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Value-Based Purchasing in VA

Value-based purchasing (VBP) is a relatively new term in health care that encompasses, at its heart, the idea that the value equation includes both utilization or cost of services, and the quality of care delivered with those services. This article explores the concept of value-based purchasing in the context of issues that arise in the Department of Veterans Affairs (VA) given its relatively unique role in the U.S. health care system as both a payer and provider of services.

The best early definition of the term 'value-based purchasing' comes from Meyer et al. (1997): "The concept of value-based health care purchasing is that buyers should hold providers of health care accountable for both cost and quality of care. Value-based purchasing brings together information on the quality of health care, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the health care system to reduce inappropriate care and to identify and reward the best-performing providers. This strategy can be contrasted with more limited efforts to negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved."1 The Centers for Medicare & Medicaid Services (CMS) has been a leader in making VBP a central organizing concept as it has approached health care reform in the Medicare program. In that context, in ways that both meld well with challenges for VA and in ways that do not, CMS works from the following eight goals: financial viability; payment incentives; joint accountability; effectiveness; ensuring access; safety and transparency; smooth transitions; and electronic health records.

VA competes with the private sector by offering its own diverse blend of quality, access, and cost within a specific eligible patient population that thereby is offered universal access to health care.2 But since the VA operates as both the regulator of health care service provision and the provider of those services, many of the goals that CMS is promulgating apply to VA only in the 'make or buy' decision to provide services directly or contract for those services with the private sector. This article will explore CMS' eight goals as an organizing principle for briefly discussing some of the issues that arise for VA in pursuing these goals.

VA differs from the Medicare program in that it does not operate off of a specific trust fund, so the financial viability of the federal government is not directly at issue, but it does mean that in evaluating 'make or buy' decisions the current Treasury interest rate is the best approximation of borrowing costs for VA. Whenever the federal government runs a budget deficit, the VA implicitly borrows money through the Treasury. The use of payment incentives by VA in using VBP for ensuring quality and efficiency when buying from the private sector face the same challenges as when health plans use such incentives, including the key challenge in directing the "incentive payment to an organized entity capable of bringing resources and organizational expertise to support process improvement."3 This latter point for a VA that might be trying to contract with general health care providers for services that are specialized for Veterans dovetails into the CMS goal of joint accountability.4

VA HSR&D already is a key contributor to the effectiveness goal in VA through comparative effectiveness research. It can be difficult in some cases to convince outside contractors to follow VA directives and other evidence-based and outcomes-driven guidelines developed in VA if the contract represents only part of the contractors' business and requires costly redesign. VA and Medicare face a comparable challenge in ensuring access to an equal level of high quality, affordable care to beneficiaries all across the country, wherever they choose to live. The ability of the health care system to meet the clinical needs of patients is increasingly challenged by the cost of technological solutions to bring care to the patient in the community. VA and CMS already are partnering on joint standards for safety and transparency to bring beneficiaries direct information on the quality, cost, and safety of the health care they receive. Smooth transitions to coordinate patient care across multiple providers and settings requires seamless information flows. The focus of CMS in trying to incentivize electronic health records illustrates the transitions and effectiveness challenges perfectly, for a contractor providing care to Veterans: fully adopting seamless information exchange with the VA electronic health records system would be especially costly and challenging.

These challenges for effective VBP are true across all health care systems and payors. VA faces special challenges as a payor with its own provider health care system as well as options to purchase care from outside vendors. The complexity of the problem increases the closer one gets to capitation of care across a wide range of services. The considerable challenge of defining quality in purchasing is simpler the smaller the slice of health care services one is purchasing, though by no means easy. The challenge in VBP is the same as the wider challenge in the health care system, defining quality and efficiency in what services we provide to patients.

Note: James F. Burgess, Jr., Ph.D., through his Boston University academic appointment, has been a contractor to the Centers for Medicare & Medicaid Services for its Value Based Purchasing programs.

  1. Meyer J, Rybowski L, Eichler R, Theory and Reality of Value-based Purchasing: Lessons from Pioneers. AHCPR Publication No. 98-0004, November 1997.
  2. Burgess JF, Jr., Stefos T, "Federal Provision of Health Care: Creating Access for the Underinsured," Journal of Health Care for the Poor and Underserved, 1991, Meharry Medical College, Nashville, Vol. 1, 364-87.
  3. Sautter KM, Bokhour BG, White B, et al. "The Early Experience of a Hospital-based Pay-for-Performance Program," Journal of Healthcare Management, 2007; 52: 95-107.
  4. Burgess and Stefos, 1991.

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