Shifting From Volume to Value: Opportunities and Challenges for the Field of Orthopaedic Surgery.

Abstract

CURRENT STATE OF THE UNITED STATES HEALTH CARE SYSTEM For decades, health care expenditures in the United States have steadily risen, consuming an increasing percentage of gross domestic product (GDP). Meanwhile the United States has outpaced other industrialized nations with approximately 18% of US GDP currently appropriated to the health care sector. This figure has increased every year since the 1960s, and is projected to reach up to 21% by 2023.1 Furthermore, between 1980 and 2008, health care spending in the United States experienced a growth of 7 percentage points of GDP, versus an average 2.6 percentage points among the sum of all other non-US Organization for Economic Cooperation and Development countries.2 Thus, a critical evaluation of health care costs in the United States is crucial to the discussion of shifting to a value-driven health care system. Whether the increased allocation of resources to the health care sector, financial and otherwise, translates into improved patient outcomes, is part of the question that underlies the discussion to follow. CHALLENGES WITHIN THE US HEALTH CARE SYSTEM The US allocates more to health care spending than any other country, boasts the highest proportion of specialist providers, and remains at the forefront of technological advances. However, multiple survey reports demonstrate that the US ranks poorly on measures of health outcomes, quality of care, and efficiency of delivery.3 Higher per capita spending coupled with poor performance in US health care is driven by multiple factors. These include, but are not limited to; a fragmented system of delivery that lacks integration and coordination; an inefficient payment system filled with administrative redundancy and payments; the presence of resource demanding end-of-life care; a litigious environment fraught with defensive medicine that results in excessive spending on additional diagnostics and treatments in an effort to prevent medical error; a long-standing medical arms race, with a competitive push toward the development of new sophisticated and expensive technology with unclear benefit; and the concept of moral hazard, an inherent disconnection between the individuals involved in health care decision making (patients and providers) and those who pay for it (government and employers). In essence, patients and their caregivers are poorly equipped to make value-based decisions regarding their health care. THE ROLE OF ORTHOPAEDICS On the basis of a data brief published by the Agency for Healthcare Research and Quality, 4 of the top 10 costliest surgical procedures performed in the United States hospitals during 2011 are orthopaedic procedures. Calculations of aggregate annual costs in addition to average per-stay costs indicate that the top cost aggregate annual cost generator is spinal fusion surgery at $12.8 billion, followed by total knee arthroplasty at $11.3 billion, total hip arthroplasty at $8 billion, and treatment of hip fractures and/or dislocations at $4.3 billion.4 LACK OF VALUE-BASED COMPETITION Renowned health economists Michael Porter and Elizabeth Teisberg have suggested that competition of the wrong nature is at the heart of the problems with the US health care system.5 They note that in healthy competitive markets, the motivation to improve process, efficiency, cost, and quality generally results in innovation, improved service, and decreased costs. In less functional competitive environments, however, such as the current US health care system, competition occurs at the wrong level, improper time, with irrelevant focus and ill-planned geographic markets. Hence, costs continue rising without concomitant improvements. Porter and other leading authorities in the field of competitive business strategy contend that health care competition in the United States has become a “zero-sum” game where value is divided through “cost shifting” among patients, providers, health plans, and hospitals, with no net value gained, no cost reduction achieved, and unnecessary expenses incurred.5 The theory proposed contends that while lack of competition based on value lies at the root of the US health care conundrum, it is also the solution if properly implemented and aligned with value to create “positive-sum competition” which entails the following reforms: provider strategy of distinctiveness and unique expertise rather than matched competition; a lifting of restrictions to patient choice; transparent pricing; simplified billing practices; and access to medical information that supports health care decision making. Reforms would also entail developing a nationwide list of minimal coverage, and changing the standards of malpractice litigation such that only cases of true negligence or improper medical care are tried, not those where bad outcomes occur despite the delivery of appropriate care.6 DEFINING VALUE The overarching goal within a value-based model of health care, is to shift the locus of competition to an emphasis on value delivered, and to make gains in quality. The challenge rests in defining value. Porter and Teisberg5 have defined value in health care as the ratio of outcomes that matter to the patient over the costs incurred in achieving those outcomes across the entire episode of care. A part of the challenge in measuring value is in identifying the proper outcome metrics. The generic formula describes quality metrics (eg, clinical outcome, safety) and service metrics (eg, satisfaction, convenience, communication) as the measures of interest. Under this model, value improvement would require improved outcome without increased costs, decreased costs without deterioration of outcomes, or both.7 VALUE-BASED COMPETITION The search for an accurate definition of value is driven by the motivation to achieve value-based competition. The principles of value-based competition dictate that if applied properly, competition should increase value for participating customers as costs decrease and quality rises. Some have argued that health care is different from other consumer-oriented markets, because of its complexity, the presence of knowledge asymmetry between patient and provider, and the highly customized nature of care rendered. However, although these features do exist in health care, they are also descriptors of other industries where competition has been successfully implemented to deliver high value. For example, the enterprise smart-phone vendors that deliver customized plans and services to individuals. The provision of this software and accompanying services to a large population of individuals is certainly complex, with knowledge asymmetry between providers and customers, yet functionality has improved and price has decreased over time, suggesting that competition can work well even in complex industries. VALUE-BASED HEALTH CARE (VBHC) Value-based competition seeks to achieve VBHC. VBHC at its core seeks to maximize value for patients. The strategy therefore involves a shift away from a supply-driven system centered on volume and profitability of services, to one that is patient-centered and organized around patient needs and health care outcomes.7 VBHC is predicated on collaboration among providers, patients, and health plans to pursue high-value care while reducing the pursuit of high-cost medical services. To objectively measure value, models have been created to allow for measurement of costs over a full cycle of care for a medical condition, including procedures, personnel, facilities, cost, and administration. A reliable method for deciphering these costs has been time-driven activity-based costing). This method has helped to improve capacity utilization, to standardize processes, to match care acuity to facility and personal skills to tasks.8 An example of VHBC in practice, with a shift toward quality-based assessments, and information-driven decision making, is Healthgrades Inc. Healthgrades Inc. devises and publicly reports quality, safety, and ratings reports of all health care providers in the United States. Procedure-specific and diagnosis-specific rating reports are extrapolated from Medicare claims data, and analyzed to provide cost information and provider ratings to a large network of Web site visitors, who may view provider ratings at no charge.9 While this is an example of transparency and public reporting, the accuracy in application is limited due to information being extrapolated from Medicare claims data. PREREQUISITES FOR VBHC According to authorities of competitive strategy theory, the tactful agenda for transitioning to a high-value health care system includes the following key components: measurement of outcomes and costs for every patient, movement to bundled payments for each care cycle, and integrating care delivery across separate facilities.10 In the measurement of outcomes and costs, the scope has generally encompassed process metrics that are easily quantifiable although not necessarily correlated with patient-centered outcomes. It has also included measures of mortality and safety, which do not necessarily capture specific conditions through the cycle and completion of care. This limits the capacity to inform the trajectory of care and to identify potential points of intervention and improvement. A tiered system of outcome measurement has been proposed in an effort to comprehensively measure outcomes that matter to patients rather than focus on easily measured clinical process metrics.11 In brief summary, tier 1 metrics encapsulate health status achieved or retained (ie, survival, pain level), tier 2 captures the process of recovery (ie, time, adverse events), and tier 3 assesses sustainability of health (maintained functional level, risk of recurrence). An effort to tailor a similar tiered system to outcome metrics in orthopaedics would be beneficial in better defining outcomes. Assessment of the role of payment models in promoting VBHC reveals that neither of the current predominant models of payment, fee-for-service nor global capitation, incentivize high-value care. Global capitation rewards less spending with no consideration of value or improved outcomes, and decouples payment from what providers are able to survey and control. In contrast, fee-for-service models directly couple payments to provider-controlled acquisition of services including imaging, diagnostics, and treatments, but not to overall costs or outcomes. Different from both of the aforementioned models, the bundled payment approach is aligned with improving value. Bundled payments are designed to cover cycles of care for acute and chronic conditions, as well as preventive care for defined periods. Payment is linked to the whole care of the patient and aligned with what the care team can control for a particular medical condition.12 This allows for improvement of efficiency with the pursuit of improving outcomes. In tandem with the aforementioned strategies, VBHC requires patients, providers, and payors to be equipped with improved information. It calls for transparency of cost and quality, an increased accountability for providers and patients, the reorganization of health care delivery and payment systems around value rather than volume, and leadership from the medical profession. WHO WILL DEFINE QUALITY IN ORTHOPAEDICS The assumption of leadership by the medical profession in defining quality and measuring value will be critical for achieving success. The difficult challenge within orthopaedics is in clearly defining quality and outcome measures that are meaningful to patients. The American Academy of Orthopaedic Surgeons has involved a wide range of experts in the development of evidence-based Clinical Practice Guidelines and Appropriate Use Criteria. The Academy has also recently begun a Performance Measure Initiative where orthopaedic surgeons will function as part of multidisciplinary teams in using evidence to define measures to evaluate and compare provider performance.13 However, on a wider scope and in line with future reforms, orthopaedic surgeons will need to assume leadership in multistakeholder collaborations geared toward identifying strategies to develop successful delivery systems. EMPLOYER-BASED INITIATIVES As the market continues to trend toward becoming more price sensitive, health care purchasers, including large self-employed employers have been incentivized to coordinate employee benefits with organizations that demonstrate high-quality care at reasonable costs. Wal-Mart Stores Inc. and Lowe’s Cos. have formed a network under the Pacific Business Group on Health to channel employees in need of total joint arthroplasties (TJAs) toward a select number of surgical centers.14 With an aim at improving quality and reducing costs, the network will offer TJA procedures at no cost to participating employees. The rationale put forth is that the organizations contracted have reputations for high quality, low episode costs despite high unit pricing, and salaried physicians who presumably have no incentive to provide unnecessary care. For the participating facilities, the tradeoff is in accepting lower individual patient revenues in exchange for higher patient volume and a larger market share. This initiative is an example of alignment with providers and organizations that can objectively demonstrate higher value, and better care at lower costs. Reference Pricing at California Public Employees Retirement System (CalPERS) Historically, the financial losses incurred by providers from providing care to the uninsured in addition to Medicare and Medicaid patients were supplemented by higher payment margins from private insurers. In the current environment of working to reduce costs, employers have started to engage in price negotiations attached to employee benefits. These are negotiations contingent on receiving care at specified institutions that have agreed to deliver services at preset pricing structures. A recent example was instituted by the California Public Employees Retirement System (CalPERS). Employees indicated for a TJA procedure were given two treatment options. One was to obtain care at a specified institution that participates in a bundled payment model of care, the other was to pay the difference in cost and opt for receiving care with a higher cost provider.7 This reference pricing benefit design intends to increase savings for the employer and lower cost sharing for the employee. In principle, reference pricing sets a limit on employer contribution for certain procedures covered by employer-sponsored insurance, and requires employees to pay the difference remaining between the limit established and the actual price. This expectedly motivates patients to seek and select lower cost facilities, and ultimately encourage facilities to decrease costs while increasing volume. A study was taken to assess this design with members of the CalPERS program. Results demonstrated that in comparison to Anthem Blue Cross as a comparison from 2008 to 2012, first year implementation yielded a 21.2 percent increase in surgical volume at low-priced facilities and a concomitant 34.3 decrease in volume at high-priced facilities. Charges to CalPERS members decreased by 5.6% at low-price facilities and by 34.3% at high-price facilities. This analysis demonstrated the potential benefits of reference pricing benefit designs, particularly in relation to elective orthopaedic procedures.15 CONCLUSIONS Health care in the United States is a rapidly shifting landscape that has also become characterized by a state of constant flux. This has caused all stakeholders, patients, providers, government, and insurers alike to undergo a fundamental shift in the way they approach the business of health care delivery. At an unprecedented pace, reforms, initiatives, strategies, and regulations are being put forth and piloted by multiple different stakeholders. The strive to become data driven, to navigate new payment models, and to develop the infrastructure to do so, with emphasis on improving outcomes without inflating costs, will be pivotal toward gaining stability and making progress in an ever-shifting health care landscape. The theories, strategies, and efforts outlined above are but a small sample of nationwide efforts currently underway. A key to progress on these fronts will be the alignment of incentives between physicians, hospitals, health plans, and patients around value, and the presence of strong physician leadership that will be necessary to guide it.