In the late 1990’s, smarting from the collapse of managed care, the retreat of HCFA (which then ran Medicare) from the public release of provider performance data, and continued large increases in health costs in the face of evidence of waste and variation in quality, a group of large employers established the so-called “value agenda” and committed to using purchasing leverage to achieve it.  Value was defined by the simple equation of quality/cost.

Organizations like GE, where I worked at the time, realized that we needed to start with transparency, to make quality variations that mattered to consumers and patients visible.  Thus, The Leapfrog Group was born.  The announcement of its formation and the release of the Leapfrog Hospital Survey occurred between the publication of two seminal Institute of Medicine reports, “To Err is Human” and “Crossing the Quality Chasm,” and helped the value-purchasing agenda gain traction.

Transparency, however, while a necessary and important beginning, is not alone sufficient. To borrow from the Institute of Medicine’s tagline, taken from Goethe, “Knowing is not enough; we must apply. Willing is not enough; we must do.”  A hard-working clinician in Cincinnati described how hard it was to “do” and made it clear that we need to tackle changing the payment system next. He was referring to the fact that in his fee-for-service practice, the better care he took of his patients with diabetes, the lower his income became.  Those frequent phone calls to adjust insulin doses led to fewer complications and fewer office visits. He summed it up by saying that, “if I keep getting better, I’ll go right out of business.” It became obvious that if we don’t work to change our payment system, which at its worst punishes quality and efficiency and at its best is indifferent to them, it is disingenuous to expect better quality and efficiency.

Private sector purchasers began using the new data on quality to tie payment to performance in the middle of the last decade, setting up programs like Bridges to Excellence and the Integrated Healthcare Association’s (IHA) Pay-for-Performance program in California, which touches 10 million consumers. In an effort to create a value-based alternative to fee for service, the PROMETHEUS payment model was developed, using a unique six sigma and evidence-based approach to determining payment bundles.

A few years later, Congress, in passing the Affordable Care Act, integrated many of the private sector value-based purchasing principles and applied them to Medicare to drive quality measurement, transparency, and payment for value. For example, the new Medicare Physician Compare website begins to give patients information on physician quality. Medicare’s hospital value-based payment program continues to grow. And by 2017, at least ten percent of Medicare reimbursement to hospitals will be at risk for their performance.

However, in 2009, the team at GE became concerned about two issues. First, payment reform was moving too slowly and the talk about the changes far exceeded the actual dollars that were being re-directed.  Second, there was no way of evaluating whether payment reform was taking hold or was going to produce the value it was intending to create.  Working with a group of many of the same innovative employers that had been part of developing the value-based agenda a decade earlier, a new non-profit organization, we created Catalyst for Payment Reform (CPR) to drive a full-fledged movement among health care purchasers toward paying for value. CPR set an ambitious goal:  By 2020, at least 20 percent of payments in health care should be value-oriented. We were not overly prescriptive; many different payment models help move us away from the parts of our current fee-for-service system that are blind or worse to quality and efficiency.

New Data Show The Long Road Ahead On Payment Reform

But new data from CPR, released today, tell employers and other health care purchasers that we need to revisit our playbook and double down on our efforts to make value-oriented payment a reality. CPR’s inaugural 2013 National Scorecard on Payment Reform shows that just about 11 percent of health care payments in the private sector are currently tied to performance or designed to cut waste. That means that 89 percent of payments are made through methods that create obstacles to delivering higher quality or reducing waste, such as traditional fee-for-service, or bundled or capitated payments without incentives for quality.

Moreover, among those 11 percent of payments that are value-oriented, more than 40 percent still offer providers a financial upside only, such as pay-for-performance, which offers incentives for providing higher quality care but does little to discourage overuse.  If we really want to get better value for the health care dollar, we likely need to ask more providers to take on a share of the risk, meaning they stand to lose dollars if they do not meet certain quality and efficiency measures or a predetermined budget.

CPR’s Executive Director Suzanne Delbanco presented the findings today and summed up our charge: “We can do better and we must do better. CPR’s National Scorecard findings help hold purchasers, health plans and health care providers accountable, and that will help us move the dial from one year to the next.”

To achieve our goal — 20 percent of payments pushing for better value in a meaningful way by 2020 — we are going to have to work hard for the next seven years. But I believe we can make significant progress if we work together. Foremost, employers and others who purchase care need to get together to have a strong collective voice. This voice is sorely needed in current debates and policy conversations, such as those concerning our need for greater price transparency.  We can’t pay for value when we don’t know the actual prices of treatments and services we are buying.

Demand For Pricing Information Similar to Earlier Demands For Quality Information

Purchasers also need a large and powerful voice in the face of a provider lobby that is frequently squeamish about being measured and hesitant to share pricing information. We succeeded a decade ago in making the case for public release of quality information and we are determined to succeed with prices today. The same reasoning applies: it is simply unacceptable to ask people to be more engaged in their health care without giving them the information they need.  As consumers are being asked to pay more for their care, not allowing them to know the prices that they are paying simply won’t do. Without easy access to this kind of information we are fooling ourselves if we think we can create a system of higher value.

In addition, by banding together and partnering with health plans, purchasers help create a business case for plans to take stronger action to reform payment. Through quarterly user group meetings with plan leaders to discuss progress toward value-oriented payment, CPR brings health plan customers together. Leading national plans and purchasers check in at regular intervals on the key aspects of payment reform.

Finally, by working together purchasers have an important opportunity to learn from one another about what works in payment reform. Today, CPR also released a National Compendium on Payment Reform, which begins to catalogue the various payment reform programs in the country.  The diversity of programs across the country is encouraging.  However, it is also clear that it will be too easy for people to say that are reforming payment without having the kind of rigorously thought-through incentives that actually improve quality while reducing waste.

With so much innovation in both the private and public sector, there is a lot of opportunity for purchasers to learn what works. Moreover, we are entering a new era in which there are signs of coordination between the public and private sector approaches to payment. For example, during a recent CPR health plan user group meeting, many purchasers were very impressed by South Carolina Medicaid’s new policy: no payments for unwarranted, elective pre-term births (as these have shown to be not only unneeded but also potentially detrimental to infants). However, the sectors continue to act mostly in parallel and it is another goal of CPR to make sure that providers are hearing a coordinated and clear message. Learning from one another, private and public purchasers can emulate one another’s success.

Next year, CPR will release the second-annual National Scorecard on Payment Reform, allowing us to track current trends. It is time for purchasers to double-down on their efforts to transform the system to make sure that the promise of greater value in healthcare becomes the reality of better and more affordable care.