Gaining perspective on Secretary Burwell’s `value purchasing` initiative

Early this year, U.S. Department of Health and Human Services Secretary Sylvia Mathews Burwell announced a value purchasing (VP) initiative. This was the first step in a planned effort to move away from today’s encounter-based payment system toward case rates adjusted for level of performance.

The secretary also set very aggressive goals for the initiative: conversion of 50% of federal Medicare funding to VP by the end of 2016, and 90% by the end of 2018. Although she did not specifically address Federal Medicaid funding, her intent likely would by a similar conversion of federal Medicaid funding to VP, in collaboration with the states.

If one reasonably assumes that such changes actually will occur as the secretary envisions, then we must explore the very significant implications that these developments will have for the behavioral healthcare field.

Initially, we need to describe a few key concepts. A case rate is a per person payment for a specified period of time for the care to be received by a defined population of service recipients, e.g., $1,000/person for a 12 month period for 5,000 service recipients. This case rate payment usually is made prospectively before care is delivered. It may be a blended rate, e.g., $500/person for 2,500 service recipients requiring less intense services plus $1,500/person for 2,500 service recipients requiring more intense services. Performance adjustment means increasing or decreasing the case rate by some predetermined amount contingent upon actual performance reflected through performance measures.

Although also of potential relevance here, the concepts of risk corridors and reinsurance are beyond the scope of the current discussion.

The case rate for behavioral healthcare may be carved in or integrated, that is, one case rate for all behavioral and physical healthcare provided. Alternatively, the behavioral healthcare case rate may be carved out, that is, a separate case rate for behavioral healthcare and another for physical healthcare. Current national developments under the Affordable Care Act clearly suggest a federal effort to move toward carved in or integrated case rates for behavioral healthcare and away from carved out case rates. Appropriate performance measures will be an important tool to protect behavioral healthcare as these changes occur.

The following represent some of the guideposts we will need to follow as behavioral healthcare prepares for payment through case rates:

Essential Financial Infrastructure. Development of a case rate requires good financial data on fixed costs, e.g., mortgage payments for a building, and variable costs, e.g., staff hours, as well as measures of typical per person utilization of care and availability of appropriate technology for conversion of these data into case rates.

Key Adjustment Factors. Several key factors in determining a case rate could include service population heterogeneity, labor market costs, and community service infrastructure. If the service population is very heterogeneous, one will need to produce average use patterns by intensity of service use, e.g., low, moderate, and high, and then compute an overall blended case rate. In urban areas, labor market costs for service delivery may be higher; in more rural areas, somewhat lower. Also, alternative sources for delivery of services may be readily available in urban areas , implying lower case rates; in rural areas, such parallel infrastructure may be nonexistent, implying higher case rates.

Performance Measures. As a general principle, performance measures to be used for increasing or decreasing case rates should reflect actual client outcomes. They also should relate directly to the interventions delivered as part of the service package, e.g., measures of client tenure in employment, if employment interventions are provided. Performance measures should not be based purely upon service processes, e.g., reduced use of inpatient care.

Benchmarking. Particularly in the early stages of case rate development and implementation, it will be exceptionally important to benchmark case rates and outcomes against those of other systems in the local service market. Benchmarking will provide information to determine whether case rates are too high or too low, and whether client outcomes to be used to adjust case rates are achievable or not.

As we begin to prepare for the era of performance-adjusted case rates, we also must recognize that our philosophy of care delivery must change. For many decades past, delivery of more care equated to more income. In the approaching era, delivery of better quality care will equate to more income. This transition will constitute a dramatic and radical change.

Clearly, our future will be both exciting and challenging.