Yesterday The Department of Health and Human Services (HHS) announced a new initiative to accelerate the shift in how we pay for health care from one that relies primarily on pay for volume (fee-for-service–or the more you do the more you get paid) to one that emphasizes value (ideally the better outcomes you achieve, the better you do financially).

Community Catalyst embraces this effort because we see too clearly the failings of the current system. Despite the huge sums we spend on health care, quality is uneven and often varies dramatically by geography, income, and race or ethnicity. Far too often patients end up in a hospital bed, emergency room or nursing home because they didn’t receive the right care at the right time in the community. In fact, the Institute of Medicine identifies failure to deliver the right care as the biggest source of unrealized value (and biggest opportunity for savings) in our health care system.

That said, this is far from a risk-free venture. As Alan Weil cogently argued in a Health Affairs blog in December payment reform carries with it many challenges, including the fact that it is far easier to measure cost than quality, that payments tied to outcomes can create an inducement for providers to avoid harder-to-treat patients and that standardized outcome measures may not promote the best care for patients who may have very different needs and goals.

We believe that Weil’s critique is well-founded and we recall clearly the shortcomings of an earlier generation of payment reform initiatives (the “managed care” efforts of the 90s). While we think these risks and shortcomings can be overcome, we also believe that this will only happen with concerted effort and commitment. From our perspective, the recipe for “better, smarter, healthier” must include these five ingredients:

1) Robust consumer engagement

As we outline in our paper the Path to a People-Centered Health System consumers must be active partners in the transformation at three levels:

First–as individual patients the system must move to assess and improve what has been variously called patient activation or patient confidence—the ability of patients to understand and manage their own health care. Higher levels of patient confidence have been found to correlate with both better outcomes and lower costs and boosting the patient confidence of lower income patients could be an important tool to reduce health disparities in the U.S.

The second level of consumer engagement is at the level of health plans or integrated delivery systems. Our Meaningful Consumer Engagement Toolkit outlines the elements and steps that plans and delivery systems need to take in order to make their patients/members partners in delivery quality care.

The third level requires consumer engagement in the policy-making and monitoring process. While the voices and expertise of other stakeholders are essential, it is almost certain that reform efforts will go astray if consumer voices are absent from the table or are relegated to token status. Effective consumer voice in the transformation will require resources and building connections across all three levels of consumer engagement, so that consumer representatives at the delivery system and policy making levels are informed by the experiences of individual patients.

2) Getting the financial arrangements right

Financial incentives create a powerful gravitational pull, influencing the behavior of clinicians, health systems and plans. If payment arrangements are not carefully designed, there will be incentives to under-treat or avoid certain patients. Providers who see a disproportionate share of sicker or poorer patients could be disadvantaged–exactly the opposite of what we are trying to achieve. Although there is much reason to be encouraged by the current initiatives that HHS is promoting such as payment incentives to reduce readmissions and medical errors, there are still some bugs in these payment initiatives that need to be worked out. Expanding value-based payment is the right thing to do, but moving aggressively in this direction without taking into account the greater degree of difficulty faced by some plans and providers will compound the challenges that lower-income populations are already facing.

It is also important to make financial incentives intelligible. A blizzard of conflicting public and private sector incentives will create signals that are impossible for providers to interpret and will fail to nudge the system toward better performance. 

3) Strengthening due process rights and patient support

While financial incentives do much to set the direction of the delivery system, no set of arrangements can ever be perfect. That is why as we move further into systems where providers bear financial risk, we also need to make sure that we have robust grievance and appeals processes and complaint resolution programs such as ombudsman initiatives. New systems of integrated care and changing plan designs can also create a dizzying array of choices for patients. Patient navigators, support for health care and health insurance literacy and help with picking a Medicare Advantage plan or understanding what it means to be receiving care from an Accountable Care Organization are all crucial.

4) Developing better consumer-centric quality measures

We all want better value for our health care dollar, but how do we know when we are getting it? A lot of the current quality measurement and reporting efforts are not meaningful to patients or intelligible to them. Many measures focus on processes and too few on outcomes. Although HHS has made great strides in promoting transparency on cost and quality in recent years, we still have a long way to go. In some areas likely to be both understandable and meaningful to patients, such as diagnosis errors, there is almost no information available.

Measuring and reporting on patient confidence, preventable events such as readmissions and medical errors will take us part of the way forward but more needs to be done to make quality measurement accessible to patients–especially if we are going to rely on patient/ consumer choice as a tool to drive performance and reduce costs. At the same time, a blizzard of overlapping and conflicting quality measures is likely to prove self defeating. As we move forward to harmonize public and private sector quality measurement simplicity, intelligibility and, outcomes need to be our touchstones.

5) Improving data collection and transparency

Obviously data collection and reporting is a thread that runs through the entire effort to promote better outcomes and smarter use of health care dollars. In addition to developing measures that better reflect consumer concerns, we have to do a much better job at presenting and disseminating data in a way that is intelligible. In particular, because of the risks inherent in the effort, it will be essential to strengthen data collection and reporting that could reveal disparities in treatment and outcomes based on race, income and disability. Enrollment and treatment patterns must be scrutinized for evidence of under-treatment or avoidance. 

The good news is that many of the elements described above already exist at least in rudimentary form or in some specific location or system. Others have been explicitly flagged for action by HHS as part of the new initiative. Moving forward on these fronts will ensure that what we get from the transition to value-based-payments is not just cheaper care, but better care.