How value-differentiating strategies can address healthcare cost and quality

New approaches for healthcare delivery and provider payment are needed to address cost drivers and shortfalls in healthcare quality, argues the latest study from the American Health Policy Institute.

The study, "Medical Network and Payment Reform Strategies to Increase Health Care Value," was released Tuesday by the AHPI in collaboration with the Pacific Business Group on Health.

The study summarizes the following key limitations in the current payment structures.

1. Large portion of employees enrolled in traditional PPO insurance products. Over the last 15 years, PPO enrollment has increased by 15 percent, according to the report. The study's authors said employers have adopted high deductible health plans and consumer-directed health plans, but the underlying provider networks and delivery system remain on the fee-for-service-based PPO payment model. This is seen as one of the major challenges in transforming healthcare delivery. "Under PPOs, most providers enter into contracts individually or as small group practices, with little integration beyond traditional primary care to specialist referral patterns," the authors wrote. "The patient touchpoints are generally siloed with minimal interaction across physicians and their staff, hospitals and their discharge planning or other services, health plan utilization management and case management support — other than an occasional authorization process."

2. Clinical variation in healthcare. Aside from the structural challenges in how large employers pay for health benefits and implement value-based purchasing strategies, clinical variation in care is also a persistent problem, according to the study. "Even though frequent measurement of select quality indicators for preventive and chronic care have reduced the gap in variation, major differences still persist," the study's authors wrote. "Addressing clinical variation is an important step in improving the quality and efficiency of healthcare delivery."

3. Geographic differences in healthcare costs. The Congressional Budget Office reports total per capita healthcare spending in 2004 ranging from $4,000 in Utah to $6,700 in Massachusetts, according to the report. The report also cites information from The Dartmouth Atlas, which found that among 306 hospital referral regions, Medicare spending per patient ranged from more than $13,000 in some areas to $6,900 in others. The study's authors said geographic cost variation can be impacted by local wage and price indices, as well as the level of provider consolidation and market competition. Geographic cost differences may also vary based on PPO and HMO product lines.

The study's authors conclude there is broad agreement that new approaches for care delivery and provider payment are needed to address these and other shortfalls in healthcare quality and cost drivers.

But they noted that adoption of value-differentiating strategies that lead to true innovation rather than incremental improvement requires bold changes in how employers buy healthcare services.

They recommended that employers be cognizant of promoting competition through their value-based contracting strategies, and look for organizations that use a patient-centered, team-based approach to care delivery and member engagement that supports shared decision-making between patients and providers. They also said care coordination and health management should be "geared to optimizing the health goals and productivity of the individual, not just managing a health condition."


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