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Our Scorecard ranks every state’s health care system based on how well it provides high-quality, accessible, and equitable health care. Read the report to see health care rankings by state.

Area of Focus

Controlling Health Care Costs

Newsletter Article

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Four States Are Maximizing Value in Their Health Care Purchasing

As health care costs continue to rise, many states are faced with difficult options, including higher cost-sharing for public employees, tightened Medicaid eligibility and benefit cuts, or caps on spending. But a handful of states and counties are taking an entirely different approach in dealing with rising costs and quality concerns: finding ways to obtain greater value for their health care dollars through "value-based purchasing."<?p>

In the report, Value-Driven Health Care Purchasing: Four States That Are Ahead of the Curve, researchers Sharon Silow-Carroll and Tanya Alteras of Health Management Associates offer an in-depth look into dynamic public/private partnerships in Massachusetts, Minnesota, Washington, and Wisconsin. These states are setting the bar higher for health care providers and plans by building into their purchasing contracts requirements for data collection, evidence-based medicine, performance incentives, and new information technologies.

How "VBP" Works
Silow-Carroll and Alteras, who have extensively studied health reform initiatives at the local, state, and national levels, say there are three basic models of value-based purchasing, or VBP, each with its own strengths and weaknesses:

  • The single large purchaser, which cooperates with suppliers while using its market power to make demands. Because the purchaser works alone, its influence is limited—but it is able to move quickly.
  • The purchaser coalition, in which public and private purchasers (or purchaser coalitions) work together to standardize demands on suppliers and share value-driven strategies. Although reaching agreement among multiple purchasers can be challenging, a coalition can leverage greater market share and wield more influence with suppliers than a purchaser working alone.
  • The mixed coalition, where a group of health care purchasers and suppliers jointly promote transparency in pricing and implement incentives. While multi-stakeholder initiatives have the potential to make the most significant impact on the market, reaching consensus is very difficult.

Ensuring transparency of information about the quality and cost of health care is one of the crucial principles of value-driven health care. Each program examined in the study has implemented a strategy to collect data from providers and health plans and apply quality, efficiency, and "value" measures (combining quality and cost) to present comparative information. Individual purchasers are concerned with reporting this information to their employee members, while coalitions work together to build more universal repositories of data that could be used by the wider public and all purchasers.

The strategy that defines value-driven health care, however, is the use of incentives—financial and otherwise—to change the behavior of patients and providers in ways that promote better quality of care, greater value for dollars spent, and improved health outcomes.

Four Approaches to Value-Based Purchasing

  • Massachusetts' Group Insurance Commission provides and administers health insurance and other benefits to the Commonwealth's employees and retirees, plus their dependents and survivors. Under the Clinical Performance Improvement initiative, health plans contracting with the agency assign hospitals, physician groups, or individual physicians to different "tiers" based on quality and efficiency; these tiers are tied to varying cost-sharing requirements designed to encourage members to select higher-quality, more-efficient providers.
  • Minnesota's Smart Buy Alliance comprises public and private health care purchasers in the state, including the agencies overseeing Medicaid and public employee health benefits and coalitions of businesses and labor unions. Various member groups within the alliance developed "purchasing principles" and strategies such as pay-for-performance, public reporting of cost and quality data, and designating providers as "centers of excellence" to reward higher value. Strategies are shared among the alliance's members.
  • Washington State's Puget Sound Health Alliance of payers, purchasers, providers, and consumers aims to stem rising health care costs by developing and publicly disseminating performance reports on health care providers across five counties. It is also developing evidence-based clinical guidelines for conditions such as diabetes, back pain, and heart disease, and for the prescribing of pharmaceuticals.
  • Wisconsin's Department of Employee Trust Funds administers health and other benefits for state and local government employees and their families. In addition to publicly reporting health plan performance, the agency is using tiered premiums to encourage members to purchase more-efficient plans while giving financial rewards to health plans with favorable cost and quality ratings. An innovative pharmacy benefit management model, meanwhile, emphasizes cost transparency.

Early Impact
Minnesota's Department of Employee Relations (DOER), a member of a purchasing coalition called the Smart Buy Alliance, has implemented many of the strategies discussed in the report—and its results have been impressive. The agency's various incentive-based strategies and disease-management programs had enabled it to keep premiums for its health insurance program at prior-year levels, and about $20 million in savings was being returned to state employees through a "premium holiday." Members will save about 4.4 percent of their total annual premium, or about $53 per employee with dependent coverage.

For most of the other value-based purchasing initiatives, it is still too early to reliably measure their true impact on cost and quality—a determination that could take years.

Ultimately, the value-based purchasing movement will need many more adherents to achieve a wide impact, the authors acknowledge. Individuals interviewed for the study noted the difficulty of getting employers to look beyond cost and incorporate quality in their health care purchasing decisions. Striking the right balance between "cooperating with suppliers of health care and taking a more aggressive stance" represents another set of challenges to be overcome.

In the end, value-based purchasing, the report concludes, must be viewed as but one element in "a broader, more comprehensive effort to improve the performance of the health care system"—an effort that must also focus on comprehensive insurance coverage, expanded access to care, and cost-containment strategies.

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