Scott MacStravic, PhD
A major topic of presentations and discussions at the recent World Healthcare Congress in Washington, DC Apr 22-24, was the move to “value-based” purchasing and benefit design among employers and insurers. The focus of this movement is on explicitly measuring and continuously improving the value of what third-party payors are getting when they buy, or at least pay for, healthcare. There were three different “sizes” for this trend: small, medium and large.
The small size relates to payors’ policies and practices with respect to prescription drugs. This includes careful analysis of the value of different brand-name and generic drugs with respect to their impact on healthcare costs, employee health and performance, with deliberate efforts to promote selection of and adherence to those drugs with the most value, to both payors and patients. And it often involves explicit promotion of selection and adherence through reducing or eliminating the deductibles and co-payment barriers to patients’ purchase and use of these best options.
The medium size expands the scope to full scope of health insurance in general, rather than just prescription drugs. It includes the full range of healthcare options and providers that might be chosen by patients and their physicians, reflecting the “Buy-Right” concept popularized by Walter McClure, PhD in the 1970s. Payors can use the same kinds of preferential coverage methods used for prescription drugs to “steer” employees and plan members to the treatments and providers identified as delivering the greatest value.
The large size deals with governments, insurers and particularly employers as the purchasers of heath benefits for employees, consumers, and government “beneficiaries”. It encompasses the overall investment in the health of insured populations, and how well it “performs” in delivering value to the investors. This includes how health benefits affect the performance of employees and the value this delivers to employers, as well as how insurance coverage affects this value. And it includes how payors, consumers and providers can work together to optimize the value gained by all three.
Value-Based HCO Operation
In the fullest application of VBHP, HCOs will have new challenges and opportunities. These encompass the full range of ways that individual HCOs can optimize the value they offer and deliver to payors and patients alike, in order to optimize their likelihood of succeeding, surviving and prospering as VBHP catches on more widely and moves to its greatest application. And this includes HCOs’ adoption of value-based purchasing and value chain management in order to optimize such likelihood.
In its simplest and most traditional applications, value-based purchasing (VBP) means that purchasers carefully analyze the full value of options available in the market, expanding their analysis to all options available, rather than ones with which they are already familiar. But the trend in VBP has included purchasers who engage in “reverse marketing”, engaging in “partner relationship management” with sellers in order to improve the value of what sellers offer.
Wal-Mart, for example, is renowned for its aggressive approaches to its suppliers, working with them to reduce the costs and improve the quality of what they sell, and signing long-term, high-volume purchasing contracts with them as incentive and reward for the “best” suppliers, as well as to ensure continuous delivery of the best products. This practice, when fully engaging purchasers and sellers, becomes “value-chain management” (VCM).
VCM by HCOs is rare, simply because most HCOs are tiny compared to the size of their major suppliers. But the potential remains for either very large HCOs, such as integrated hospital systems with dozens of members, or for individual HCOs with local suppliers. And HCOs may go one step further than most purchasers engaged in VCM – by offering services and support for suppliers’ efforts to improve the value of their products and services through employee health management (EHM).
HCOs may go even further, if they become masters of pay-for-performance (P4P) management of their own employees. This would enable HCOs to offer services to suppliers as part of VCM that include both EHM and P4P as proven approaches to improving suppliers’ overall performance, and the value of their products and services to the HCOs. HCOs, as employers, should adopt VBHP for their own health benefits in order to become or remain the best value option for the employers and consumers they serve. And as providers, they should strive to become the best purchasers and partners in VCM, for the same reasons.
