Value-Based Purchasing

Abstract: Objectives To present the implications of agency theory in microeconomics, augmented by behavioral economics, for different methods of value-based payment in health care; and to derive a set of future research questions and policy recommendations based on that conceptual analysis. Data Sources Original literature of agency theory, and secondarily behavioral economics, combined with applied research and empirical evidence on the application of those principles to value-based payment. Study Design Conceptual analysis and targeted review of theoretical research and empirical literature relevant to value-based payment in health care. Principal Findings Agency theory and secondarily behavioral economics have powerful implications for design of value-based payment in health care. To achieve improved value—better patient experience, clinical quality, health outcomes, and lower costs of care—high-powered incentives should directly target improved care processes, enhanced patient experience, and create achievable benchmarks for improved outcomes. Differing forms of value-based payment (e.g., shared savings and risk, reference pricing, capitation, and bundled payment), coupled with adjunct incentives for quality and efficiency, can be tailored to different market conditions and organizational settings. Conclusions Payment contracts that are “incentive compatible”—which directly encourage better care and reduced cost, mitigate gaming, and selectively induce clinically efficient providers to participate—will focus differentially on evidence-based care processes, will right-size and structure incentives to avoid crowd-out of providers’ intrinsic motivation, and will align patient incentives with value. Future research should address the details of putting these and related principles into practice; further, by deploying these insights in payment design, policy makers will improve health care value for patients and purchasers.

Abstract: Background Whether safety-net hospitals (SNHs) provide patient-centered care has important implications both for patient outcomes and for how these hospitals will fare under value-based purchasing (VBP). We sought to determine performance and improvement on measures of patient-reported hospital experience among SNHs compared with non-SNHs. Methods Our sample consisted of 3096 US hospitals. We defined safety-net hospitals as those hospitals in the highest quartile of the Disproportionate Share Hospital (DSH) index, and we used national data on patient experience from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey in 2007 and 2010 to examine overall hospital performance and improvement over time. Results Safety-net hospitals had lower performance than non-SNHs on nearly all measures of patient experience. The greatest differences were in overall hospital rating, where patients in SNHs were less likely to rate the hospital a 9 or 10 on a 10-point scale compared with patients in non-SNHs (63.9% vs 69.5%; P Conclusions Safety-net hospitals have lower performance than non-SNHs on metrics of patient-reported experience, improved somewhat more slowly under public reporting, and are likely to fare poorly under VBP.

Abstract: Value-based purchasing, or pay-for-performance, is a major emerging theme in U.S. health care. Forces enhancing adoption of pay-for-performance programs include continued increases in medical costs beyond overall economic growth, a body of evidence that the quality of health care provided to patients is not directly related to the volume of services received, increasing evidence to serve as a basis for the development of standards against which to measure clinical performance, and increasing acceptance by physician organizations and individual practitioners of the rationale underlying these efforts. In this context, employers, government payers, and health plans are establishing a wide variety of pay-for-performance programs. This article reviews the critical design features of such efforts, describes the current types of programs on offer, and comments on the implications of this emerging movement for the future of health care in the United States.

Abstract: Background Hospitals under financial pressure may struggle to maintain quality and patient safety and have worse patient outcomes relative to well-resourced hospitals. Poor predictive validity may explain why previous studies on the association between finances and quality/safety have been equivocal. This manuscript employs principal component analysis to produce robust measures of both financial status and quality/safety of care, to assess our a priori hypothesis: hospital financial performance is associated with the provision of quality care, as measured by quality and safety processes, patient outcomes, and patient centered care. Methods This 2014 cross-sectional study investigated hospital financial condition and hospital quality and safety at acute care hospitals. The hospital financial data from the Centers for Medicare and Medicaid Services (CMS) cost report were used to develop a composite financial performance score using principal component analysis. Hospital quality and patient safety were measured with a composite quality/safety performance score derived from principal component analysis, utilizing a range of established quality and safety indicators including: risk-standardized inpatient mortality, 30-day mortality, 30-day readmissions for select conditions, patient safety indicators from inpatient admissions, process of care chart reviews, CMS value-based purchasing total performance score and patient experience of care surveys. The correlation between the composite financial performance score and the composite quality/safety performance score was calculated using linear regression adjusting for hospital characteristics. Results Among the 108 New York State acute care facilities for which data were available, there is a clear relationship between hospital financial performance and hospital quality/safety performance score (standardized correlation coefficient 0.34, p<0.001). The composite financial performance score is also positively associated with the CMS Value Based Purchasing Total Performance Score (standardized correlation coefficient 0.277, p = 0.002); while it is negatively associated with 30 day readmission for all outcomes (standardized correlation coefficient -0.236, p = 0.013), 30-day readmission for congestive heart failure (standardized correlation coefficient -0.23, p = 0.018), 30 day readmission for pneumonia (standardized correlation coefficient -0.209, p = 0.033), and a decrease in 30-day mortality for acute myocardial infarction (standardized correlation coefficient -0.211, p = 0.027). Used alone, operating margin and total margin are poor predictors of quality and safety outcomes. Conclusions Strong financial performance is associated with improved patient reported experience of care, the strongest component distinguishing quality and safety. These findings suggest that financially stable hospitals are better able to maintain highly reliable systems and provide ongoing resources for quality improvement.