Can value-based payments help reduce waste in health care?

According to a new research review in JAMA by Dr. William Shrank at Humana and colleagues, between 20 and 25 percent of health care spending is wasted, as much as $935 billion each year. Together, failures of care delivery, care coordination, and low-value care contribute to an estimated $345 billion, a little less than one third of all health care waste. 

Fortunately, there are many interventions that have sought to improve health care quality and value, including Accountable Care Organizations, bundled payments, shared decision making, reducing unnecessary medication use, interoperable electronic health records (EHRs). These and other interventions could reduce waste by up to $160 billion. 

However, even though proven interventions exist to reduce waste on the clinical side, implementing them on a large scale is easier said than done, writes Washington University professor and JAMA Associate Editor Dr. Karen Joynt Maddox and Duke University professor Dr. Mark McClellan, in an accompanying editorial. Maddox and McClellan outline several reasons for why current value-based care initiatives haven’t done much to reduce health care costs.

Initiatives are too small

Maddox and McClellan point out that value-based initiatives are often too minor to catalyze the radical changes that are often needed. In general, value-based initiatives are small islands within the sea of fee-for-service payments; alone, they don’t offer hospitals or clinicians a real business case for changing the way they practice. Many initiatives are voluntary, or offer rewards but not punishments for outcomes.

One notable exception is the change to global budgeting for hospitals in Maryland. In 2014, Maryland switched from fee-for-service to global budgeting for hospitals, so each hospital’s total revenue is set at the beginning of each year. This allows hospitals to plan their budgets in advance, and incentivizes hospitals to take steps to keep their communities healthy and reduce unnecessary hospitalizations. 

Initiatives are too complicated

Quality-improvement initiatives are often complicated and not aligned across payers. For example, Medicare’s quality improvement metric may require doctors to hit a certain target, but another payer may have a different target, leaving doctors in a no-win situation. As we’ve written before, Medicare’s quality measures (known as “MIPS”) are not always evidence-based, and clinicians often find them confusing because they are not specific enough

Political barriers are high

Although many clinicians, patients, and policymakers agree that our fee-for-service system isn’t providing the quality of care we need and wastes money, there are many others who benefit from the status quo. For example, private equity firms have made a lot of money billing Medicare for highly-reimbursed procedures at high rates, which they would likely not be able to do in a value-based system. Also, as Maddox and McClellan point out, it costs a considerable amount of money to restructure health systems, train clinicians and administrators, and coordinate care. While there will likely be cost savings in the long run, the start-up costs are high. 

Where do we go from here?

Maddox and McClellan have ideas about how to simplify and scale value-based care. They suggest that primary care should “move toward a capitated payment system,” (paid a fixed amount per patient). For specialty care, doctors should be paid to manage chronic disease on a capitated basis, and procedures should be bundled as much as possible. 

Their suggestions reflect ideas from Harold Miller at the Center for Health Care Quality and Payment Reform, who proposed a “patient-centered payment system” that would use different types of payments for preventive, diagnostic, chronic, and acute care. In this system, teams of care providers would deliver care in bundles, rather than being paid for each individual service, and would be paid only if they achieved certain pre-defined patient outcomes.

To be able to realize the billions in savings from reducing waste in clinical care, we need to streamline, simplify, and scale value-based payment systems.