Value-Based Purchasing Top Health Reform Priority for Governors

March 01, 2018 - In a recent healthcare reform proposal, a bipartisan group of governors emphasized that value-based purchasing implementation will be the key to reducing healthcare costs while improving outcomes.

“Coverage is important, and coverage reforms can help contain costs, but our nation needs to confront the underlying market dynamics that are driving unsustainable increases in the cost of care,” wrote Governors John Kasich (R-OH), Brian Sandoval (R-NV), Tom Wolf (D-PA), John Hickenlooper (D-CO) and Bill Walker (I-AK). “With the support of the federal government, states are resetting the basic rules of healthcare competition to pay providers based on the quality, not the quantity of care they give patients.”

“Reorienting the system on value needs to be our greatest priority,” they continued. “Congress and the Administration should work with states and make a clear commitment to value-based healthcare purchasing.”

CMS actuaries recently projected national healthcare spending to accelerate at a growth rate of 5.5 percent by 2026, resulting in spending nationwide to reach almost $5.5 trillion by 2025.

With healthcare spending accelerating, governors are calling on states and the federal government to prioritize paying market-based incentives to providers. These value-based payments should promote primary and preventative care, holistic care from coordinated care teams, and hold providers accountable for total costs per episode.

To achieve this, states should adopt a “lead by example” mentality, the governors explained. State governments should primarily use Medicaid and state employee benefits to propel value-based purchasing implementation and help reach the value-based reimbursement tipping point across public and private sectors.

Value-based purchasing implementation has yet to dominate the healthcare industry. Only 29 percent of healthcare payments were under an alternative payment model in 2016, up just 6 percentage points from the previous year, the Health Care Payment Learning and Action Network (LAN) recently revealed.

The industry still has a way to go to achieve Medicare’s goal of tying one-half of fee-for-service payments to alternative payment models by the end of 2018.

But states can overcome this inertia by promoting value-based purchasing implementation within Medicaid and state employee benefits, and to a lesser extent individual and small group markets, the proposal stated.

Additionally, the federal government can help to champion value-based purchasing implementation, the governors added. The government should continue to include value-based reimbursement structures in federal and jointly-administered programs, as well as align value-based purchasing priorities across federal agencies and use its regulatory authority to collaborate with states and the private sector.

Expanding state Medicaid innovations will help the federal government to support value-based purchasing implementation. As of February 2018, Medicaid has approved over 30 Section 1115 demonstrations that allow states to test new methods for delivering and paying for healthcare services. Another 33 applications are pending.

“States have taken the lead in promoting value in their Medicaid systems,” the governors wrote. “Many states are working to move away from volume-driven, fee-for-service to value-based payments and care coordination. Federal and state governments should recognize and replicate the successful track record of select states to increase quality and lower costs in state Medicaid programs.”

As one of her first actions as CMS Administrator, Seema Verma wrote to state governors in March 2017 to assure them state Medicaid innovations are a top priority for her and CMS plans to develop an expedited demonstration extension approval process.

But the group of governors is also calling on federal agencies to support state Medicaid innovations by:

• Defining and scaling value-based purchasing and care models, such as physician and behavioral health integration, comprehensive primary care, and bundled payments

• Investing in value-based purchasing transitions at the state level

• Addressing social determinants of health in Medicaid

• Measuring health and social outcomes (e.g., decreasing poverty, boosting employment, and reducing criminal recidivism) and creating incentives for achieving improved outcomes

• Managing Medicaid risk-adjusted cost per person over time below the national medical inflation

• Employing vendor management best practices to see value from third parties, such as managed care companies and health IT vendors

• Providing a smooth transition from Medicaid to individual markets, and vice versa

Supporting state-led value-based purchasing demonstrations would be a major component to modernizing the state and federal relationship to foster healthcare reform, the proposal added.

To continue modernizing the relationship, the governors also called for the federal government to partner with states to define a minimum standard for healthcare systems in every state. The standard would help to maintain coverage that boosts value and protects consumers, while giving states some independence above the minimum standard.

Strengthening the federal and state government relationship would also require the federal government to provide a national approach when needed (e.g., pharmaceutical and air ambulance regulation), align governance and incentives across programs shared with states, and streamline administrative processes (e.g., waiver requests).

While the governors also proposed to prioritize healthcare competition and insurance market reforms, the proposal highlighted the key role that value-based purchasing implementation has with truly bending the healthcare cost curve.