Today, Catalyst for Payment Reform (CPR) unveiled some potentially exciting news: Our 2014 National Scorecard on Payment Reform tells us 40 percent of commercial sector payments to doctors and hospitals now flow through value-oriented payment methods, defined as payment methods designed to improve quality and reduce waste.  This is a dramatic increase since 2013 when the figure was just 11 percent.

Traditional fee-for-service, where we pay for every test and procedure regardless of its value, may rapidly be becoming a relic.  While the Scorecard findings are not wholly representative of health plans across the United States, they are directionally sound and allow us to measure progress toward value-oriented payment in the commercial sector.  (Scorecard findings are based on data representing almost 65 percent of commercial health plans across the country.)

On the face of it, this is thrilling news for CPR, especially since our organizational goal is that at least 20 percent of payments to doctors and hospitals will flow through methods proven to improve value by the year 2020.  But we are not closing up shop just yet.  The proliferation of value-based payment arrangements only matters if they succeed at reducing costs and improving the quality of care. And for many value-oriented payment models, we still don’t have the evidence.

We also remain a bit circumspect because only about half of the value-oriented payments (out of that 40 percent figure) put providers at some financial risk if they fail to improve care or spend over budget.  To employers and others helping to foot the bill for health care, many new payment methods often feel like “cost plus arrangements.”  Instead, purchasers would like to see risk sharing across payers and providers.

Pay For Performance

For example, the 2014 Scorecard revealed that the one of the most common kinds of value-oriented payment is pay for performance, offering potential bonuses to doctors and hospitals for meeting goals to improve the quality of health care or its efficiency.  Pay for performance has been around for over a decade; both health plans and providers have some experience under their belts and may be more comfortable with this “new” method than any other.

And yet, the evidence that pay for performance helps to contain costs is mixed, as I wrote in this blog back in March.  Historically, the financial rewards may have been too small and the focus of pay for performance programs may have varied too much by payer, resulting in weak and mixed signals to providers.  It may also be, however, that without financial “skin in the game,” providers won’t change how they deliver care significantly. Clearly, there is more research to do.

Accountable Care Organizations And Patient-Centered Medical Homes

The 2014 Scorecard also reveals a proliferation of Accountable Care Organizations (ACOs) and patient-centered medical homes (PCMH) or other models in which a patient is “attributed” to a specific health care provider. (“Attributed” patients can include those who choose to enroll in, or do not opt-out-of, an ACO, PCMH, or other delivery models in which patients are attributed to a provider with any payment reform contract.)  According to the data we received from participating health plans, 15 percent of their patients are now attributed, a significant increase over last year.  This isn’t surprising, given the excitement about both the ACO and PCMH concepts.

Shared-risk arrangements and bundled payments.  And yet, the Scorecard also shows health plans have established few shared-risk arrangements with providers.  Most ACO arrangements start with shared savings only – offering a potential financial upside for providers. (Typically this will be fee for service with some potential for shared savings layered on top).  In the long-term, if we really want ACOs to take full responsibility for population health management, we need to move away from fee-for-service based payments toward payment methods that build in shared financial risk.  As my colleague David Lansky and I wrote in this blog in August, for providers that are not immediately ready for shared risk, we can establish a glidepath to get there.

Health plans may lack experience and the ability to scale and automate payment arrangements that contain a possible financial downside, like bundled payment or shared-risk arrangements, and providers may be wary of them.  The 2014 Scorecard identifies only a small percentage of dollars flowing through shared-risk arrangements and bundled payment (just 1 percent and 0.1 percent, respectively).  As I wrote in this blog last July, the evidence for bundled payment is encouraging.  Unfortunately, it can be challenging to implement; most programs haven’t moved beyond the pilot stage.

Specialists And Hospitals

Likewise, value-based payment arrangements aren’t finding their way to some of the highest paid professionals in health care (specialists) at the same rate as primary care physicians and hospitals.  It could be that payment reform programs aren’t yet targeting specialty care or that specialists are less eager to enter into new arrangements.  The root cause is unclear.  The 2014 Scorecard showed that for outpatient care, 24 percent of payment to primary care physicians is value-oriented, compared to just 10 percent of payments to specialists.

Not surprisingly, the Scorecard also reveals that much more payment reform is happening with hospitals.  Thirty-eight percent of commercial payments to hospitals flow through value-oriented payment arrangements.  The emerging silver lining contained in our results is that we have evidence of a slight rebalancing of payments between primary care providers and specialists.  The 2013 Scorecard revealed 25 percent of payments were going to PCPs while 75 percent were going to specialists. This year, PCP’s received 29 percent of payment, while specialists received 71 percent.

I’m pleased we are making progress on payment reform, moving away from fee-for-service toward new payment models designed to improve quality and reduce waste.  The early evidence suggests the most powerful models are those that have both financial carrots and sticks for everyone.  But, those who pay for health care — employers, public sector purchasers, and by extension, heath plans — must keep their shirt sleeves rolled up and continue to collaborate, experiment, and measure results.  We may appear to be six years ahead of reaching our 2020 goal.  But it will take the next six years to understand which new payment methods actually work, when, where, and how.