Health Reformer's Lexicon: Value-Based Purchasing … and the latest from Health Wonk Review and Grand Rounds

The Health Reformer's Lexicon is a regular feature that examines key words, terms and phrases in health reform and explores their meaning and orbit.

Today’s term: Value-based purchasing.

According to the Agency for Healthcare Research and Quality, “the term basically refers to any purchasing practices aimed at improving the value of health care services, where value is a function of both quality and cost.” AHRQ continues: “It can be helpful to think about value as the result of quality divided by cost: Value = Quality ÷ Cost. This equation shows that value increases as quality increases, holding expenditure constant.”

The term is commonly associated with specific reforms such as pay-for-performance and discrete initiatives aimed at improving outcomes for a single disease or fraction of the population. But many health care experts argue value-based purchasing must be construed more broadly if it is to be an instrument of systemic reform. For example, the Urban Institute’s Robert Berenson and New America Foundation’s Len Nichols, writing in the Health Affairs blog, offer this definition: “Value-based purchasing uses a variety of tools to try to obtain the right kind and mix of services, of desired quality, at a reasonable cost.”

Why it matters: Susan DeVore, the CEO of the Premier healthcare alliance, has put it this way: “Cutting costs while improving care is the Holy Grail of health care reform.” And in the search for that Holy Grail, many health care policy experts believe value-based purchasing will be a critical tool.

Our current health care system, structured as it is around a fee-for-service model of reimbursement, rewards doctors and hospitals for the volume of services they provide, not the value of the care they deliver for patients or populations. This causes a host of problems, not least of which is overuse of health care services.  In the long run, health care reform can only be successful if the system rewards providers for giving patients the right care at the right time in the right way.

Roots: The concept of value-based purchasing has been gaining currency since the late 1990s as health care researchers and stakeholders have been systematically examining the design, implementation and outcomes of new purchasing strategies to replace fee-for-service.

Where the term appears: The newly enacted health care reform law establishes a hospital value-based purchasing program in Medicare to pay hospitals based on their performance on certain quality measures. The new law also calls for plans to be developed to implement similar value-based purchasing programs for skilled nursing facilities, home health agencies and ambulatory surgical centers.

Previous Lexicon entries include:
- Individual Mandate
- Uncompensated Care
- Flexible Spending Accounts

Meanwhile, in other news …

In this week’s Health Wonk Review on the HealthBlawg, David Harlow mentions our recent post on the definition of uncompensated care, joking that “Titanic doesn't even begin to capture the immenseness of the galaxy” when it comes to this topic. Also, the latest edition of Grand Rounds highlights Catherine Hess’ recent post on children’s health insurance coverage.