Value Based Purchasing and Health Care Reform

Existing PHO or Create a new Organization?

Many hospitals created Physician/Hospital Organizations (PHO) years ago as an answer to managed care pressures.  The state of maturity of these PHOs runs the gamut from moribund to effective networks of hospitals and physicians working together in clinically integrated VBP networks.  The decision of whether to use an existing PHO network or create another organization for a VBP network should begin with an evaluation of the physician members of the existing PHO.  Many PHOs were created as all comers organizations.  In fact, state laws in some states, mandate that "any willing provider" be allowed to join. 

The focus of VBP is on quality care, driven by evidence-based medicine.  There are some physicians who are enthusiastic about these concepts and willing to participate in development of an evidence-based, clinically integrated program.  There are others, who are not only unwilling, they are outright hostile to the concept.  Anyone who has ever attended a medical staff meeting is aware that 1 or 2 naysayers from the medical staff can torpedo excellent ideas. 

It is fairly easy to see that development of a VBP network should be championed by those physicians that have the vision to see the benefit of the program.  It is difficult enough to create a VBP network without having to combat the arguments of physicians who may be concerned that their practice skills are marginal or simply do not want to be bothered with meeting the clinical guidelines necessary to create an effective program. 

There is no one right answer to the question, but common sense says that the use of an existing all comers PHO may not be the best answer in many cases. There will be physicians who opt out of participation in VBP programs.  In the short run this may painful because those physicians may be very active members of the hospital's medical staff.  In the long run however, the health reimbursement system will be dependent on the collaboration of cohesive teams of hospitals, physicians and ancillary providers.  Letting the few control the many may be a short-sighted strategy.   

P4P and Value-Based Purchasing-What's in a name?

There is some confusion in the health world about what the concept of value-based purchasing is. Early efforts to utilize evidence based medicine as a way of creating better health care were often referred to as Pay for Performance programs or “P4P”. Recently, these types of programs have been referred to as value-based purchasing programs—most notably by CMS. While there are some references to P4P in the literature, the more common name of this movement is now value-based purchasing. A definition advanced by AHRQ is helpful, but keep in mind that this is a process in development and there will be many changes to the concept before we are through.

"The concept of value-based health care purchasing is that buyers should hold providers of health care accountable for both cost and quality of care. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to identify and reward the best-performing providers. This strategy can be contrasted with more limited efforts to negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved."

Meyer J, Rybowski L, Eichler R. Theory and Reality of Value-Based Purchasing: Lessons from the Pioneers. Rockville, MD: Agency for Health Care Policy and Research; 1997. AHCPR Publication No. 98-0004.

Development Team

A VBP network project team involves multiple disciplines.  One discipline that must be represented at every level is the financial team.  A VBP network could be the most effective in the world in meeting quality indicators and out of business quickly if the costs of meeting those indicators create a loss.  Until now, the health care industry has been focused on the creation of a set of measures to determine whether physicians and providers are delivering quality care.  There should be more emphasis paid to the financial and legal issues that populate the development of a successful program.  The development of meaningful quality indicators is so critical to the development of a successful VBP program that it is not unusual that the financial and legal issues related to the process have not been the center of attention.  Physicians and hospitals can no longer allow the discussion about VBP to be centered on only the quality indicators themselves.

Hospitals and their medical staffs are increasingly pressed to organize in ways that facilitate their collaborative participation in VBP programs.  Combining the hospital and its medical staff into a collaborative treatment model using evidence-based medicine has shown promise in reducing mortality and morbidity rates in participating hospitals over episodes of care.

Collaborative evidence based medicine is a team sport.  While compliance with some outpatients quality indicators are driven by the actions of an individual physician, the ultimate focus of VBP programs will center on episodes of care.  An inpatient episode of care my include primary care, specialist and hospital based physicians, hospital facilities and personnel, and in some instances a long term care facility.  Organizing a delivery system in a manner that coordinates the services is key.

Anti-kickback safe harbors

The federal anti-kickback statute ("Anti-Kickback Statute") prohibits payments of remuneration between referring physicians and hospitals involving Medicare and other governmental payment programs.  Violation of the law is a federal felony and can result in criminal and civil penalties.

The development of P4P programs is expensive and includes the same legal considerations that exist with any type of hospital-physician joint venture.  The natural inclination is for a hospital to fund the development costs.  If a hospital provides benefits to a group of referring physicians, however, the Anti-Kickback Statute may be violated.

The Anti-Kickback Statute is broad in its reach and is extremely complex.  Because of its breadth, certain safe harbors have been adopted to protect certain activities.  The analysis of the relationships in a P4P program is critical to assure that there is no exposure to anti-kickback penalties.  Because P4P is so new, there is little direct guidance to the industry from the government.

Stark Law Exceptions and Anti-Kickback Safe Harbors:

(i)  Electronic prescribing items and services; and

(ii)  Electronic health records items and services exceptions.

Business Case for Value Based Purchasing

Healthcare’s old reimbursement paradigm is no longer tenable.  High costs and the need to accelerate improvements in the quality of healthcare requires a new paradigm.  Regardless of the problems with the existing payment methodolgies, there must be a business case for adopting pay for performance if the health care industry is to expend the time and energy to affect the dramatic change it will take to accomplish it.  The business case is relatively simple to summarize on paper.  It can be summarized as follows.

1. Use of medical protocols (e.g., quality indicators) lead to better physical outcomes.
2. Better physical outcomes reduce complication rates and reduce costs associated with the care.
3. Better physical outcomes and less costly care result in patient satisfaction.

            As in many things in life, the concept is simple, the execution is hard.  A major concern with pay for performance is its potential to produce unintended results.  The “side effects” can take several forms.  If providers are paid to achieve certain results there is a natural tendency to take advantage of the system.  If physicians shun patients with difficult cases it may increase the score that a physician achieves on a scorecard used to calculate compensation, but does it really improve care?

 

            The existing payment systems may also lead to unintended consequences.  As laudable as reducing complications may be, a hospital which finds its profit margin reduced because it has reduced complications of conditions that produce higher profit margins will reward the payors with lower reduced payments thorough the hospital and not the payor’s actions.  There is little question that we do not know enough about the unintended consequences of implementing a pay for performance program. 

Establishing Trust between participants in VBP

The governance documents (certificate of formation, articles of incorporation, bylaws, shareholder or corporate member agreements, etc.) and the contractual relationships among the network providers make up the legal fabric that binds the P4P professionals and providers together. Unless there is a common purpose and a shared zeal among the participating providers for the success of the P4P program, the documents are simply window dressing.

Perhaps one of the most difficult aspects of the creation of a P4P network model is the development of the positive chemistry among the participants.  The novelty of the P4P concept and the uncertainty among providers as to how they will fare in a P4P system are clearly impediments to gaining physician and hospital buy-in to the development of the P4P system.  Prior unfavorable experiences with hospital-sponsored PHO projects, especially the experiences of those physicians that provided services on a capitated basis, may limit the enthusiasm for participating in a P4P network.  Therefore, a hospital must establish the appropriate foundation of trust with potential physician participants in a hospital-sponsored network in order to succeed.

Standards of Care

Malpractice is an area of concern when one considers that failure of a provider to follow evidence-based medicine may be taken as a violation of the standard of care in a community.  The credentialling and quality assurance reviews by a VBP Network may be available to discovery by a plaintiff's attorney unless there is state or federal legislation that protects the Networks records. Under state law, a provider network may not fall within the protected class of entity like a hospital. All of the information that is collected in the process of measuring quality in a P4P network may be discoverable in malpractice cases.

Tax Exempt Status

Tax-exempt entities should consider the potential loss of tax exempt status when developing Value Based Purchasing programs.  Gifts and grants to entities that are made of physicians and other for profit enties may trigger intermediate sanctions or loss of tax-exempt status.  The requirements for tax-exempt status must be carefully reviewed as would be the case in any joint venture with referring physicians.  Bond covenants may also contain limitations that present challenges for the formation of a Value-Based Purchasing Network. 

Civil Monetary Penalties

The Civil Monetary Penalties Law prohibits a hospital from making payments to a physician to induce the physician to limit or reduce services to Medicare beneficiaries. When one considers the nature of VBP it is easy to see where trouble may be brewing.  The P4P mantra is to improve quality by providing evidence-based treatment and reducing unnecessary and duplicative services. 

Development Team

Success in a VBP model will require coordinated care between hospitals, physicians and ancillary facilities. Several ways exist for participants to organize a VBP system to achieve collaboration. The choice of organizational structure will be influenced by many of the same factors that influence other hospital/physician joint ventures. Creating an organizational structure that assures that the physicians and hospitals are able to collaborate effectively is a primary determinant.

The creation of a collaborative organization implicates several regulatory compliance issues such as fraud and abuse, self-referral, the Health Care Quality Improvement Act and antitrust. The addition of the VBP reimbursement methodology to this network model significantly increases the operational and regulatory issues involved in implementation.

The vehicle that an organization uses to facilitate a VBP system or network is a decision driven by the facts of each situation. The decision as to the appropriate organizational model should be made after careful reflection on the unique circumstances of your hospital and medical staff.

The decision is not only driven by legal considerations, but also by practical considerations. The governance of the organization must engender a sense of “buy-in” by the physician participants. Physicians control many of the clinical decisions that will determine whether the hospital can meet the established quality guidelines. An enthusiastic physician component of the VBP network will significantly increase the chances for success. A group of physicians who do not believe that the organization gives them adequate say over their destiny will be less likely to cooperate, or even join the network.

Success in a VBP model will require coordinated care between hospitals, physicians and ancillary facilities. Several ways exist for participants to organize a VBP system to achieve collaboration. The choice of organizational structure will be influenced by many of the same factors that influence other hospital/physician joint ventures. Creating an organizational structure that assures that the physicians and hospitals are able to collaborate effectively is a primary determinant.

The creation of a collaborative organization implicates several regulatory compliance issues such as fraud and abuse, self-referral, the Health Care Quality Improvement Act and antitrust. The addition of the VBP reimbursement methodology to this network model significantly increases the operational and regulatory issues involved in implementation.

The vehicle that an organization uses to facilitate a VBP system or network is a decision driven by the facts of each situation. The decision as to the appropriate organizational model should be made after careful reflection on the unique circumstances of your hospital and medical staff.

The decision is not only driven by legal considerations, but also by practical considerations. The governance of the organization must engender a sense of “buy-in” by the physician participants. Physicians control many of the clinical decisions that will determine whether the hospital can meet the established quality guidelines. An enthusiastic physician component of the VBP network will significantly increase the chances for success. A group of physicians who do not believe that the organization gives them adequate say over their destiny will be less likely to cooperate, or even join the network.