What a Value-Based System Looks Like and How to Get There

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RealClearHealth recently spoke with Dr. Rita Numerof, who co-authored the new book, Bringing Value to Healthcare: Practical Steps to Getting to a Market-Based Model, with Michael Abrams. In their book, Numerof and Abrams highlight the current challenges facing doctors, hospitals, insurers, and consumers -- and then provide a road map of actions that must be undertaken by each of these parties to get to a more transparent, accountable, and efficient health care system.

We discussed the authors’ vision for a better health care system, and what role policymakers and regulators could play in making the market-based system they envision a reality. Our interview follows:

RealClearHealth: You start the book with a vision of a better functioning, lower-cost health care system--can you briefly describe what this looks like?

Dr. Numerof: The irony is that we don’t even need to look outside the health care system to find examples of how a true, market-driven model can work. Lasik surgery and cosmetic dermatology both demonstrate the potential of a new business model focused on value. These procedures usually are not covered by payers, which means that more traditional market dynamics consistent with other consumer industries are at work. Unlike the usual health care situation in which the patient has no line of sight to costs and little or no information about quality, patients are told what the price is for these elective procedures. They also are able to compare providers and their services to find what they consider to be the best quality at the lowest price.

One impact is that competition and technology lead to demonstrable improvements in both cost and quality. Fifteen years ago, corrective eye surgery (radial keratotomy) cost approximately $8,000. Lasik surgery, using newer laser technology, has improved patient outcomes, reduced recovery time, and now costs approximately $2,000 per eye. Lasik surgery and cosmetic dermatology providers must compete for patients’ business and, as a result, these providers typically offer greater convenience, lower prices, and innovative services unavailable in traditional clinical settings. 

RealClearHealth: Primary care physicians serving as a gatekeeper to further care has been part of managed care efforts such as Point of Service insurance plans for quite some time. How is your concept of a primary care “quarterback” different?

Dr. Numerof: It’s about care coordination rather than care limitation. If we make the primary care physician’s office just a place to get your ticket punched to see a specialist, then all we’ve done is make that person a gatekeeper. That helps to hold down costs, but it doesn’t improve care.

Even in the value-based system we envision where consumers are more engaged in the decision making process, health care will remain complicated. Patients will still need someone they can trust to provide advice and direction. Primary care physicians — the doctors we see for years, not just when there’s an emergency — are best positioned to play that critical role.

RealClearHealth: You talk a lot in the book about consumer-centered care. This relies on consumers being able to shop around and to make optimal decisions after doing so. Consumers haven’t seemed to show an interest in shopping so far. Is this a case of “build it and they will come?” How do we create an environment where consumers are wiling and able to shop?

Dr. Numerof: It’s not about interest. It’s about ability. Right now, we have a system for most of health care that isn’t transparent, isn’t accountable and isn’t competitive.

A couple years ago, Numerof & Associates was engaged by a client to conduct “mystery shopper research” to evaluate pricing and transparency regarding a cancer treatment: stem cell transplant (SCT). We targeted top-rated national and regional cancer institutions to benchmark our client against others based on cost, treatment scope and outcomes.

What we found is that most facilities either wouldn’t — or couldn’t — provide any meaningful information about costs. While this is understandable due to many unknowns (cancer type, staging, protocols, health status, etc.), patients who want to make a decision about where to be treated have almost no ability to “shop around” for the best option.

To make patients into consumers, they need to have data that’s understandable and relevant for their needs. From the consumer side, this is the key issue in getting to a functioning health care market.

RealClearHealth: Is it realistic to think that payers and providers will move toward your vision on their own, or will policies/regulations need to be changed in order for them to do so?

Dr. Numerof: A bit of both. Clearly, the relationship between payers and providers has long been adversarial. Providers are quite comfortable with the fee-for-service model that pays them for quantity of care, rather than quality. They also have gotten very good at gaming the reimbursement system in ways that shift costs to payers.

On the flipside, providers are frustrated when their attempts to innovate and find more effective ways of treating patients and caring for an entire population are rebuffed by payers tied to their existing reimbursement systems. During our recent population health survey of U.S. health care delivery organizations, more than a third of respondents reported that payers weren’t even “somewhat willing” to engage with them in this area.

We are seeing the first tentative steps to developing partnerships that can bring innovative treatment pathways, accountability for outcomes, and a willingness to accept payment outside the typical adjudication system. But we probably won’t get 100 percent of the way there without some intervention — at least in the timeframe we need.

RealClearHealth: Where is greater government intervention needed and where does is need to be reined in?

Dr. Numerof: ACA established a bureaucratic labyrinth of new organizational structures, regulations and incentives. Rather than developing the capabilities and culture needed to accelerate the move toward better outcomes at lower cost, providers and payers have been compelled to invest in new staff and technologies to comply with new regulations.

On the provider side, this effort spawned a flood of consolidation, with health care delivery systems buying or affiliating with other systems, and physicians seeking refuge in employment from proliferating bureaucracy. The FTC’s efforts to constrain this trend have been limited at best. The gravest danger we face as a nation is that all these systems become too big to fail – and, more importantly, too big to care.

We get into trouble when government is overly prescriptive with solutions. Instead, we need policy makers to help establish the fundamentals needed for a market-based, patient-centric system: transparency, accountability for outcomes that matter, educated consumers that know how to judge value in health care, and a payment system that focuses on keeping people healthy and out of the hospital. Then we need them to get out of the way so patients, providers, payers and manufacturers can work together to achieve cultural changes within the industry, behavioral changes within individuals, better outcomes, and sustainable costs.

RealClearHealth: What role could states play in moving towards a better value health care system?

Dr. Numerof: The virtue of the federal system is that we don’t have to take a “one-size-fits-all” approach to reform. States have a role as policy laboratories for new approaches to reform. When we did our population health survey, we found clear regional differences in the progress that’s been made.

Most notably, providers in New England — where there have been significant efforts by state governments to transition to value-based models of care — are typically much further along than those in other parts of the country.

Rita E. Numerof, PhD, is president of Numerof & Associates, a firm that helps businesses across the health care sector define and implement strategies for winning in dynamic markets

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