Payment Reform Progress
The shift from fee-for-service health care – paying doctors for every test, procedure, or visit – to a value based system – in which doctors are compensated based on outcomes – is arguably the most significant transformation taking place in the American health care system today.
Last year, 90 percent of commercial health care plans were operating on the traditional fee-for-service model. To help spur the transition away from this model, the Catalyst for Payment Reform (a non-profit organization led by influential health care purchasers) set a goal of having 20 percent of these plans offer “value-oriented” payment structure by 2020.
Catalyst’s 2014 survey was released at the beginning of the month, and it turned out that the 2020 goal wasn’t nearly ambitious enough. In just one year, value-oriented payment systems grew to 40 percent of all commercial health care contract dollars – a promising sign that the U.S. health care system is finally realizing that we should promote better outcomes instead of simply just providing more services.
To be sure, digging a little deeper into the numbers, the results are not as transformational as the headline might suggest. Catalyst defines “value-oriented” as any payment influenced by a quality program not just one solely based on a quality measure. Nevertheless, it’s still clear that the march towards value-based health care is accelerating.
Catalyst’s 2014 survey found the following adoption rates for value-oriented models:
— 12.8 percent of commercial health plans are now using “Pay for Performance” (P4P), a free-for-service (FFS) payment structure that includes quality payments or adjustments – a first step in moving from volume to value.
— 1 percent of plans have shifted to “Shared Risk” arrangements. These arrangements reward the provider for innovations that keep people healthier, while moving risk to both the insurer and the provider if quality and cost measures are not met. We expect this portion to grow rapidly as it creates financial incentives for preventative medicine and population health that have long eluded U.S. health care.
— 2 percent of health plans use Shared Savings arrangements. Shared Savings arrangements have all of the quality components of shared-risk arrangements and much of the financial incentive, yet without the risk of financial ruin due to poor risk adjustment. Shared Savings arrangements allow independent providers of any size to work towards better value for their patients.
— 15 percent of plans have moved to “Full Capitation” – a structure that pays a group of providers a fixed amount for each patient, without becoming a health insurance company themselves. The move towards full capitation relies on the explosion of available health care data to better predict costs. This number may be high as the data source for the scorecard focuses on the commercial market. But make no mistake that as more data becomes available – and analytics catches up – the ability to identify insurance risk (and leave it will insurance companies) facilitates the move towards the ultimate opportunity in population health.
We will continue to look at the march towards value based payment, but for now, the headline is clear: the shift from volume to value in U.S. health care is coming – and is happening more quickly than anyone (even the most optimistic among us) thought.