Frederick Cahn, PhD02.26.07
Implications of Value-Based Purchasing
Frederick Cahn, PhD
It is widely recognized that under current policies, the US healthcare system has serious problems with both escalating costs as well as deficiencies in the quality of care. In the Deficit Reduction Act of 2005, Congress authorized the Centers for Medicare and Medicaid Services (CMS) to develop a plan for Value Based Purchasing (VBP) for Medicare inpatient hospital services that will provide incentives for quality and efficiency of care.
The CMS has defined the following goals for VBP:
• Improve clinical quality
• Reduce adverse events and improve patient safety
• Encourage patient-centered care
• Avoid unnecessary costs
• Encourage investment in hospital infrastructure improvements that are expected to increase quality and efficiency
• Make the performance data available to consumers to guide their healthcare decisions and allow them to influence clinicians and hospitals to improve quality and efficiency
The VBP plan represents a fundamental change in policy and certainly will have important implications for the medical device industry.
How It Will Work
Starting in federal fiscal year 2009, the VBP system will apply to services paid to acute-care hospitals under the Inpatient Prospective Payment System (IPPS). The VBP program will be “budget neutral” and will be built on an existing infrastructure for data collection and dissemination, called the “Reporting Hospital Quality Data for Annual Payment Update” program. Since 2004, this program has provided hospitals the financial incentive of avoiding a 0.4% decrease in the annual payment update by reporting on 10 clinical performance measures for the care of adult patients. At the start of FY 2007, this program expanded to require reports on 21 performance measures to avoid a 2% reduction in the hospital’s payment update.
The VBP program intends to quickly expand on this infrastructure to create a comprehensive performance measurement program for a broad range of care in acute-care hospitals. In addition, the payment adjustments will become based on performance parameters derived from the data, while under the existing program the adjustments only require reporting the data. Initially, the magnitude of the adjustments will be similar to those of the existing reporting program.
To implement the Act, the CMS has created a “Hospital Pay-for-Performance Workgroup” to develop a VBP plan by June 2007 that addresses the following issues:
• Measures of quality
• Data collection methods and data validation
• Financial incentives for quality
• Public reporting of quality data
Many important details about the program have not yet been decided. Before the new regulations are formally introduced, the CMS workgroup is conducting public “listening sessions” to provide details about the plan and solicit input from stakeholders.
Consequences of VBP
Particularly complex are the first two issues: identifying the most relevant measures of quality as well as the data collection methods and validation. The need for new systems for collection and analysis of data for the VBP program will create substantial opportunities for companies supplying information technology software and systems to healthcare providers. VBP also will create opportunities for manufacturers of diagnostic technology. VBP creates large market needs for more rapid, cost-effective, reliable or precise diagnostic devices for collecting data on a routine basis to document patient outcomes. Market opportunities will be created for novel diagnostic technologies, since the CMS recognizes that the available measures of clinical performance are insufficient.
To be relevant, new technologies will need to address key CMS requirements for VBP: measures that can be applied to variations in healthcare quality and/or low levels of overall performance; that are scientifically acceptable; and that are useful for decision making by consumers and providers.
Another opportunity is created for technology that improves therapeutic outcomes. The current IPPS creates strong disincentives for hospitals to choose more expensive procedure alternatives or adopt more expensive technologies that improve the quality of life of the patient, reduce mortality (after discharge) or lower future healthcare costs, unless there also are compensating reductions in the overall acute-care costs to the hospital. This disincentive is, of course, due to the fact that payment for a hospitalization is fixed according to the diagnosis and method of treatment (the diagnosis related group, or DRG) regardless the hospital’s costs for treatment or the length of stay. While the DRG sometimes is affected by whether the patient is discharged alive or dead, morbidity at or after discharge is ignored by the IPPS. Therefore, VBP has the potential of compensating for this disincentive and allowing widespread adoption of expensive but clinically beneficial procedures.
However, VBP is of concern to the device industry because it also could discourage technological innovation (for additional information, see this month’s On the Hill column). Technological innovation is not specifically recognized as a goal of the plan, and it is not clear whether the quality and cost criteria will be flexible enough to allow access to new or improved technology.
Existing CMS policy requires clinical data to justify payment for new procedures or technologies. The agency’s guidelines for clinical data usually go beyond the clinical data required by the FDA for approval. The need for clinical evidence creates a “chicken and egg” problem for the introduction of new technology. The CMS is interested in clinical data collected from large number of patients in routine care, and not from controlled studies, as well as economic data that are usually difficult to collect. If the new technology is not paid for, providers are reluctant to employ it, and there are no patients from which to collect these data.
When VBP increases the economic consequences of technology decisions, increased stringency of the CMS’ criteria is predictable, thus exacerbating this predicament. Another uncertainty is whether the VBP criteria will be updated sufficiently often as costs and outcomes evolve. The reporting of cost and outcomes data to the public also is a two-edged sword.
A final concern is that medical device and pharmaceutical manufacturers alike may not have sufficient stakeholder representation in the consensus process that the CMS is using to develop the new system, which specifically recognizes only organizations representing healthcare institutions: the Hospital Quality Alliance, National Quality Forum and the Joint Commission on Accreditation of Healthcare Organizations.
A more open consensus process, such as those administered by ASTM International, would offer more opportunity for input from clinicians and companies that can envision innovations to realize the potential of VBP to provide both higher quality of care and greater cost efficiency.