Value Based Payments: Your Future Happened Yesterday

It started yesterday morning and continues in the health care news today – an announcement by Health and Human Services (HHS) Secretary Sylvia Burwell that the Feds plan to “speed up” the pace in which payment for Medicare will be tied to a “value-based” methodology for payment.

Last year about 20 percent of Medicare payments were tied to some “quality metric” – the HHS Secretary wants to speed things along to a 30 percent uptake this year, and a full 50 percent of non-managed care payments by 2018. Depending on which data you look at from commercial payers, they already are at a 30 percent value tie-in on payments.

So what, you say? This is a BIG deal. We have lived up to this point in a cost/price environment. Quality was a distant afterthought, if that at all. We paid doctors for procedures, not for improvements (read outcomes). This is a quantum shift in payment methodology: the inclusion of quality as a marker for payment. Don’t get me wrong – cost and cost containment don’t go away, but they’re now just one of the considerations for providing care, not the primary one as in the past.

Think of this. We really don’t want this to change, even though there are positives for the patient. Not just the pharmaceutical industry, but the HMOs as well, have built their entire model around cost and cost management. Price was all that mattered – entire formularies were built on the cost model. Now it’s more complicated. We saw in a previous issue that the Centers for Medicare & Medicaid Services (CMS) issued Final Guidance in January concerning new penalties for physicians, of up to 4 percent, for not following the quality requirements. That was new, as previously only hospitals were fiscally punished for not meeting Medicare criteria.

Moving to a quality or value-based model is certainly patient centric. It is good for care, care management and patient improvement. But it will require an entirely new dynamic of consideration for physicians, as well as for pharmaceutical companies. And the federal government has put us all on notice that this isn’t optional – if you want to serve the Medicare community of patients, these are the new rules. And please know that this move does not go unnoticed by commercial insurance providers. Improving the health of a member patient, even incrementally, lowers risk for an insurer. We have already seen a quicker uptake of value-based payments in commercial Accountable Care Organizations (ACOs).

Does this impact your company?

If you do provide products across the spectrum of federal health care programs, this does impact your company. You will need to integrate the new demand to demonstrate quality into your existing cost/price models.

To show value to patients – the clinical performance of your products become critically important to demonstrating value. Some Bio-Pharma companies are already shifting their HEOR (Health Economic Outcomes Research) groups toward a PCOR (Patient Centered Outcome Research) model. The “quality” message may now be as important as the “cost” message.

Product alignment in managing risk and improving care is right in line with the new direction of being patient centric.

This won’t come easy. Change isn’t easy – especially when systems and traditional models are in play. But easy or not, I don’t think the government is going to let anyone off the hook on this. If you held the belief that value-based medicine and its implementation were somewhere out there in the future, well… your future came yesterday.

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