Lowering the Cost of Value

One of our three healthcare revolutionary mantras here at 4sight Health is “value rules.” The other two are “outcomes matter” and “customers count.” Creating value, i.e., producing better outcomes for less cost, is an important step to “build better healthcare,” which is our new call to action.

A new study is out that suggests that building better healthcare by creating value will cost us more, not less, if we don’t learn how to be more efficient.

Three researchers from Brown University’s School of Public Health wanted to know how much hospitals spent to participate in mandatory Medicare value-based reimbursement (VBR) programs by the Centers for Medicare and Medicaid Services (CMS). The three programs are the Hospital Value-Based Purchasing (HVBP) program, the Hospital Readmissions Reduction Program (HRRP), and Hospital-Acquired Condition Reduction Program (HACRP). They also threw in the voluntary participation Comprehensive Care for Joint Replacement (CJR) for fun.

The study compared the administrative costs of 2,820 hospitals that participated in the three mandatory programs (HVBP, HRRP and HACRP) with those of 1,512 hospitals that didn’t because of various program exemptions. It compared administrative costs of 357 hospitals that participated in the voluntary bundled payment system (CJR) with 2,039 hospitals that didn’t because they apparently didn’t want to bundle.

The study period was 2006 through 2020. The researchers defined “administrative costs” as the total of expenses attributed to administrative and general, nursing administration and medical records reported by the hospitals on their annual Medicare cost reports.

Here’s what they found:

• Hospitals participating in the mandatory HVBP, HRRP and HACRP programs spent an average of $850,000 more per year in administrative costs compared with non-participating hospitals.
• Hospitals participating in the voluntary CJR program spent an average of $1.4 million per year in administrative costs compared with non-participating hospitals.
• The total annual administrative costs of participating in all the programs for all the participating hospitals was more than $3 billion nationally.

The researchers said, “These findings suggest that hospitals may have expanded administrative staffing and workflows to meet the requirements of value-based payment programs, including reporting, care coordination, data management and analytics, and clinical documentation and risk adjustment.”

Hospitals spent more to achieve better outcomes. That’s not value. Value is spending less to get better outcomes. What happened is called inefficiency. Both sides of VBR equation — payer and provider — are to blame. Complex and complicated quality measures and reporting requirements on the government’s part. Throwing more money at compliance and reporting on the hospitals’ part.

It’s easy when you can just pass the buck on to taxpayers or patients. You don’t have to think too much about it when someone else is paying. That someone is the customer.

If you believe that customers count, then payers and providers need to stop counting on us to pay more for better quality and service. We’re running out of money. Get your value act together. We can’t afford it anymore.