Challenges in Moving from Volume to Value

Our health care system must improve quality while reducing the cost of care. There is near-universal agreement that, to do so, we must move from fee-for-service reimbursement to paying for the value of care received.

Yet, despite the fact that the idea of “volume to value” has been around for a decade or more, it is not yet the norm. That means too many patients are not getting the care they need, and our health care system has become too expensive.

To be sure, over the past decade, the government has taken steps to encourage, suggest and test ideas to help the system move from volume to value. The private sector has done its part, using outcome-based pay for doctors and hospitals at a rate far higher than just a few years ago.

But Medicare is the 800-pound gorilla. As Medicare goes, so goes the rest of the system, and Medicare has yet to fully embrace this change, even though it has been a stated goal of the Centers for Medicare and Medicaid Services and the Department of Health and Human Services for over a decade. A new payment system — MACRA — is not enough because it relies on voluntary participation.

One of the biggest obstacles has been policies that push in the other direction — namely the Stark and anti-kickback laws. These laws support a world where fee-for-service was the norm and served the noble purpose of deterring and preventing fraud and theft. But the laws act to restrain new value-based care models and have not been modernized to reflect a volume-to-value system. We believe these laws must be modernized to support the volume-to-value transition, while preserving their original intent.

Here’s the issue. Last year, the headlines were filled with patients suffering infections from the device used in their colonoscopy. In a fee-for-service world, device manufacturers sell endoscopes, period. Any further transactions of money from the manufacturer to the provider would be a kickback — evidence of market manipulation.

In an outcome-based world, the device manufacturer could bundle the endoscope with services to help ensure best practices and an outcome warranty where the manufacturer would cover the cost of any resulting infection. This arrangement could be viewed as violating anti-kickback laws.

One solution is for the manufacturer to seek a safe harbor from CMS. But it would be better if these rules were clear and not ad hoc. Organizations should not devote efforts for safe harbors for specific actions from CMS or HHS’ Office of Inspector General, but instead should be able to enter value-based contracts that they know will not break the law. Our health care system is too complicated to operate in an ad hoc fashion, especially if we want a modern system that responds to the medical needs of today’s patients.

Changes must make the guidelines and guardrails clear and unambiguous. Speculating whether something is legal should not be the norm.

The laws also impede a key element of the volume to value transition — the principle of care coordination. When a patient has multiple illnesses — and especially if one is a chronic disease — having a primary physician or care coordinator oversee the treatment plan is critical to outcomes and the cost of care. If there is no care coordination, health risks can arise, including duplication of tests; the implementation of contradictory treatment plans; the wrong treatment; and the prescribing of drugs with dangerous interactions.

To accomplish this level of coordination requires that entities communicate and contract with one another, best practices be adopted and implemented, and the relationships between health organizations, physicians, nurses, hospitals and device and drug manufacturers are strong. But that also means directing the patient to particular hospitals, doctors and care.

Both laws complicate the ability of insurers, hospitals, device and drug manufacturers, physicians and others to do exactly that, and thus engage in value-based contracts. As illustrated above, the complication arises because value-based agreements can be viewed as inducing providers to engage in specific practices and not exercising their best judgments. That is, they get paid more if they prescribe a certain drug or use a certain device or send a patient to a specific hospital or clinic. To mitigate this and allow for value-based contracting, Congress and CMS should clarify and update the safe harbor provisions that would allow volume-to-value to be more widely adopted.

The good news is that HHS has begun a systematic examination of the Stark and anti-kickback laws by issuing a series of requests for information asking for comment on barriers to coordinated care. But Congress should act to ensure these relationships and activities continue to develop by modernizing the Stark and anti-kickback laws. If Congress acts, we can shift our health care system toward value-based reimbursement and away from the current volume-based system. This will improve health outcomes for individuals, while also moderating costs.


Doug Holtz-Eakin, Ph.D., is the president of the American Action Forum, and previously he served as director of the Congressional Budget Office and as the chief economist of the President’s Council of Economic Advisors.

Ken E. Thorpe, Ph.D., is the Robert W. Woodruff Professor and Chair of the Department of Health Policy and Management in the Rollins School of Public Health of Emory University, Atlanta, Georgia, and previous to his work in academia, he was an appointee at the Department of Health and Human Services as a deputy assistant secretary for health policy.

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