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Customer Experience and Design

Taking back the reins: Value-Based Purchasing in Healthcare

In a period of rapidly rising costs for healthcare and nagging questions about whether paying more for healthcare results in higher quality outcomes, purchasers of healthcare are looking for tools to measure, monitor, and improve the quality they are receiving for the health care dollar spent. Although there are numerous ways purchasers have approached these tasks, they have been collectively termed value-based purchasing (VBP). As the Agency for Healthcare Research and Quality states in their excellent article on value-based purchasing:

“One of the unique aspects of health care in the United States is the manner in which it is financed. Unlike many other countries, the United States does not have a publicly administered universal insurance program. Instead, health care is financed through a multitude of public and private insurance programs administered by purchasers. In the United States, the primary group purchasers include Medicare and Medicaid for public health care programs, and employers and purchasing cooperatives for private health care programs. Purchasers are defined as follows: “Purchasers” are public and private sector entities that subsidize, arrange and contract for–and in many cases bear the risk for–the cost of health care services received by a group of beneficiaries.

At the same time, a growing body of evidence suggests that a significant percentage of the money that employers and other purchasers are spending on health care pays for poor quality in the form of overuse, misuse (e.g., medical errors), and waste (Midwest Business Group on Health et al., 2002; Kohn et al., 2000). For example, according to a study by the Midwest Business Group on Health, the Juran Institute, and The Severyn Group, a conservative estimate of the direct cost of poor quality care for employers would be $1,350 per employee per year, while the indirect cost of poor quality care, including lost time and productivity, is at least $340 per employee per year (Midwest Business Group on Health et al., 2002).”

There are several options for purchasers of healthcare to tackle value-based purchasing: 1) create the IT systems necessary to measure, monitor and evaluate spending or 2) put pressure on their healthcare organizations to provide the VBP reporting to make better decisions on the products offered to employees or government program recipients. With at least 153 million American workers and their dependents receiving health insurance as an employment benefit, and employers spending $4,164 per employee on health benefits, it is past time to put metrics in place to determine the value of that spending. Value-based purchasing is a great business intelligence application where dashboards can be created to monitor the key quality metrics of healthcare services including patient satisfaction to modify purchasing plans.

The Centers for Medicare and Medicaid Services have a Hospital Value-Based Purchasing (HVBP) program designed around the second option where hospitals, clinicians and other healthcare stakeholders can share in financial incentives with CMS’ through reporting key quality measures. One of the interesting aspects of the CMS HVBP program is the focus on both clinical care measures and the patient experience of care. Hospitals seeking financial incentives will have to complete at least 100 Hospital Consumer Assessment Healthcare Providers and System (HCAHPS) surveys during the Performance Period receive a Patient Experience of Care domain score and it accounts for 30% of the overall HVBP score. Hospitals are given points for achievement and improvement for each of 12 clinical measures or HCAHPS dimensions. The key is that hospitals will have to put healthcare business intelligence systems in place to track their HVBP benchmarks and performance.

If you want to learn more about HVBP, I will be hosting a webinar on May 22, 2013 at 2:00 p.m. Eastern with Harshad Patil, Lead HIE Consultant at CitiusTech, Inc. We will share our perspectives on how providers can leverage advanced analytics to identify non-compliant processes and compute the prospective reward/penalties, with a goal to achieve continuous improvement. Our plans for the 60 minute webinar are to provide an overview of HVBP including the structure of HVBP, performance score calculation and incentive payments, key challenges to HVBP, and a demonstration of an analytics solution for HVBP. Please join us by signing up at

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Martin Sizemore

Enterprise Architect with specialized skills in Enterprise Application Integration (EAI) and Service Oriented Architecture (SOA). Consultant and a trusted advisor to Chief Executive Officers, COOs, CIOs and senior managers for global multi-national companies and healthcare organizations. Deep industry experience as a consultant in manufacturing, healthcare and financial services industries. Broad knowledge of IBM hardware and software offerings with numerous certifications and recognitions from IBM including On-Demand Computing and SOA Advisor. Experienced with Microsoft general software products and architecture, including Sharepoint and SQL Server. Deep technical skills in system integration, system and software selection, data architecture, data warehousing and infrastructure design including virtualization.

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