Incentivizing Value in Healthcare |

7 min read

This post was written by Sosunmolu Shoyinka, M.D., MBA, member of the Committee on Systems Innovation and Transformation at the Group for the Advancement of Psychiatry.

The United States healthcare industry is one of the most advanced in the world. It is also one of the most expensive. U.S. healthcare expenditures exceed $3 trillion annually, accounting for over 17 percent of the U.S. GDP.

Despite this spending, healthcare outcomes do not reflect better access to care or quality of care, particularly for minority, rural, and frontier populations. This is particularly true for behavioral health outcomes, as over 60 percent of U.S. counties lack access to trained mental health professionals.

How Values Influence Funding

A healthcare system’s behavior reflects how it is funded. Funding decisions derive from policies, which themselves reflect underlying values. For example, it is a society’s value judgment whether healthcare is a right or a commodity.

If healthcare is considered a right, then society will ensure funding mechanisms to guarantee access for all citizens. However, when healthcare is viewed as a commodity, it will mostly be available to citizens who are able to pay for it.

The complexities in the U.S. healthcare system can be traced to the tension between different, often conflicting values regarding healthcare. On the one hand, there are American cultural values of consumer choice (patients can demand what they want), individual self-determination, physician autonomy (physicians can deny what patients may want), reliance on market forces, and limitations on the role of government. These values often conflict, both directly and indirectly, with the values of efficiency and effectiveness.

In contrast, other developed nations have evolved policies that typically reflect a societal value of healthcare as a right for all citizens and a central role for government in designing, financing, and administrating these systems. These systems consistently deliver better outcomes at a lower cost, although imposing formularies and long waits for appointments and many procedures.

Fee for Service

As funding for healthcare heavily influences the behavior of those providing healthcare services, then changing how funding is structured is a logical strategy for changing that behavior.

In the U.S., the fee-for-service (FFS) funding model remains the dominant mechanism for financing health services. Under this system, payers—usually the insurance companies but sometimes the government—establish a set of billable services for which those providing the services are paid a predetermined rate.

FFS makes it easier to link units of service to payment, thereby increasing accountability. However, it also provides a strong incentive to prioritize delivering more services over the actual outcomes. Furthermore, it limits service delivery to only those that are reimbursable, restricting the healthcare system’s ability to be flexible and innovative in delivering services. In contrast, value-based reimbursement (VBR) shifts the emphasis to outcomes.

Value-Based Reimbursement

Historically, alternatives to fee-for-service have included bundled payments, prospective payments, and episode-of-care payments (e.g., case rates). These and the many other choices for financing healthcare are considered in a book by the Committee on Systems Innovation and Transformation of the Group for the Advancement of Psychiatry called Seeking Value: Balancing Cost and Quality in Psychiatric Care.

Value-based payment (VBP) models include pay-for-performance (P4P), shared savings, capitation, and global payments. The following is a brief description of each type of payment.

1. Pay-for-performance (P4P) models offer care—providing entities an opportunity to earn an enhanced reimbursement for meeting specific quality benchmarks. These payments are often used to incentivize providers to focus on improving specific aspects of care for a defined population over a designated period. For example, a behavioral health managed care organization (BH-MCO) may set a goal of reducing premature death rates among members diagnosed with schizophrenia.

A common approach is to incentivize care-delivery organizations (e.g., community mental health centers or CMHCs) to improve rates of screening for diabetes and cardiovascular disease for those populations. The BH-MCO may set a target for the CMHC to increase its screening by a specific rate (e.g., 20 percent) over a specific period (e.g., the subsequent fiscal year). The BHMCO may agree to reward the CMHC for achieving this goal by paying a one-time lump sum if that goal is met. A commonly used metric for this purpose is the HEDIS measures Diabetes and Cardiovascular Disease Screening and Monitoring for People With Schizophrenia or Bipolar Disorder (SSD, SMD, SMC).

The formula for calculating screening rates = S/T

S = The number of persons diagnosed with schizophrenia who are screened.

T = Total number of persons enrolled in the CMHC census diagnosed with schizophrenia.

2. Shared savings models refer to a payment arrangement whereby payers and care-providing agencies agree to split the savings achieved by reducing the costs of care for a defined population over a specified period.

Shared savings formula = (Y-X)/Z

X = cost of care over the baseline period (e.g., a preceding fiscal year)

Y = cost of care over the intervention period (e.g., a subsequent fiscal year)

Z = a formula whereby savings are shared between the care provider and payer.

3. Global payments are defined as “a prospectively determined payment made to a group of providers or a healthcare system that covers most or all care for a defined population during a specified time period” (Center for Evidence-Based Policy, 2022). Since these payments are made to the health system at large, they can potentially shift care for entire populations in ways that incentivize improved care coordination and a focus on quality.

4. Capitation is yet another value-based payment model that serves as an alternative to FFS. Capitation payments are “a fixed dollar amount paid per member over a set period of time (often monthly) to cover a defined set of services for a defined population” (Center for Evidence-Based Policy, 2022). These rates are adjusted for risk in ways that reflect the acuity of service needs of the covered population. Certified Community Behavioral Health Clinics are an example of a model that incorporates prospective, capitated payments.

Finally, Accountable Care Organizations are yet another framework for delivering high-value care. These organizations comprise “groups of doctors, hospitals, and other healthcare providers, who come together voluntarily to give coordinated, high-quality care to the Medicare patients they serve.” This coordination facilitates “the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors,” resulting in improved quality and reduced costs.

As the concept of value begins to take hold in healthcare, various entities are beginning to incorporate attention to social determinants in the design of covered benefits and into service design. Additionally, new alternative payment mechanisms specific to behavioral health and addiction treatment are being developed. An example is the Patient-Centered Opioid Addiction Treatment Model (P-COAT) jointly developed by the American Society of Addiction Medicine and the American Medical Association.

These alternatives have the potential to eliminate burdensome administrative expenses. Furthermore, they allow greater flexibility for service providers to deploy their workforce in creative ways to staff innovative programs.

As of this writing, post-pandemic, the demand for quality mental health services has never been greater. At the federal level, the response has been increased funding for large-scale efforts to expand access to treatment, such as 988 and CCBHCs. This funding often takes the form of time-limited grants.

While these are highly commendable, historical antecedents suggest that these new funding streams will not last forever. The present moment, with its focus and drive towards expanding access to quality mental health treatment, offers an opportunity to fundamentally reshape the way services are funded in ways that allow for flexibility, quality, and equity over the long term. Alternative payment models, while not perfect, offer one method to do that.

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