Buying health care based on value
What is Value-Based Purchasing (VBP)?
While employers make purchases every day based on quality — IT systems, financial services, equipment, etc. — many businesses have not known how to assess the quality of health care they provide to their employees. But increasingly, employers are researching and comparing health care options based on cost and quality, just as they would with any other large purchase. They are also sharing this information with employees and offering them financial incentives to choose quality when making their health plan selections. Large employers are experimenting with additional ways to use their market power to improve value for their health care dollar.
How does it affect the business community?
As one of the largest purchasers of health insurance in the United States, private employers have a large stake not only in the cost but in the quality of health care delivered to their employees, especially given recent reports documenting quality problems and medical errors. The Midwest Business Group on Health estimates that the direct cost of poor quality care for employers is $1500 per employee per year, while the indirect cost, including lost time and productivity, is between $400-$750.
Preliminary research shows that purchasing based on value has the potential to:
- Improve employee health and satisfaction
- Reduce wasteful spending on overuse, inefficiency, and errors
- Enhance employer competitiveness in the labor market
- Increase worker productivity and days on the job by promoting wellness, managing on-going health conditions, and reducing hospitalizations
Recent Developments
The Colorado Blue Ribbon Commission for Health Care Reform, Governor Bill Ritter, and major presidential candidates have endorsed the concept that cost and quality must be jointly considered when purchasing health care.
For example, earlier this year, Governor Ritter issued an executive order that created a new Center for Improving Value in Health Care within the Department of Health Care Policy and Financing. The Center will develop and implement strategies, as well as coordinate existing efforts, to improve health care quality and manage the growth of health care costs. The Center is intended to prod public and private sector collaboration on cost and quality issues, and the participation of “business groups” is explicitly required by the executive order.
Employers have trail-blazed many of the “existing efforts” to improve cost and quality by using better information and financial incentives to drive health care market changes, such as:
- “Grading” health plans based on cost and quality
- Selecting only high-grade health plans for employee insurance options
- Sharing health plan “report cards” with employees
- Creating incentives for employees to choose quality
- Creating benefit packages and provider networks that encourage efficient use of health care (health benefit design)
- Paying physicians according to how patients fare rather than how many procedures are done
Employers that have been successful with these approaches have learned the devil is in the detail and have resisted the temptation to focus exclusively on costs. Financial incentives, in particular, must well-designed and offered with sufficient education to prevent unintended consequences, such as untreated disease, hospitalizations, and absenteeism.
For examples of community programs and employer coalitions, click here. [insert link to state/community program page]
Resources
Reducing the Costs of Poor Quality Health Care, Midwest Business Group on Health
Describes the business case for purchasing health care based on value and quantifies the costs associated with poor quality of care
How Does Quality Enter into Health Care Purchasing Decisions? The Commonwealth Fund
Summarizes research on purchasing health care based on value and the how to overcome the challenges that come with it
Four States that Are Ahead of the Curve, The Commonwealth Fund Examines public-private efforts in four states to purchase health care based on value
Colorado Health Plan Report Cards, Colorado Business Group on Health Rates Colorado health plans on various quality measures
Employers’ guide for evaluating Value-Based Purchasing Initiatives, Agency for Healthcare Research and Quality
Provides employers and coalitions with the tools they need to help them track and assess the impact of their efforts.
For technical assistance and employer tools related to purchasing health care based on value, see: