that averaged
13.6 percent over the 1988-92 period, according to data collected by KPMG
Peat Marwick. Some health benefit managers in major corporations report
that senior managers in their firms are less willing to devote resources
to long-range efforts to improve health care quality and manage health
costs because they see rising health care outlays as being "under control,"
and therefore not an immediate problem.
Yet, health care spending in the future will be driven up by strong
pressures from a variety of forces, including:
- The continuous discovery of new medical technology that promises to
extend life and improve its quality.
- Behavior and lifestyle factors, such as smoking and drug and alcohol
abuse.
- The aging of the population.
Another aspect of employer complacency emanates from divided loyalties.
In many cities, purchasers have not been able to bring about a "downsizing"
of the hospital system even though all parties agree that there is substantial
excess capacity. Corporate leaders sit on hospital boards and their loyalties
to such hospitals sometimes exceed their desire to bring about a leaner,
more efficient hospital system. Business also fears angering highly valued
employees by limiting their choice of providers.
Many employers still fear managed care and believe that it will be strongly
resisted by their employees. According to a recent survey of over 600 employers
conducted by the Economic and Social Research Institute, 82 percent of
employers not using managed care thought that its use would lead to decreased
quality of care, as opposed to only 11 percent of employers currently using
managed care. Nine out of 10 employers not using managed care believed
that it would reduce choices in a way that would displease employees, compared
with five out of 10 employers who were offering managed care plans. The
challenge to these employers is to devote more resources to measuring
quality, if that is really their concern about these plans.
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Lack of Dissemination Mechanisms
Value-based purchasing is currently conducted by a significant number of
large corporations with sophisticated human resource and employee benefit
managers and staff, as well as by a small group of innovative employer
coalitions. These are the pioneers. Far more typical in today's health
care marketplace, however, are situations in which employers sign up with
one or more managed health care plans and look to them to assure some stability
in their premiums. Managed care organizations meet this demand largely
by using their clout to extract significant discounts from the hospital
industry, which in most areas has substantial excess capacity, and to limit
payments to specialist physicians through both fee schedules and gatekeeping.
At the present time employers and coalitions lack a central repository
of information about best purchasing practices and lack affordable access
to the technical assistance needed to understand and implement the practices
of the pioneers. As a result, many purchasers reinvent the wheel because
they are unaware of what others have accomplished in different regions
of the country. One promising approach to addressing this problem involves
the activities of the newly formed Quality Measurement Advisory Service
(QMAS). QMAS was established in 1996 to assist State and local health care
coalitions, purchasing groups, and health information organizations in
their efforts to measure health quality for value-based purchasing and
other purposes. QMAS offers educational meetings and guides on quality
measurement, provides consulting services, manages collaborative projects,
and facilitates information exchange.
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Inadequate Staffing
Business coalitions and corporations are not well enough staffed to accomplish
the task of restructuring the health care system based on cost and quality
measurement. Human resources and business coalition staffs are often skeletal,
particularly compared to the magnitude of the problems they tackle. While
some leading corporations have staffs of reasonable size and good quality,
many companies are devoting surprisingly few resources to the task of health
care quality improvement and cost management, particularly in light of
the potential savings. On the other side of the bargaining table, providers
and managed care organizations typically have large and sophisticated staffs.
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Credibility of the Information
Another obstacle that is impeding progress toward the use of quality measurement
in a value-based purchasing system involves employers' concern about the
credibility and relevance of the information. This concern takes several
forms.
First, employers are concerned that they are obtaining mainly indirect measures that do not necessarily represent clinical quality. Most employers
and coalitions beginning to measure health plan quality, for example, are
using HEDIS indicators. These indicators provide employers with a useful
checklist of the extent to which primary and preventive care services are
being provided by plans. But they are less useful in telling them whether
the appropriate followup measures are taken when preventive screening reveals
a danger signal, or whether the care resulted in positive outcomes. (However,
future versions of HEDIS will provide this kind of information.)
Moreover, while there are many data available on physician practice
patterns and use of services, employers also need to learn whether health
care procedures are performed skillfully or result in good patient outcomes.
Research efforts have resulted in a steady build-up of knowledge about
such topics as the appropriate time to begin administering an antibiotic
prior to surgery, given the patient's medical profile; how much tissue
to remove in certain types of surgery; how invasive surgery should be;
and indeed, whether surgery is called for at all, given that alternative
therapies might rely, for example, on prescription drugs. But information
regarding the use of best clinical practices is rarely made available to
the purchaser community.
Second, employers are concerned that much of the information on quality
emerges from surveys of health care consumers. In their ratings of health
plans, consumers are very concerned about out-of-pocket costs and whether
their family physician is participating in the plan. These are valid concerns,
but they may not have much to do with the actual quality of care. Satisfaction
surveys also rely heavily on whether health plans are "user-friendly."
Do they offer evening and weekend hours? Is the telephone answered quickly?
Are appointments easily made? All of these issues tend to affect access to care more than the quality of the care that is delivered.
The CAHPS® survey has been designed to address many of these issues.
Along with its questions on access, CAHPS® has items in domains such as:
- Communication and interaction (e.g., to what extent does the consumer feel
involved in medical decisions?).
- Continuity of care (e.g., how often does the consumer's provider have a
knowledge of his or her medical history?).
- Administrative burden (e.g., how often has the consumer had problems with
claims processing?).
It also asks about use of services, health status, and demographic characteristics.
Several other factors also contribute to the credibility of this new
survey instrument. In addition to field-testing their instrument, the researchers
conducted cognitive testing to determine whether people understand the
questions. This testing enabled them to ensure that the survey measures
what it is intended to measure. The reputation of the participants also
lends credibility to this effort. Finally, the fact that the survey was
developed by an objective body (AHCPR), focuses on consumers, and will
be administered by independent venders rather than health plans is expected
to make the results more believable in the marketplace.
Third, business efforts to build quality into health care purchasing
are handicapped by the slow development of community-wide information systems,
which is due to technical limitations, a lack of financial resources, and—in
many cases—insufficient political will. Most communities, moreover, lack
sufficient standardization of data elements to support fair comparisons
of providers and plans. To the extent that there is activity in this area,
it is initially focused on the transmission and payment of claims, not
on the development and dissemination of quality-related information. Community-wide
information systems are under development in a few communities, such as
Minneapolis-St. Paul, but progress is slow and laborious. Obstacles include
getting all physicians' offices plugged into a common software system and
the lack of networked and secure computer systems.
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Information Not Being Used to Drive Change
Another obstacle to the development of a value-based purchasing system
involves the fact that even if employer purchasers have the information
they need, and believe it, they do not necessarily use it. In order to
make data collection and analysis worthwhile, employers must build the
data into their purchasing strategies and bring about changes in the behavior
of employees and their families, health plans, and most important, providers
in order to make a difference.
Some employers have collected information on the comparative performance
of hospitals but failed to exclude those with poor records from networks
made available to their employees and to steer workers and their families
toward hospitals with the best records. This discourages providers from
making the investment in quality improvement. If employers are going to
be successful in quality-based purchasing, they need to both identify good
quality and reward it. While efforts to educate all providers and help
them all improve are laudable, the reality is that some will out-perform
others. Employers will need to resist community pressures to ensure that
there will be no "losers" if they are to build quality into health care
purchasing.
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Employers Mainly Concerned With Cost Reductions
The pioneers identified in this report are among the leaders who are genuinely
pursuing improved quality of care and better health outcomes. Part of their
motivation for trying to improve quality is a strong belief that better
quality ultimately translates into long-term cost control, in health care
as in the rest of their business. But they are not following a value-based
purchasing strategy purely as a short-term cost control device—their interest
in improving quality has a life of its own. It is part of a sense of overall
corporate responsibility for attracting and retaining high-performing workers
and contributing to their health and productivity.
Nevertheless, the majority of employers around the country—particularly
smaller firms—are mainly concerned with cost control. Their major emphasis
is placed on obtaining assurances from health plans that their premium
increases will be held to a minimum—or even that premiums will decline.
How that is achieved is of little interest to these employers.
Furthermore, many employers are achieving health cost control in part
by shifting a significant portion of the health care bill to their employees.
According to data collected by KPMG Peat Marwick, from 1988 to 1996, employees'
contributions to the premiums of HMO plans increased from $50 to $179 per
month. Copayments and deductibles have also risen sharply. Many employers
are cutting back on retiree health benefits.
The challenge facing the employer community is to both further refine
the "best practices" now in the marketplace and develop dissemination and
transfer mechanisms that spread these practices to more payers. Until this
occurs, the gap between theory and practice will remain.
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Accomplishments
The pioneering employer purchasers can point to number of accomplishments:
- Innovative employers have used HEDIS measures to compare the quality of
health plans; some companies have used subsets of the HEDIS measures in
which they have the most confidence. Digital, which helped create HEDIS,
has its own comprehensive set of HMO performance standards that it distributes
to HMOs and updates every two years; Digital sets goals that "stretch"
HMOs to continuously improve their performance.
- Some employers and coalitions have combined HEDIS measures with information
from employee satisfaction surveys to develop more comprehensive indicators
of plan performance.
- Employers are working with plans to identify weaknesses (based on their
scores on performance indicators), set goals, and develop quality improvement
plans.
- Coalitions are cooperating with State agencies to establish information
on performance that can be used consistently by public and private employers.
- Employers are creating financial incentives for employees to select plans
that score well on composite quality indicators; in some cases, this takes
the form of a "defined contribution" to a "benchmark" plan, charging employees
more to enroll in plans with less satisfactory quality records.
- Employer coalitions are creating financial incentives for health plans
to collect and report quality indicators; this effort will eventually link
financial incentives to the actual performance of the plans, as measured
by these indicators.
- Coalitions are collecting standardized, provider-specific outcomes data
for certain health services (e.g., coronary artery bypass grafts, cesarean
sections). The goal is to feed information on comparative performance to
providers to stimulate quality improvement, as well as to work with providers
to develop critical pathways or practice guidelines. The Dallas-Ft. Worth coalition has identified
five services believed
by its members to be most in need of this type of data measurement. They
are starting by working with both hospitals and physicians to develop risk-adjusted
indicators reflecting outcomes related to pregnancy and childbirth.
- Employers and coalitions plan to use measures other than HEDIS (e.g.,
FACCT, Joint Commission on Accreditation of Healthcare Organizations [JCAHO])
to supplement their information set.
- Employers are recognizing the important
connection between improvements in the health of their employees, improved
productivity, and reduced absenteeism. This is particularly important in
behavioral health (for example, Pacific Bell).
Table 1 summarizes the employer initiatives described in this report.
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Research Agenda
This section develops a preliminary agenda for further research on quality
measurement. We outline several possible research strategies that have
emerged from our work on this project. Clearly, other research issues can
be added to this preliminary list. This section is meant to begin a dialogue
on some of the most interesting research and policy questions.
- What factors distinguish companies and coalitions that are innovative and
bold in pursuing value-based purchasing from those that are not?
- What features of the purchasing initiatives that we studied make them stand
out from the rest of the pack?
- What is the payoff from employer investments in quality improvement?
- What are the most important barriers that prevent employer purchasers from
getting started on value-based purchasing?
- What impediments keep employer purchasers who have taken some first
steps from advancing to more sophisticated levels of activity?
- What proportion of employer purchasers nationwide are using up-to-date
tools and techniques (e.g., how many are using HEDIS 3.0)?
- What factors need to be addressed to make value-based purchasing work on
a community-wide basis, as opposed to each payer working in isolation to
control its own costs?
- What type of technical assistance and infrastructure are needed to help
the value-based purchasing movement gain acceptance?
A number of research techniques could help answer these questions. We believe
that a sensible approach would work sequentially, starting with relatively
straightforward methodologies and then, based on what is learned, moving
forward to more sophisticated approaches.
A useful starting point would be a nationwide survey of employer purchasers.
This could include large, medium, and small employers, as well as business
coalitions. This survey, which would be focused on a randomly drawn sample
of employers, would uncover what employers are doing in the area
of quality improvement, and if they are not doing much, why not.
What would it take to interest them in these activities? Are they being
held back by a lack of knowledge or by other factors such as a perception
that such activities are too costly, or lack an expected payback over a
reasonable time frame? What are the most common approaches? What are employers'
views about the relative value of pursuing cost management on their own,
using carriers and plans, or working through business coalitions?
Another promising approach involves running a separate series of focus
groups with employers and employees. These focus groups could elicit more
in-depth information about the reasons underlying employers' and workers'
attitudes. They could lead to an understanding of what it would take to
turn the value-based purchasing movement from a set of activities undertaken
largely by an elite group of leading pioneers to a more broadly based movement.
Yet another promising research strategy would involve a comparative
study of several market areas, some where employers have consolidated buying
power and engaged seriously in quality measurement, and some where there
has been much less activity. In fact, it would be interesting to compare
an area where public and private buyers are working together to measure
quality (e.g., Twin Cities, St. Louis, Northern California); an area where
private employers have combined forces but are not working with State and
local governments; and areas in which there has been little meaningful
consolidation and quality measurement.
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Project Staff
This report was prepared by: Jack Meyer, New Directions for Policy; Lise
Rybowski, The Severyn Group; Rena Eichler,Agency for Health Care Policy
and Research. Irene Fraser, Agency for Health Care Policy and Research,
was the editor of the report.
About the Authors
New Directions for Policy (NDP) is a Washington-based firm that
assists business, purchasers and providers of health care, and government
through policy research and analysis, strategic planning, and program evaluation.
NDP's purposes are to promote more effective operation of the health care
system, and to aid the development of sound public policy on health care
and welfare reform issues. NDP analyzes the forces driving health care
spending, designs innovative strategies to improve financing and delivery
systems, and evaluates major reform proposals. NDP also develops new policies
to reduce unemployment and improve the social welfare system.
Jack A. Meyer, Ph.D., is President of New Directions for Policy.
He is a health economist who has written widely and conducted extensive
policy analysis in the area of health system reform. Dr. Meyer is also
President of the Economic and Social Research Institute, a nonprofit research
organization in Washington, DC.
Lise S. Rybowski, M.B.A., is Founder and Principal of Severyn
Healthcare Consulting, a health care research and communications firm based
in Fairfax, VA. She specializes in research on innovations in the purchasing
and delivery of health care, including such topics as employer and coalition
purchasing initiatives, Medicare managed care, and the measurement and
reporting of health care quality.
Rena Eichler, Ph.D., is an Expert Appointee/Health Economist
for AHCPR in the Center for Organization and Delivery Studies. She specializes in research on and
implementation of market-based health reforms that include realigning payer,
provider, and patient incentives and managed competition in developed and
developing countries. Other research has focused on the behavior of nonprofit
organizations.
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Current as of November 1997
AHCPR Publication No. 98-0004
Internet Citation:
Theory and Reality of Value-Based Purchasing: Lessons from the Pioneers. AHCPR Publication No. 98-0004, November 1997. Agency for Health Care Policy and Research, Rockville, MD. http://www.ahrq.gov/qual/meyerrpt.htm
540 Gaither Road Rockville, MD 20850