Performing a Check-up on Value-based Health Care

By Rita Pyrillis

Apr. 10, 2017

Value-based health care
Value-based health care in its many forms continues to gain favor among employers.

When it comes to improving employee health while managing costs, a growing number of large employers are taking matters into their own hands.

They are working directly with hospitals and physicians to provide quality health care, negotiating payment arrangements, and in some cases bucking the insurance middleman entirely and contracting with providers.

It’s part of the ongoing evolution of value-based health care, an approach that focuses on clinical value over volume and good health outcomes over cost savings. While it’s not a new concept — business services company Pitney Bowes Inc. adopted this approach in 2001 when it began waiving co-payments for drugs to treat diabetes and heart disease — interest in value-based health care is picking up steam.

The goal of value-based health care is to eliminate unnecessary care. This can be achieved through payment arrangements that encourage effective, clinically proven care at a given cost or through delivery models like accountable care organizations, or ACOs, that reward providers for good health outcomes or through so-called centers of excellence, or COEs, which specialize in certain services like hip replacements, cardiac care or telemedicine.

“When we talk about value-based health care it’s getting at something that’s been elusive to employers for years,” said Brian Marcotte, president and CEO of the National Business Group on Health, an advocacy group for large employers.

“There’s a belief that employers only care about cost but that couldn’t be farther from the truth. When you think about it, every decision an employer makes is a value-based decision — it’s how they run their businesses. It makes sense that they would take this approach to health care.”

In fact, 45 percent of large employers are offering employees access to a center of excellence, up from 37 percent in 2015, and another 32 percent are planning to do so by 2018, according to a recent study by employee benefit consulting firm Willis Towers Watson. So-called “narrow networks” with a limited number of providers that offer quality services at a lower cost are also growing in popularity. According to the survey of 600 large U.S. employers, 20 percent offer “high performance networks” today, up from 11 percent in 2015, and 39 percent of those surveyed said they might add these networks in the next three years.

While only 8 percent of employers are contracting directly with medical service providers, such as COEs, ACOs and patient-centered homes, 16 percent are considering it, according to the report.

Boeing ACO Takes Flight

One such employer is Boeing Co., which bypassed insurers to work directly with hospitals and physicians in establishing an ACO, called the Preferred Partnership. Launched in 2014, the Chicago-based aerospace company offered the option to employees in the Puget Sound area and then later expanded it to locations in St. Louis and Charleston, South Carolina.

Employees trade a smaller selection of providers for lower costs and perks such as same or next-day appointments or free generic prescription drugs.

In January, Boeing expanded the Preferred Partnership to 15,000 employees in Southern California. Today, nearly 30 percent of the company’s 54,000 eligible employees are enrolled in an ACO.

Boeing is no stranger to cutting-edge approaches to health care delivery. In 2007, the company launched a two-year medical home project for employees with chronic illnesses. The medical home concept puts the patient at the center of a team of providers who are paid extra to manage their care.

“We dipped our toe in the water of doing direct relationships in 2007 with the medical homes project,” said Jeff White, director of health care strategy at Boeing. “We wanted to do more on a populationwide basis. We were following what Medicare ACO pilots were doing. ACOs are about accountability for managing a population and asking providers to take some risks and also share in the savings.” In an accountable-care organization, providers offer coordinated care for a large population and can earn bonuses for meeting certain cost and quality targets or face penalties if they don’t. While it’s too early to provide hard data on cost savings, White said that early indicators look promising.

“Preventive care screening rates are increasing, measures of care for diabetics and other chronic conditions are improving, and the coordination of care for individuals with multiple chronic conditions is also improving,” he said.

Because they are complex and relatively new, employers have been hesitant to embrace accountable care organizations, according to Marcotte. Slightly less than one-fourth of employers surveyed by the NBGH will be offering ACOs in 2017. But that is slowly changing.

“Last year 21 percent offered ACOs so there’s a slight uptick,” he said. “Employers are trying to understand the value of ACOs. A health plan can offer an employer 150 to 200 ACOs, but how do you know what that means in terms of costs or what employees can expect from access or quality of care?”

To help employers answer some of those questions, the NBGH recently launched an ACO guide “to facilitate conversations between employers, health plans, and health systems regarding an ACO’s maturity level, structure, capabilities and ability to delivery on performance goals,” according to the guidebook.

“It’s like the early days of HMOs where there’s not a standard product so it’s hard to compare,” said Bill Kramer, executive director, national health policy at the Pacific Business Group on Health, a regional coalition of large employers. The San Francisco-based group released a toolkit in 2014, offering guidance on how to select, implement and utilize an ACO.

“Our members have been disappointed by many of the ACOs being offered so there’s some degree of skepticism out there which is to be expected at the early stages of new products. Because of that skepticism not a lot of have done direct contracting like Boeing. The ones that have are big with a lot of employees in one place. Direct purchasing is not likely to spread broadly but we can learn from what Boeing did to get great value.”

Employers seem wary of adopting ACOs, but they are embracing centers of excellence, according to the annual “Best Practices in Health Care Employer Survey” by Willis Towers Watson. In 2016, 45 percent of employers offered employees access to COEs for specialty services, up from 47 percent the previous year, and another 32 percent plan to do so in 2018, according to the report.

Pioneers of this model, like giant retailers Wal-Mart and Lowe’s, inspired the PBGH to launch a national network of COEs in 2014. The network, called the Employers Centers of Excellence, focuses on elective procedures, including hip, knee and joint replacement surgeries. It offers business group members access to four clinics across the United States: Virginia Mason Medical Center in Seattle; Mercy Hospital in Springfield, Missouri; Kaiser Permanente in Irvine, California; and Johns Hopkins Bayview Medical Center in Baltimore.

The home improvement chain reported $1.6 million in savings for total joint replacement care in 2014, according to a company spokesperson.

Employers are watching these efforts closely as they try to understand how value-based health care can help them manage costs and improve employee health, according to Julie Stone, a consultant at Willis Towers Watson.

“There’s wide variation on what is value-based health care,” she said. “Employers are trying to understand what’s substantive and what’s superficial and where there really is quality improvement. Are they willing to make choices for vendor selections that could seem disruptive to employees — like narrow networks? They are looking for evidence.”

Stone urges employers to examine their culture and HR goals to make sure that a value-based approach supports them. If they decide to proceed, employee communication will be critical in any program’s success, she said.

“To move the needle on value-based initiatives you need to invest the time in education so they understand why you’re making a change and how individual employees will benefit from it,” Stone said.

Another hurdle for employers eyeing a value-based approach is the rapid growth of high deductible health plans paired with health savings accounts. They are incompatible with a value-based approach, according to Mark Fendrick, director of the Center for Value-based Insurance Design at the University of Michigan.

Current Internal Revenue Service regulations cover certain preventive services before the deductible is met, however many value-based services used to manage chronic illnesses are not covered, according to Fendrick. In July 2016, the House of Representatives introduced a bill that allows a health plan with no deductible for chronic disease management to be treated as a high-deductible health plan for purposes of health savings account eligibility requirements.

In the meantime, value-based health care is growing in the public sector with states such as Oregon and Vermont and the federal Medicare and Medicaid programs embracing the concept. In January, Vermont became the first state in the nation to move to an all-payer ACO, covering Medicare, Medicaid and all commercial payers who are required to participate.

Also this year, the Centers for Medicare and Medicaid Services launched a Medicare Advantage plan that uses a value-based approach by lowering out-of-pocket costs for specified services. Called the Medicare Advantage Value-based Insurance Design Model, it is a five-year demonstration program that will run in Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania and Tennessee. Starting in 2018, CMS will also test the model in Alabama, Michigan and Texas.

The model focuses on Medicare Advantage members who have diabetes, congestive heart failure, chronic obstructive pulmonary disease, past stroke, hypertension, coronary artery disease or mood disorders. Beginning in 2018, CMS will also allow benefits for enrollees with dementia and rheumatoid arthritis.

And in December, former President Barack Obama signed a 2017 bill calling for a $619 million pilot program to test the feasibility of incorporating value-based design in TRICARE, the health care program of the Department of Defense.

Kramer of the PBGH is disappointed that private employers have been slower to adopt value-based principles, but he is hopeful that they will catch on.

“There’s no question that we need better value-based purchasing tools and wider adoption of value-based strategies,” he said. “It appears that costs are beginning to increase more rapidly again and employers feel a tremendous sense of urgency to make sure their benefit dollars are being spent wisely. I would expect to see a push for value-based purchasing strategies, not just alternative payment models, like bundled payments and ACOs, but also for things that push the delivery system to change, like new care models. We have a lot of work to do. We need to keep our foot on the gas.”

Rita Pyrillis is a writer based in the Chicago area. Comment below or email

Rita Pyrillis is a writer based in the Chicago area.

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