Technology pundits criticize computer software makers when they issue vaporware. The dictionary defines vaporware as a product that has been widely advertised but has not and may never become available.
Last week's twin announcements on the imminent move to widespread value-based reimbursement in healthcare bring the concept to mind. The vast majority of healthcare providers are nowhere near ready to assume serious financial risk. Nor, for that matter, is the private insurance industry, which always has the safety valve of raising rates when its medical losses soar beyond its existing rate structure.
So let's be real for a moment about what HHS and the providers and insurers behind the Health Care Transformation Task Force announced last week. HHS said it would move 50% of Medicare payments through accountable care organizations or bundled payments by 2018 and link 90% of payments to its three penalty programs.
The six major health systems and four top insurers in the task force pledged to move 75% of their business into “value-based arrangements” by 2020. The group's chairman, Dr. Richard Gilfillan, CEO of Trinity Health, previously ran the CMS Innovation Center, so he is well aware of the myriad payment programs that fall under the rubric of value-based care.
Let's start with the CMS' penalty programs. The possibility of losing several percentage points of Medicare revenue because of poor performance has certainly caught the attention of providers. Hospitals across the country have instituted extensive quality-improvement programs because no one wants to lose 2% of their payments for excessive 30-day readmissions or 1% for being among the worst performers on preventing unnecessary infections.
But that's the extent of the risk. You get a haircut if you don't perform well. That hurts, but it is limited. There's nothing in these programs to stop providers still wedded to volume-driven revenue models from performing lots of procedures well enough to avoid incurring penalties.
Bundled payments are a step up the food chain on assuming risk. But they are not much more than DRGs on steroids.
The diagnosis-related group payment system, instituted in 1983, created a set fee for a suite of inpatient services associated with a single episode of care. A bundled payment expands that to include pre- and post-acute care or a broader set of inpatient services.
Again, there's a serious penalty involved for hospitals, dialysis centers or physician groups that can't deliver the bundled service at or below the single payment. But that was always true for DRGs, too.
And, as is the case with the CMS penalty programs, bundled payments do nothing to hold down the volume of services delivered as long as providers can operate profitably within the set price.
The Shared Savings Program initiated during Gilfillan's CMS tenure—another key element of value-based care—offers an incentive for delivering care below the set price of an episode of care. You get to keep some of the savings. But the CMS so far hasn't set penalties for failing to meet the targets. All carrot, no stick is not a risk-based program.
ACOs have been called the 21st century version of the HMOs that swept across the insurance landscape in the 1990s but failed when insurers used the model to “just say no” instead of actually managing patient care. Will the providers building these organizations go the last mile and take set payments for coordinating and delivering care for large patient panels?
So far, there are very few examples of ACOs that have taken on actuarial risk. And the task force's principles for financing ACOs said payments “should be based on historical claims, thereby incentivizing the participation of high-cost providers.” Talk about minimizing downside risk.
The value-based incentive programs created by the CMS have succeeded in changing the mindset of most providers. The agency can legitimately take credit for contributing to the slowdown in healthcare spending.
Expanding those programs, assuming the targets announced last week are met, will encourage the healthcare system's evolution toward value-based care. But the radical transformation of payment policy implicit in last week's rhetoric remains, in a word, vaporware.