Reimagining value-based care to unlock quality care

Jacqueline LaPointe: Hello, you're listening to Healthcare Strategies, and I'm Jacqueline LaPointe, executive editor at Informa TechTarget. Today we're going to be talking about a major buzzword in the healthcare space, which does not seem to go away. That word is value. Achieving value has been a major goal for healthcare providers for decades now. For many, the concept of value-based care or value-based payment represents a shift from free-for-service to higher-quality, more affordable care. However, that shift has been slow-moving despite industry-wide calls for greater value in healthcare. 

Most payments are linked to some type of value incentive now, whether that is pay-for-performance, an alternative payment model or population-based payment, according to the latest results from the Healthcare Payment Learning and Action Network, which tracks the types of payments made in healthcare every year. However, if you dive deeper into these value-based payments, many are still tied primarily to fee-for-service or include just upside risk. This definition of value, perhaps, isn't quite cutting it. That's a sentiment from our guest today, Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, a nonprofit organization dedicated to bringing value to employers and other healthcare purchasers. Hi, Sean, welcome to Healthcare Strategies. 

Shawn Gremminger: Thanks very much, Jacqueline. Good to be here. 

LaPointe: Thanks for being here. Let's jump right into your views on value-based care and value as defined by the more traditional push for performance-based incentive payments. What are your thoughts on that? 

Gremminger: I appreciate the question. So, it's a lofty goal and a good one. Unfortunately, I think, as you described at the beginning, we've been working on this for the better part of two decades. I recall, probably, the first time I heard the word "value-based payment" was coming up on 20 years ago, and we've seen, I think, far too little progress in terms of actually moving toward real risk-based models in which providers, insurers and others are held accountable. And I see no evidence to suggest that, at least in the commercial side, we've seen any diminishing in the price of healthcare over time as we've slowly crept towards something that looks like a value-based system. I'm, unfortunately, after two decades of this, something of a skeptic at this point. I think we need to rethink the entire endeavor. 

LaPointe: But employers do want value, correct? 

Gremminger: Absolutely. No, and I think employers, they continue to think of value as being an absolutely critical piece of the pie. The way that employers, or at least the way that we define value, is a relatively straightforward equation. So, it's effectively price or cost divided by quality, with quality being more than just the quality of care, but also measures of outcome, measures of equity, measures of patient experience. In the end, if we're paying more, we expect to have better outcomes, better patient experience, better access, and if we're not getting those things, then we certainly think we should be paying a lot less. 

LaPointe: Absolutely. It makes a lot of sense. Now, if we all want value, why isn't this working? Do you have any insights on perhaps some of the shortcomings with our definition of value right now? 

Gremminger: Yeah, as I think about the value-based payment endeavors, accountable care organizations, et cetera, they suffer from two major flaws. And the underlying theory that, I think, is not being addressed, and maybe the reason why they don't seem to work is, one, most value-based payment systems are just too complex. You take an already very complex health system, one that's very difficult for certainly patients and consumers to interact with, but even difficult for employers, purchasers and physicians, you name it, and you layer on this additional significant level of complexity. And so, what we find is that the organizations that can engage in these sort of processes are the very large, sophisticated and often pretty high-cost health systems. So, it's very large payers or very large insurers. It's very large hospital systems. The smaller folks and the ones that are struggling the most financially, so independent practices, community health centers, you name it, just don't have the ability to engage in some of the really complicated value-based purchasing networks that have been created. So, there's overall just too much complexity in the system. 

The second is, as you pointed out, very few of them are mandatory, and in the end, if you get to choose to be in only if they're upside and you get to choose to drop out as soon as there's any risk, you're not going to have people taking a lot of risk, which means you're not going to be seeing the kind of cost savings that employers and purchasers are really expecting. And this gets to the underlying philosophical problem that, I think, is not addressed in the value-based purchasing movement, which is there is not a single physician, hospital system, health insurance carrier, drug maker, you name it, that is going to want to engage in a voluntary process in which they're going to lose money. And I get that that they all have incentives. We all are looking out for our best interests. 

From the employer-purchaser perspective, healthcare costs are far too high. It now costs $25,000 a year, on average, to insure a family of four, which obviously eats into wages. It has all the kind of problems that we've often discussed at the National Alliance. If we're going to bend the cost curve and actually save money, someone's going to lose. Someone in the healthcare system is going to be making less money than they were before. And if we fail to acknowledge that fact, we're living in a dreamland, and I'm concerned that a lot of the folks that are saying, "We just move away from fee-for-service and to value-based care, that's all going to get better." I don't know anybody out there who's saying value-based care is a bad idea, but I do think there are plenty of people out there saying, "Value-based care is a bad idea if I'm a net loser." And therefore, they just don't go in with both feet, and we end up in the situation that we're in today. 

LaPointe: And there's also just so many different types of models. It still seems like we're testing out what works and what doesn't work. 

Gremminger: That's absolutely right. Many of the models that are out there are, as you said, upside opportunity but not necessarily shared risk, and we spent a lot of time talking about measures. We have a lot of process measures, and, I think, we've actually seen some real improvements across the healthcare system on better processes than we used to have. The harder part, and the part that really matters, is outcomes measures. Are people actually getting out of the hospital faster? Are they healthier? Are they staying out of the hospital? Are they living better lives? Are they happier with their patient care? All of those things, they're a little bit harder to measure. They're harder to control, and ultimately, we see far too many models that continue to be based on, "Did you check the person at the right time? Did you provide the right product at the right time?" Those are important to getting to outcomes, but in the end, what employers, purchasers, and I think, consumers care about is the outcomes, not the processes that went into it. 

LaPointe: I think too, I was curious, is it difficult for employers to get into these value-based payment models, especially since there seems to be evidence that on the commercial side it hasn't taken up as prevalently as say on the public payer side? 

Gremminger: Yeah, it is, and it's difficult for a number of reasons. There's a glimmer of hope, so we'll end with some hope. But some underlying challenges that employers have, if you're a jumbo employer, you've got a half million or a million employees and their families, you have the ability to some extent to demand things from the market. But even then, you're nowhere near as big as Medicare is or Medicaid is in any particular geography. 

I often use Boeing in Puget Sound as an example of a company that is a very large company. They've got people all over the country, but they've got a good geographic concentration in Puget Sound around Seattle. But even then, Boeing isn't anywhere near the largest customer for health systems in hospitals in Western Washington. That's Medicare, that's Medicaid. And a lot of the value-based payment models are developed by and for public purchasers because they have the ability to effectively demand or induce providers and health plans to engage in that process. An individual employer simply just does not have that much clout. So, you have to buy into something that's already been developed and not necessarily form fit for you, which makes a lot of employers feel uncomfortable. 

LaPointe: That makes a lot of sense. 

Gremminger: I think the other challenge for a lot of employers is they don't get back the data they need to be able to demonstrate whether this has been worth it or not. I was talking to our chief of staff who formerly ran the employee health benefits plan for a medium-sized state, and they were participating in a value-based purchasing model. They went back to the carrier who was administering this model and said, "Can you give me measures unique to my population to show me whether this is working or not?" And the carrier basically said, "No, we can't. We can say across the board, out of all the people we have enrolled, here's some of the outcomes, but we were not able to subdivide by here's what you are getting." 

So, this person had to make a difficult choice to say, "We've paid $10 million into this thing and I have no idea if I saved money. I have no idea if the people in my population are actually getting better care or are happier with their care." So, it's very difficult for employers to continue to get into a program and stay engaged in a program unless they're able to go back to ultimately their higher ups and say, "Hey, this is working." So, I think you see a lot of employers that have just said, "It isn't worth the complexity. It isn't worth the cost if I don't know whether this is actually making a difference." 

LaPointe: Perhaps this is a population that's seeking value the most. 

Gremminger: Right. 

LaPointe: Arguably. 

Gremminger: 100%. 

LaPointe: And there might be a disconnect between the definitions of value, how we achieve value in healthcare. What can employers do now to achieve value? Are there strategies for them they can implement that perhaps aren't the alternative payment models that are already out there? 

Gremminger: Yeah. So, just going back to alternative payment models, there are increasingly vendors in the space that are trying to target smaller employers that don't have the clout to be able to develop their own value-based performance metrics and get providers to participate because they're so small. So, there are folks who are out there that are trying to promote this and say, "Join this larger group and developed model." I think it remains to be seen whether that's successful, but there are at least more solutions that are, at least, out there in the marketplace for employers to look at. 

To me, I'm a simple guy, and I like simple answers to complex problems. Healthcare, broadly, healthcare costs, and healthcare quality is a very complex problem. Let's not have a complex answer. The simple answers I think are not as what people might call transformative as a brand new value-based purchasing model, but are measurable and are achievable by employers of all sizes. So, things like tiered networks, or narrower networks, or what sometimes people call high-performing networks. So, just in the public space, now with better price transparency than we had in the past, through the hospital transparency reports that came out under a transparency rule, the Transparency in Coverage files, which require insurers to provide basically their negotiated rates, we're getting a better sense of who's expensive and who's not. And there is some publicly reported quality data that is now available that you can match up to those things. 

So, employers have the ability, in places depending on the market concentration, to say, "We're just not going to contract with a high-cost, low-quality provider. We want them out of our network." Or, if you want to be a little bit less prescriptive about it, saying, "We're going to do a tiered network, and we're going to say employees that would choose to go to there because they get a lower co-pay or co-insurance, if we can drive them to go to a provider group that is higher quality, lower cost, they'll pay zero co-pay. And if they instead choose to go to a different provider who is lower quality, higher cost, we'll still keep them in the network, but we're going to make it more financially advantageous to go to somebody else." 

It's still based on a fee-for-service chassis. It's still pretty straightforward, but we've seen employers actually make meaningful change, and it doesn't require an enormous amount of paperwork to do. You just simply say, "We are going to try to drive people to the places that we know are providing what we define as the better value." 

LaPointe: I say that, but fee-for-service still requires a lot of, but perhaps not as much. 

Gremminger: Absolutely. It's true. 

LaPointe: I think it's interesting too, is there a tension between offering more tiered networks or trying to steer employees to these places versus something like a broad networks? 

Gremminger: Yeah, there is a tension. So, one of the things that keeps employers from moving down this path is a worry about friction for their covered population. So, when I think about when we talk to benefits leaders at companies all over the country, from Fortune 500 to 500,000-person companies, in the end, they're considering and having to weigh two things, which is their CFO is saying, "Why is this so expensive? Can you do something to make our healthcare costs less?" And the chief of human resources is saying, "Okay, but don't anger our employees." And so, they're constantly having to balance those two interests. If you go with something like a tiered network, or a narrower network, or a driving people to a center of excellence, or a direct contract and just more advanced versions of the same type of idea, that's going to cause friction. It's going to take choices away from employees, or it's going to make it so that maybe an employee, they're less able to go to their current physician, who they might like, but turns out is overpriced and has low quality. So, there's going to be some pushback. 

In the past, I found that employers tended to stay on the side of, "Whatever, don't anger the employee base. Don't anger their families. We want to keep them happy and we don't want to deal with the angry phone calls." I think, we're starting to see a shift towards saying, "Actually people are already really angry, people are already really frustrated with the very large out-of-pocket costs that they're facing, the very high premiums that they're facing, six and 10% year-over-year premium increases, and we can actually move them toward a better understanding of value on their own." But that involves having, I think, real, honest-to-God trade-off conversations with the employees. And this is something I think employers are really learning to do, which is to say, "We hear you. We hear about your concerns around price, cost, et cetera. We have some ideas about how to do that, but it's going to involve trade-offs for you." 

And one of the things we've heard all the time is you can't take something away from your employees without giving something else. So, those that I think have done this successfully have said, "We are interested in doing a tiered network. It's going to limit your choices, but the people that we're going to be driving you toward, we promise are high quality, low cost. We've got the data to back that up, and we're going to give you some money back. We're going to bring down your premium by 20% next year. We're going to give you a reason to want to be part of this process." And what we're finding, I think, is that most of the time employees understand. Once explained, they get that there is a trade-off to be had, and that they really actually are aligned with what the employer wants, which is value. 

LaPointe: Even saving some money, because we know out-of-pocket costs are doubling, tripling in some cases. So, very important stuff. Speaking of frustration too, I know there's a huge frustration in the healthcare industry with price transparency. You touched before that regaining access to some of this pricing data and even some quality data, but it doesn't seem we're quite there yet. So, how important is this idea of transparency to achieving value? How can we get there? 

Gremminger: It's foundational and it's critical. As you said, we are in a completely different world than we were five, 10 years ago. Before the Hospital Price Transparency rule, the Consolidated Appropriations Act, which requires more transparency, the Transparency in Coverage rule, all of that stuff. We're in a very different world than we were before, but we're also not at a place where employers can really granularly and accurately assess value. And a big part of the reason for that, well there's a couple reasons for that. One is the Hospital Price Transparency rule, while effective, there still are, depending on who you ask, hundreds or thousands of hospitals that are actually not in full compliance with that law. So, there's still a lot of missing gaps in the reporting by hospitals. 

With the Transparency in Coverage rule, the data is actually much larger because it's all rates for all providers. It's not just hospitals. So, you have rates for every single physician who is in network for a carrier, and you're talking about terabytes of data. So, sifting through that is really difficult and frankly requires employers to hire data scientists, which are not inexpensive, and depending on the size of the employer, that could be cost prohibitive. So, there's a challenge there that needs to be overcome. 

The last one, the biggest one, and the one that we are most focused on is, while there's good publicly available data across the industry, to this day, employers and purchasers still have an enormous challenges accessing their own claims data, which you can understand. You want to know what's going on out in the world to understand where you might want to head, but you really need to know, particularly as a prudent fiduciary under ERISA, you really need to know what you're paying for, how much you're paying, how often you're paying for it, et cetera. And carriers continue to deny employers access to their own claims data on a regular basis. 

And I've heard about this, it's particularly bad for smaller companies, but even very large companies and public purchasers have a hard time accessing their own claims data, which means that they cannot accurately say how much they're paying for any particular good or service. They don't know how much a carrier may be adding on extra fees, et cetera. Until we get over that hump, I think we're going to continue to be at a disadvantage. 

LaPointe: There seems to be a renewed push for price transparency in healthcare. It's definitely a bipartisan effort, but recently, President Trump did sign an executive order reigniting that push for price transparency. Perhaps more enforcement might get us a little further with that information. But like you've mentioned, there still seems to be a lot of challenges. I think, too, one of the things that we've talked about before and I think is worth mentioning is the idea that markets just aren't working. I was wondering if you could elaborate on that for our listeners, and what specifically isn't working for employers and consumers when it comes to value? 

Gremminger: It's a great point, and I think it shows in some ways the limits of transparency only. One reason the markets don't work is that we don't have enough transparency. Let's just start there. To have an effective market, you need to have a buyer and a seller. There is not a huge information asymmetry. They both know roughly the same amount about the thing that is being bought or sold. We're not there. But even if you fix that problem, as we see it, we have just look at maybe the three largest markets out there. 

First, the hospital industry. We've seen just rampant consolidation over the last two decades. Today, there are more people who work for a hospital or a health plan as a physician than are in independent practice. So, huge consolidation. We know that the more consolidated a market, the higher the prices are. And there are literal reams of data that go back. I keep going back to 20 years, it feels like maybe a lot happened in the mid-2000s. There are reams of data that adequately describe how every time, or not every time, but many times when one hospital merges with another, the prices go up. 

Or a lot of times it's vertical consolidation. So, it's hospitals buying up physician practices. And if you drive around any metro area in the country, you'll find those previously independent oncology, gastroenterology, primary care practices now all have the big hospital chain out on their front door. So, employers in highly consolidated markets, which at this point most of the markets in the United States are facing higher prices, and it doesn't matter, frankly, whether we have transparency into that. In the end, if you have to buy from just one or two hospital systems, they're going to be charging you a lot. So that's market failure number one. 

Number two is in the PBM space, which of course is, again, very highly consolidated, both vertically and horizontally. The big three PBMs control 80+ percent of the market, and worse, they also control the group purchasing organization or sometimes called a rebate aggregator, at the very top. That's the entity that negotiates the price of the drug between the manufacturer and the GPO. They, then, own the PBM. They, then, own their own wholly-owned mail order specialty and retail pharmacies. And in many cases, they actually own the physician practice that prescribed the drug in the first place. So, the amount of self-dealing and hiding the ball in that industry is astonishing, and is meaningfully increasing the price of drugs year-over-year. Another market that has effectively failed to deliver anything close to value in our healthcare system. 

Then the last one, of course, is prescription drugs and the actual manufacturers themselves. I think drugmakers get blamed for a lot of things that may or may not be their fault. Certainly, a lot of the price increases we've seen over the last couple of years are, I think, mostly to be blamed on PBMs. However, many drug companies continue to engage in demonstrably anti-competitive practices that are great at making them money and end up inflating costs for everybody else, including people who desperately need drugs. There's a number of these different practices. 

One is called patent thickets, where you place 25 patents or 50 patents or 75 patents on a single drug. Another one is called patent evergreening, where the drug is about to be taken off of a patent and then you find something else to patent. And so, you keep that drug under market exclusivity for an extended period. Another one is product hopping. So, just as your drug is about to become generic, you introduce a new drug that is effectively the same, maybe a percentage point or two more effective than the previous drug. And then, you work with the PBMs to make sure that they all cover your new brand name drug, which is going to be priced four times higher than the new generic, but you keep the generic from eating into any particular market share. 

All of these happen, they happen all the time. And that's another place where you see well-meaning policy protecting intellectual property being used in a way that is ultimately bankrupting American families. 

LaPointe: Absolutely. And we're seeing a lot of these under Congress' radar right now. I think, ironically too, a lot of the anti-competitive practices you mentioned, some of them are arguably made in the name of value-based care. I'm thinking something like the vertical consolidation and stuff like that. So, it really does all come back to that idea of that push for value, and whether or not it's truly working for consumers. 

Gremminger: I think it's a really good point, Jacqui, and we all recognize how bad consolidation has been for the American economy. But those of us, including myself, and most of the other people that I know who work in this space, we all pushed for value-based care. We all pushed for holding providers accountable, holding carriers accountable, et cetera. 

And as I was talking about, the complexity of being able to do that means that smaller independent practices were no longer able to be effective. And so, I think, the irony of the value-based care movement is that it can be at least partially blamed for a lot of the consolidation. It just became unsustainable to be a four, five or six-person physician practice. The only way you're going to be able to compete in the world and keep up with where they felt like the puck was moving was to become part of a larger system. 

And I don't know whether this could ever be measured by an economist, but it would be interesting to see whether the value-based care movement has actually systematically driven up our prices because it led to the consolidation that has been such a huge part of why we're paying so much. 

LaPointe: I think it's interesting, clearly there's a place for value in healthcare. We actually very much need it, especially where the healthcare spending is, what, nearing $5 trillion. It's well within the realm of possibility. Perhaps this is a re-imagining of value in healthcare, but it seems like something needs to be done whether that means pushing on with value-based care, re-imagining what that means for everyone within this ecosystem or starting from scratch, I'm not sure. 

Gremminger: I don't know either. I'm not smart enough. I'm smart enough to know what the problems are and not necessarily what the solutions are. I do think we're able to reimagine this. It needs to go back to two of the three things that I identified at the beginning. Future models need to be simpler and easier to participate in. They need to be mandatory. And to some extent, we're seeing Medicare potentially try to move in this direction, but to say, "Look, your option is to stay in fee-for-service, but you're going to get paid at 90% of what you're getting paid now, or you can move to this model and there's upside and downside risk. But that's your choice. You don't get to have it both ways and you don't get to opt out once it becomes hard." 

And then, third, is we have to recognize that actually bending the cost curve means that the healthcare industry can no longer grow. At this point, we're almost at 20% of the U.S. GDP, and we're without any seeming lack of growth. We have to assume that these changes will actually put the healthcare industry into something of a recession. It will actually mean that the healthcare industry has to live under a budget in a way that it never has before. And that's going to mean some hospital systems are going to lose jobs; that's going to mean some health insurance carriers don't do well financially. And we've got to be okay with the fact that's happening, because at this point, we can point to dozens or hundreds of companies that are shedding jobs or even going out of business and saying the primary reason they did that was that they just could not keep up with their healthcare costs. 

LaPointe: Maybe the takeaway for employers now is to take a look at your networks, consider direct contracting, push for price transparency, claims data transparency. 

Gremminger: I think those are the big things. It's very much a keep-it-simple solution, and this is something the National Alliance is very focused on. It's what are the straightforward things that you can do in your plan negotiations and in your network design that are going to be driving more of your patients to higher-quality, lower-cost sites of care, and fewer people into the hospital systems and the practices that are meaningfully overpriced compared to the market, and aren't delivering the quality that you would expect? 

LaPointe: Absolutely. Thank you, Sean, for joining us for this episode of Healthcare Strategies.