Promoting Quality With Value-Based Purchasing

The seemingly disparate parts of healthcare reform are unified by a singular focus on increasing the quality of the U.S. health system. Reform legislation affects providers’ daily activities through its many incentive programs, payment reforms and penalties, all of which hinge on quality processes and outcomes. Therefore, improving the financial health of organizations starts by addressing quality deficits and promoting quality improvement.

Before one can credibly attempt improvement, quality must be defined in terms of both dimension and scope. At its most basic level, quality improvement must consider the value-based purchasing orientation of the Centers for Medicare and Medicaid Services (CMS), and its implicit and explicit goals for quality improvement. To CMS, quality has three dimensions: outcomes, patient experience and cost efficiency.

The scope of quality in each of these dimensions is broad. Quality outcomes measurement is currently structured to include acute-care episodes as well as care transitions from non-acute and to post-acute settings. Patients’ engagement and their perspective on the care they receive also encompass extensive and sensitive measures of quality processes. Patient assessment metrics in the HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) survey include specific as well as global indicators that are prompting providers to focus on delivering a seamless experience—something that cannot be achieved without diligent management of processes. Finally, cost efficiency as reflected by the average cost per Medicare beneficiary also is a broad quality measure, composed of the overall cost of care delivered in the acute-care setting, readmissions and, soon, across the broader health system.

Supply chain management, by improving the operational efficiency of providers, has a meaningful role to play in helping organizations cope with the challenges created by the new value-based incentives.

All of these incentives have materialized in the continuous stream of payment system reforms. Consequently, the effects of health insurance exchanges, increases in Medicaid coverage and private payer reimbursements increase the complexity of revenue cycle management. However, the aspects of reform that can benefit from supply chain management efforts are distinct from payment changes. Supply chain management, by improving the operational efficiency of providers, has a meaningful role to play in helping organizations cope with the challenges created by the new value-based incentives.

The operations-relevant effects of the value-based purchasing orientation are manifest through the various programs contained in the Patient Protection and Affordable Care Act of 2010. These programs can be summarized by five rings:

Ring 1: The Value-Based Purchasing Incentive Program

Ring 2: Readmission Cuts

Ring 3: Continuation of Health IT

Ring 4: Bundled Payments (Gain Sharing)

Ring 5: Accountable Care Organizations (Shared Savings)

In this column, we’ll focus on the first two rings and their implications for supply chain managers.

Ring 1: Value-Based Purchasing Incentive Program

Value-based purchasing is underway and expanding. Healthcare managers have had to confront the fact that incentive payments for Federal Fiscal Year (FFY) 2014 (October 2013–October 2014) were based on quality performance measurement from July 2011–June 2012, as compared to baseline performance from the same period the year prior. Therefore, Medicare payment incentives are most affected by “quality improvement momentum‚” where historical improvements yield benefits.

Current improvements to quality performance, outcomes and patient experience affect payments for FFY 2015 (through October 2015). Overall performance is based on a mixture of metrics. While 2015 payments are heavily based on core measures and patient satisfaction for calendar year 2013 (compared to calendar year 2011 baseline performance), the relative performance and share of 1.5 percent of Medicare payments withheld or recouped by a facility is contingent on other measures added to the list. These include performance on historical Agency for Healthcare Research and Quality (AHRQ) Patient Safety measures through October 1, 2012; hospital-acquired bloodstream infection occurrence rates from February to December 2013; and spending per Medicare beneficiary from March to December 2013.

The list of payment incentives is expected to expand between now and October 2015. No single metric or improvement will do; only a comprehensive quality improvement approach will help provider organizations be top performers. As provider organizations confront the imminent increases in incentives for value-based purchasing performance, it’s imperative that supply chain managers be engaged in the process. The supply chain’s work of providing safe, effective and efficient supplies and services—from modern ports and catheters to patient transport, communications and monitoring equipment—is essential to the process of continuous quality improvement. Patient kits and the avoidance of stock-outs and delays improve not only satisfaction, but also the ability to avoid harm.

Ring 2: Readmission Cuts

Readmission penalties, associated with proportionally high levels of avoidable readmissions, are affecting provider reimbursement. National performance benchmarking is in play under this program, and public reporting is becoming more granular and transparent. When the national rankings were first released, many facilities were surprised by their performance and some successfully appealed their rankings. Most, however, suffered either a small or negligible penalty. For some facilities, the up to 1 percent of Medicare reimbursement “clawback” (inappropriate payments that Medicare auditors take back after review) was a fiscal reality, and they redoubled their efforts to avoid readmissions. And those penalties are tougher now, having risen 2 percent in FFY 2014.

Improving patient compliance and communication should become a priority for those managing supplies and services before a patient is discharged.

The readmission rule is evolving, and the definition of “avoidable” will become more strict and potentially damaging. Therefore, improving patient compliance and communication should become a priority for those managing supplies and services before a patient is discharged. Supply chain managers can look to the way pharmacy, dietary, patient transport and nursing work together to streamline the patient discharge process, which can help patients manage their at-home care after a hospital stay. The marketplace now is full of innovative solutions with demonstrated ability to reduce readmissions.

Healthcare reform is forcing managers to consider the proximal as well as more remote consequences of the procurement and delivery of supplies and services. Quality, satisfaction and cost all are connected. Today’s supply chain managers must think on an enterprise level to ensure executive engagement, sponsorship and recognition of the value that’s delivered on a daily basis.

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Author Information

Gunter Wessels, PhD

Wessels is a partner at Total Innovation Group Inc., a consulting firm specializing in healthcare. Clients of his firm include policy makers, payers, providers, group purchasing organizations and supplier companies, both in the United States and internationally. More Articles by This Author »