Understanding Value Based Purchasing

Insight from Senior Partner Sam O’Rear

Value-Based Purchasing is a Medicare-driven program and is currently in use by several of the large third-party insurance companies.

Insurance companies have learned to go to higher quality employers with high productivity expectations who want their employees to be well. They’ve also been able to amply prove that the higher the quality of the diagnosis and delivery of care, the lower the overall cost of delivering care to those patients.

Medicare has been studying this for going on five years. They started three years ago with laying down the expectation of Value-Based Purchasing as part of the Medicare program.

 

Medicare is saying,

We no longer want to pay you or incent you to just deliver care to our patients. A lot of you have made our patients sicker than they were when they came to you. We will not tolerate that any longer.

We are going to now start buying healthcare selectively from those of you that provide higher quality.

In this first wave, we’re going to make this budget neutral, so we are going to collect 1% from everyone and then based upon your quality scores, we’re going to give some of that back to you.

Some of you will never get any of it back because your quality scores are too low. Now how does make you feel?

I bet you want to have higher quality scores so you can get your money back.

Now Value-Based Purchasing is totally based upon core measures and HCAHPS, the Hospital Consumer Assessment of Healthcare Providers and Systems.

HCAHPS is a quality measure that measures patient satisfaction.

70% of the total measurement for Evidence-Based Medicine (EBM) comes from the core measures, that’s the clinical part of the measures, 30% of the measure comes from the HCAHPS or the patient satisfaction survey.

If you meet the 50th percentile, then you’re going to get some amount of money back. You want to be there. What we’ve found though is the difference between 49th and 50th is now eight decimal places!

Now what does that mean?

Eight Decimal Places

The way my hospital CEO and CFO clients work interpret it is every single incidence matters.

It’s not like it will all come out in the wash, we’ll fix it toward the end of the year, we’ll improve the food service, we’ll actually wash the sheets that we put on the beds. You can’t put it off.

Every single incidence now has an impact.

The discussion that really concerns hospital administrators is Medicare might actually direct patients away from low quality and actually direct them toward high quality institutions.

In that case, you’re dealing with BIG swings in revenue … because if I’m scoring below the 50th percentile, there could be a huge segment of my current Medicare revenues pushed away to another organization based on those quality scores.

At some point in the near future, you’re going to have to educate all your hospital clients and make them more sensitive in what does Evidence-Based Medicine mean on the whole. And we don’t even know a lot of the changes we’re going to be required to make in three, four, or 5 years from today. Do you (your customer) have the flexibility in your platforms to hit your numbers?

And your opportunity is: How can you help them hit their numbers?

Your Customers’ Hero or Goat?

The acceleration of change will increase. Changes will be required. You’re going to be answerable to your customers especially if you have the capability to provide a flexible platform.

Did you inform them?

My nightmare if I were in your situation, would you be sitting with somebody five years from now and they say, “George, why didn’t you tell me you had the capability to put me on a more flexible platform?! Because now I’m going to have to … in half of the useful life that I typically would give for patient monitoring … I’ve got to switch off and go to some significant other upgrades or changes because of that.

Department level managers do not see a lot of this yet because they are being asked to pay attention to the day-to-day but it’s the true service-line managers that are the new general managers, and they go across many of these departments.

They typically are dealing with five, six, seven different departments and they become important in this discussion because they are sophisticated, they typically are at the leading edge, they are in all the senior staff meetings, and they are the ones that give this typically the strongest discussion and arguments of looking at the bigger picture of how do I invest more? Because they are going to ultimately pay for the investment, their allocation of the cost of that asset comes to them; they are a piece of it.

There is like three or four service-line managers in bigger institutions that work with special care departments and the OR, ER etc. Portions all of those costs are coming back to them so they have typically an ultimate above a department level manager ultimately in the overall decision as they influence the Board, as they influence the senior executives. They need to be the ones and they’re more accessible typically than if we need to go to the C-level (and there can be a pathway to the C-level) but they’re looking at it on a business level and cost truly does appeal to them.

That is their job is to balance those three. That is their role is to balance between clinical operation and financial because ultimately they’re held to a net cash flow number, EBITDA is that number they’re shooting for and that means they have to not only get the reimbursements they are due but they have to continually work on lowering operating cost.

They know that that does not mean buying cheap stuff. The quality and the lower cost of operations and they lowered cost of producing the evidence needed now in these models is based upon buying the high-priced because I get better quality, I get better return, I get more reliability etc. etc. They are the ones that gets that, they get it.

If I’m a department manager and being held strictly in the way that I’m reviewed in my performance etc. to an operating budget, to a capital budget then, you know, I love you buddy, but I’m not going to buy your stuff because I can’t afford it. I’m going to buy the cheap Chinese knockoff because I’ve got to make it another day.

In this period the next couple of years there’s going to be an interpretation of lowering cost on the part of materials management and in many cases where department managers is to buy more cheaply. But, in reality, they need to look at doing exactly the opposite and buy more flexible platforms that are going to yield cost savings and better evidence over these next five, six, seven years.

Same thing with patient monitoring.

Is it really cost effective to buy the cheaper version, the less expensive version?

It helps right now but we don’t even know what criteria in the next three phases of meaningful use over these next eight years, we don’t even know what that is.

We really don’t even know what the remaining number of core measures are going to be beyond the current level we have. We’ll have somewhere around 70 released upon us but we don’t really know what they are and that’s going to dictate the evidence we’re going for so we need to be flexible.

You need to make sure your customer understands that.

Now they can go ahead and buy what they’re going to buy, I just want to make sure from my credibility … you hear me out on this and I won’t reserve “I told you so” (well maybe I will reserve “I told you so” right as a sales person) … but basically I need you to know this, it’s my responsibility to let you know that you need this kind of flexibility, will you get it from us or any other one of the quality vendors out here?

TIGI can train your sales organization on this and many other topics to help you close more business.