Codes & Guidelines

PhRMA Principles for Payment and Delivery System Reforms

PhRMA February 10, 2015

Emerging payment and delivery reforms (often called “alternative payment models” or “value-based payment” designs) hold promise in advancing the efficient delivery of high-quality, personalized care. At the same time, provider value-based payment holds significant implications for the physician-patient relationship and patient access to care, and some alternative payment models also pose significant risks such as creating barriers to patient access and discouraging continued medical progress.  The principles described below can help guide reforms that support patients in gaining access to the services and treatments that best meet their individual needs and encourage continued medical progress, while at the same time improve health care coordination, efficiency and quality.


Background

Policymakers and payers are experimenting with a variety of payment and delivery system reforms with the goal of moving from paying for the volume of health care services provided to paying for performance on measures of cost and quality. One catalyst in generating these reforms has been the Affordable Care Act’s authorization of the Center for Medicare and Medicaid Innovation, which is encouraging pilots among both public and private payers through direct funding, changes to Medicare payment, Medicaid waivers, and other means.

Currently, many health care services are paid on a fee-for-service basis or are reimbursed under distinct, setting-specific payment systems.  Payment reforms, such as bundled payments and shared savings programs, generally seek to move away from fee-for-service reimbursement and give providers financial incentives to contain health care costs and to improve or maintain quality.  Delivery system reforms, such as development of medical homes and Accountable Care Organizations (ACOs), are often implemented along with payment reforms with the goal of changing how care is provided to patients, also to reduce costs and improve quality.

Payment and delivery reforms have potential to generate health system savings while improving or maintaining the quality of care provided to patients. Yet, if these reforms are narrowly focused on reducing the cost of care, rely on static definitions of best clinical practice, and do not include adequate patient protections, the result could be a significant reduction in the quality of patient care and access to treatment in the United States.  Payment and delivery system reforms are emerging at a time when there is an increasing focus on patient-centeredness in health care and new treatments (including personalized medicine) that can meet significant unmet medical needs are being developed, as illustrated by historic gains against cancer, HIV/AIDS, cardiovascular disease and many other serious diseases and conditions.1 The following principles represent best practices in payment model design and will help ensure that payment and delivery reforms support continued biomedical progress, improve the value of care for patients, and protect access to high-quality health care:

  1. Development and application of payment reforms by State and Federal governments should follow a transparent, predictable, and participatory process that encourages input from patients, providers and other stakeholders.
  2. Payment reform development, implementation and evaluation should be based on a holistic view of patient care and system-wide perspective in setting quality outcome and cost containment goals.
  3. Alternative payment models should support patient-centered care and reflect patient needs and values.
  4. Payment reforms must support continued improvement in care quality – including health outcomes – and should not sacrifice quality for the sake of cost containment.
  5. Payment reforms should support patient choice of providers and treatment options and a competitive, market-based reimbursement system.
  6. Payment reforms should incorporate mechanisms to support patient access to the full range of treatment options and medical advances, and support the prescriber’s role in selecting the best treatment for an individual patient.
  7. Clinical guidelines, pathways, and protocols used in alternative payment models must be grounded in valid evidence from a range of sources and study designs

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1. Development and application of payment reforms by State and Federal governments should follow a transparent, predictable, and participatory process that encourages input from patients, providers and other stakeholders.

Because of the wide range of potential payment and delivery reform designs and the significant impact they can have on patient care, policy makers should ensure they use transparent procedures in developing, implementing and evaluating payment and delivery reforms.   An open, transparent development process that precedes deployment, and which incorporates input from patients, physicians and other stakeholders will help to ensure that payment and delivery reforms appropriately balance patient access, quality, cost control, and innovation.   In addition, state and federal governments should provide transparency on how value-based payments are calculated and achieved, and in the evaluation of the impact different models have on the access, cost and quality of care.

2. Payment reform development, implementation and evaluation should be based on a holistic view of patient care and system-wide perspective in setting quality outcome and cost containment goals.

Payment and delivery reforms should support effective systems of care by taking a system-wide perspective on health care costs and quality outcomes.  Payment and delivery reforms that take a narrow, more short-sighted view run the risk of managing discrete costs in the short-term at the expense of potentially increasing costs and harming quality in the long-run.  Because most payment reforms offer providers strong financial incentives to reduce costs, providers may be driven to the lowest cost treatment among treatments that are therapeutically similar for the average patient.  Such reforms would fail to capture downstream efficiencies that can be realized through practice transformation and quality improvement. In some cases, a higher cost treatment may lead to better long-term patient outcomes – which are realized outside the period in which costs are counted and quality is currently measured.   

To avoid reducing long-term patient health, payment reforms must align short-term cost incentives with metrics that evaluate longer-term outcomes.  The value of a more holistic, system-wide perspective is illustrated by evaluations showing opportunities for system-wide efficiencies (e.g., reductions in unnecessary emergency room visits and hospitalizations) while preserving patient access to provider and treatment options.2

3. Alternative payment models should support patient-centered care and reflect patient needs and values.

Payment and delivery reforms should aim to increase the value patients and their families find in the care they receive. Perceptions of value can vary considerably among patients, and the factors that patients consider may include not only improved clinical outcomes but other important factors such as quality of life and productivity.   Patients are heterogeneous; they have different medical histories, comorbidities, and response to treatment3. Patients also have different preferences, so they do not all prioritize trade-offs between outcomes, costs, side-effects, and quality of life factors in the same way. For these reasons, payment models must ensure that providers are not effectively penalized for a deviation from a treatment protocol to provide the most appropriate intervention to individual patients.

The importance of patient value is essential not only in the development and implementation of payment reforms, but also in understanding their impact. Patient-centered assessment of cost and quality should also be included in reports of payment reform results and program evaluations.

4. Payment reforms must support continued improvement in care quality – including health outcomes – and should not sacrifice quality for the sake of cost containment.

To balance cost-containment incentives, any payment reform design must include quality measures and incentives that support continued or improved access to high quality care.

  • Payment reforms must include robust and meaningful quality metrics that measure patient health outcomes, quality-of-life, and functional status.

      Process of care measures are not sufficient in payment reforms because of their extremely limited ability to identify reductions in patient access to treatment or ‘stinting’ on care. Consistent with this, a number of health care stakeholders and experts have called for greater reliance on outcomes-driven measures, including intermediate outcomes and patient reported outcomes, (or adequate surrogates) to help ensure the use of clinically appropriate treatment options.4 
  • Payment reforms should give providers meaningful incentives to improve quality.

     These incentives should be equal or greater to any incentives to reduce costs.
  • Additional quality measures are needed to support broad payment reform.

     In many areas of medicine, measures have not yet been developed to enable a meaningful evaluation of, and incentives for, care quality in alternative models.5 Stakeholders have identified significant gaps in easures of clinical and patient-reported outcomes, such as quality of life, functional status, and patient experience of care.
  • Quality incentives should not conflate cost containment tools with quality measures.

    Performance measures or provider activities that directly relate to cost containment goals (e.g., efficiency measures or incentives for pathway adherence) reinforce new payment models’ inherent cost containment incentives and therefore should not be among the quality measures or activities used to protect patients in value-based payment models.

5. Payment reforms should support patient choice of providers and treatment options and a competitive, market-based reimbursement system.

Payment reform should rely on competitive market-based mechanisms to advance high quality, efficient health care and should support meaningful choices for patients.  Changes such as provider consolidation, use of narrow clinical pathways or bundled payments risk substantially limiting patient choice of treatment.  To recognize and accommodate variability in patient needs and preferences, payment reforms should be structured to promote informed patient choice at the level of benefits, providers, and treatment choices. 

To facilitate meaningful choices, patients should be informed of the financial incentives inherent in the alternative payment models under which they are receiving care.  For example, any treatment pathways that providers are given a financial incentive to follow should be transparent to individual patients.  Transparent patient and consumer web portals, meaningful measurement of provider performance, and tools for evidence-based treatment choices (such as shared decision-making) can support these goals.

As the U.S health care system moves toward payment reforms that place financial risk on providers, fundamental patient protections such as those embedded in state and federal health programs will need to be re-evaluated to ensure that they are sufficient in the context of new financial incentive and risk structures that are, by design, intended to affect patient care. As risk shifts to providers, existing patient protections predicated on financial risk, such as those included in Medicare Advantage and Medicare Part D, should apply.

6. Payment reforms should incorporate mechanisms to support patient access to the full range of treatment options and medical advances, and support the prescriber’s role in selecting the best treatment for an individual patient.

Value-based payment reforms may rely on annually calculated spending benchmarks or static definitions of care. As a result, they fail to account for the costs of new advances that improve patient care but can be more expensive over the short term, which creates a barrier to patient access and discourages continued innovation.  New payment models must recognize and provide incentives for continued innovation, which can occur either through major breakthroughs or, more typically, through a step-wise process in which innovation builds over time and yields better outcomes for patients.  Payment reforms must also preserve physician ability to appropriately tailor treatments to individual patient needs and preferences, and also support the role of physicians as patient advocates and their ability  to engage in shared, well-informed decision-making with their patients.

Current Medicare prospective payment systems include mechanisms which support both patient access to innovative treatments, and the ability of physicians to tailor care to individual patient needs.  These mechanisms provide separate provider payments for medical advances and outlier cases.6 Similar mechanisms should be carried forward to emerging payment reforms.

In addition, certain payment models can create substantial disincentives for use of innovative treatments. These include those that give providers risk for managing a specific condition and/or base physician payment on compliance with a narrow treatment  pathway, or are narrowly focused around a single treatment decision and priced based on current standard of care.  Prioritizing broader, patient centered payment reforms provides opportunities for improving system efficiency without compromising patient access and gives innovative treatments greater opportunity to demonstrate their value.

7. Clinical guidelines, pathways, and protocols used in alternative payment models must be grounded in valid evidence from a range of sources and study designs.

Payment reforms are predicated on finding better value for our health care spending. It is vital that pathways, guidelines, and value frameworks informing payment reforms support informed physician-patient decision-making from the range of treatment options and are based on well-researched, methodologically rigorous evidence. As observational  data and non-experimental research designs become increasingly common via expanded electronic databases, there is a notable lack of agreement on what constitutes good research and solid evidence upon which to make foundational changes to the health care system. Transparency of the evidence base upon which any payment reform is designed – including the cost and quality metrics – is essential; this evidence base and must be kept up to date with advances in standards of care and medical technology.

Conclusion

Payment and delivery reforms hold potential to improving quality of patient care while reducing overall health care costs; however this potential rests on careful development and implementation.  By developing a clear process which engages a range of stakeholders and following the principles articulated above, payers can ensure that payment reforms meet their goals without undermining patient access, quality of care, or development of beneficial new treatments.


1 See, for example, Eagle, MD, David and John Sprandio, MD.  “A Care Model for the Future: the Oncology Medical Home,” Oncology.  June 13, 2011 http://www.cancernetwork.com/practice-policy/care-model-future-oncology-...

2 Abernethy, A; Abrahams, E; Barker, A et al. “Turning the Tide Against Cancer Through Sustained Medical Innovation: The Pathway to Progress.”

Clinical Cancer Research.

March 2014. 20(5): 1081-1086.

3 See, for example: Quintiles Outcome. Prepared for: Agency for Healthcare Research and Quality. Developing a Protocol for Observational Comparative Effectiveness: A Users Guide. Chapter 3: Estimation and Reporting of Treatment Effects. January 2013.

4 MedPAC. “Report to Congress, Medicare and the Health Care Delivery System.” June 2013. http://www.medpac.gov/chapters/Jun13_Ch03.pdf accessed July 2014.

5 See, for example, Table 3.3 in E.C. Schneider et al. Payment Reform: Analysis of Models and Performance Measurement Implications. RAND Health, 2011.

6 See “Pass-Through Payment Status and New Technology Ambulatory Payment Classification(APC)” on CMS.gov; available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/passthrough_payment.html. Also see “Outlier payments” on CMS.gov; available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpati...