The way doctors and hospitals are paid is undergoing a quick and quiet revolution in an attempt to control costs and improve health outcomes. Federal payers are driving this change from fee-for-service payments to reimbursements based on quality outcomes and measurements of clinical processes. This focus on clinical outcomes does not account for the deep inequities that drive poor health outcomes in the United States. Without measuring and paying for improvements in health equity, attempts to achieve a high-value and lower-cost health care system through changes to our payment system may fail.
Health care in the United States is expensive and doesn’t deliver good value. We spend more on health care than every other country in the world, and U.S. health care costs 17.2 percent of U.S. GDP and is growing. But the real issue is the lack of value. Despite massive spending, American life expectancy ranks 28th of the 35 Organization for Economic Co-operation and Development (OECD) member countries, and our infant mortality rates are more than twice as high as the best performing countries.
Even though we spend more than twice the amount per person on health care than is spent in other developed countries ($9,892 vs. an average of $3,997), cost is not really the issue. If our spending led to the best health outcomes in the world, we could argue that we are using our prosperity on a valuable cause — keeping Americans healthy. But we don’t achieve the good health outcomes we pay for because health care spending is only marginally related to health. Additionally, the cost, quality and quantity of health care services vary dramatically across different regions of the United States.
In an attempt to improve health outcomes and control costs, we are reshaping our payment system. Instead of paying doctors and hospitals for every visit or procedure they perform (fee-for-service), the system will pay for “value” (and presumably not for worthless activities.) Defining “good value” is difficult. For some, it is not paying for medicines or procedures that don’t work. For others, it is paying to “keep people healthy.” But in general, these payment systems reward doctors and hospitals for outcomes that we want (fewer hospital infections, more people with well-controlled diabetes, better surgical outcomes, etc.) and penalize providers and facilities for outcomes we seek to avoid (late prenatal care, untreated high blood pressure, hospital readmissions, etc.) Payments usually are based on clinical outcomes (well-controlled diabetes) or clinical processes (diabetics with a HgbA1c measured in the past three months) and adjusted for the health of the population being treated.
The underlying problem with this type of payment system is that we have populations within the U.S. that are healthy and others that are not, and the gap is widening. These disparities in health outcomes are legacies of slavery, racism, the genocide of Native Americans, income inequality and multigenerational poverty. As crazy and dysfunctional as our payment system is, it is not the underlying cause of our health disparities. In fact, most of our health is determined by the complicated interplay of our environment, behaviors, upbringing and genetics. I worry that the transition to value-based payment systems may exacerbate the inequities in our society that are the major driver of poor outcomes. We could inadvertently create a system that tries to improve health outcomes but actually worsens health equity.
Current versions of value-based payment systems don’t consistently control costs or improve quality in a way that matters to patients, but there are many reasons to think they could make inequality worse. In the first year of Medicare’s physician value-based payment modifier program, practices that took care of more medically complex patients had higher costs and lower quality that led to fewer financial bonuses and more penalties. On the inpatient side, in the first year of the Hospital Value-Based Purchasing program, hospitals that served a more socioeconomically disadvantaged population did worse and were more likely to be penalized for hospital readmissions.
Research into health disparities in the Greater Seattle area (King County, Washington) offers insight into the fundamental problem of designing a value-based payment system. King County is healthy and rich. It is in the top 5 percent of counties for average life expectancy and median family income in the U.S. But King County has healthy and unhealthy people like everywhere else, and the average tells only part of the story. The difference in male life expectancy between the healthiest and least healthy census tracts in King County is 18 years. It is the same as the life expectancy difference between Japan (83.7 years) and Yemen (65.7 years), and it is more than the difference between our healthiest state (Hawaii, 81.2 years) and least healthy state (Mississippi, 74.8 years).
Every practicing front-line physician understands that health differences do not stop at the dividing line between census tracts; the differences continue down into neighborhoods and between subpopulations within the same neighborhood. Some of these health disparities are due to things we understand well and can easily measure — difference in smoking rates or rates of diabetes. But some disparities are clearly due to causes that are harder to measure and less well understood — historical and current racism, levels of childhood trauma, income inequality and stress. Only about a quarter of the difference is due to variations in health care factors.
Now imagine trying to design a payment system that adequately accounts for the differences in health outcomes between many groups of people living in the same general location. Say you are a doctor who is paid based on how well your patients do on a wide variety of measures like immunization rates, blood pressure control and percentage of diabetics with well-controlled blood sugar. Do you want your practice to have the healthier patients or the least healthy patients? Would you rather be rewarded for your high immunization rates or punished because your patients can’t afford medications? If we reward clinical outcomes but fail to address health equity, we are likely to worsen the underlying causes of poor health. Physicians will be incentivized to treat the healthiest patients and communities instead of those who need us most.
When the value-based payment system is tied to clinical outcomes, it may improve the average quality of care while widening the gap between the most and least healthy. It encourages health systems and providers to avoid taking responsibility for those needing the most effort and investment. No matter how narrowly a group is defined, there will always be a sicker half, and it will be cheaper to make those patients someone else’s responsibility. Value-based payments will only work when we decide that health equity is an important value to measure and reward. It won’t be easy, but health equity is a better indicator of appropriate care and resource allocation than any group of clinical measures. At best, value-based payments that reward clinical activity are a distraction from the underlying causes of poor outcomes in our health care system. At worst, they threaten to exacerbate existing health disparities in the United States. We should remember that we get what we pay for, whether it is every three-month blood work for diabetics, checkboxes in a clinic note or more equitable health outcomes.
Christopher J. Frank is a family physician.
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