Value-based payments promise better care and lower costs, but progress has been frustratingly slow

Published on
November 29, 2016

In health care today, it’s become a commonplace to talk about shifting from “volume to value,” which entails changing incentives so that hospitals and physicians are rewarded for quality of care over quantity of services delivered. “Value” weighs health care services based on the outcomes they produce for the price they charge.

Both employers and government purchasers of health care want to move from a fee-for-service system to a value-based one. As part of that shift, the idea of a “bundled payment” for care has become increasingly popular. The federal government recently launched an initiative, the Healthcare Payment Learning and Action Network (LAN), to encourage the private and public sectors to work together on new payment models. For maternity care, one of the areas of focus, the network outlined 10 elements for a pregnancy and maternity episode payment in a recent white paper.

Maternity care is an ideal area for rapid progress in payment reform. First, it’s a very common service. Americans deliver 5 million babies annually and some employers experience a birth every hour in their workforce. Second, we’ve seen an escalation in unnecessary interventions and unexplained variation in outcomes. In the United States, more than one-third of births are delivered via caesarean section, a rate more than 50 percent higher than 20 years ago. Even more concerning, the proportion of moms undergoing C-sections varies remarkably by facility, even when controlling for common risk factors. In California, hospitals’ C-section rates range from about 11 to 80 percent. Finally, we sometimes forget that C-sections are major abdominal surgeries. And the increasing rates of unwarranted C-sections have correlated to a rise in maternal hemorrhage and death. Maternity care affects a lot of people, incurs a lot of costs, and has a lot of room for improvement.

There are ways to increase value in maternity care — either by improving quality, reducing cost, or both. Using more midwives, for example, can help to reduce pre-term birth and inappropriate C-sections and improve patients’ experience. Reducing C-sections and sick babies will also help lower costs.

So how will bundled payment help? In a bundled payment arrangement, health plans make one payment for the entire pregnancy episode – they no longer pay separately for each discrete service provided during pregnancy and delivery. Payments are contingent on achieving good outcomes, but it doesn’t tell providers how to deliver care to achieve those good outcomes. As a result, they’re encouraged to provide whatever care will deliver the best outcomes, whether that involves hospitals, obstetricians, midwives, doulas, or birthing centers.

For example, our organization has supported this kind of payment change in several California hospitals, and when coupled with related efforts to provide more data and support to physicians, we have seen 20 percent reductions in unnecessary C-sections in six to 12 months.

Today, small pilot projects are underway to test select elements of the value-based model for maternity care – as well as for other clinical services.  The boldest efforts are being launched by state Medicaid agencies, but such state innovations are generally not being mirrored by commercial health plans.

The shift to value-based payment has been slow for a number of reasons:

  • Physicians and hospitals like things the way they are. No one is held accountable for total costs (hospitals profit when performing C-sections) or for the rates of unnecessary procedures, and individual employers typically have little clout with their local hospital or obstetrics group. Health insurance companies see no reason to create conflict with their large, marketable network of physicians and hospitals by changing how they pay for care. 
  • This new model poses logistic challenges for providers: In a bundled payment arrangement, the payer gives a lead clinician or a “quarterback” a lump sum who is then responsible for allocating payments to various providers: nurses, midwives, doctors, hospitals, and pediatricians. This arrangement is a significant business challenge that few physician organizations or hospitals are willing or able to tackle. 
  • Difficulty changing payment mechanisms: Insurance companies today pay individual claims for individual services during the maternity episode – office visits, ultrasounds, hospital days, medications – and their computer and accounting systems are designed this way. In the new model, insurance companies will make a global, one-time bundled payment. That requires new systems that bypass the fee-for-service payment systems used today.
  • Lack of quality measures and data that reflect meaningful outcomes: To be fair to physicians and hospitals, payment should reflect the difficulty of serving various types of patients — whether due to clinical factors, the prevalence of other conditions, patient age and birth history, or socioeconomic factors. Health care purchasers want to know and tell employees which hospitals and doctors are providing higher quality maternity care, getting better results for patients, and reducing inappropriate C-sections. However, these data are still not generally available. Although many hospitals collect and report such demographic and risk information to a national quality organization, they do not make it public.

How can regional reporters tell this story to their readers?

  • Report on the broken payment system

Publish data on total births and C-section rates by hospital. How does any given hospital compare to others? When reporting on outcomes or the failure of the health care system to meet the needs of patients, note that our health care payment system will remain broken as long as we’re paying for care that incentivizes quantity over quality.

  • Talk to those in the trenches

Talk to providers to see what changes they would like to make in how care is delivered and reimbursed. Are those changes underway? How long until we will see an impact on the quality and cost data? How will we know if these changes are helping families and slowing the growth in health care costs?

Maternity care is one small slice out of our massive $3 trillion health care system — and it’s far less safe and more expensive than it needs to be. We could tell a very similar story for heart disease, back surgeries or asthma. Health care industry leaders know how to fix the system, but are doing little to make it happen. It’s well past time that we asked the people responsible for paying for health care to hold the system accountable and demonstrate that positive changes are underway.

David Lansky is the president and chief executive officer of the Pacific Business Group on Health.

Additional resources:

Purchaser Value Network

Maternity Toolkit: Reducing Unnecessary C-sections