Value-based healthcare – what is it and can it work in New Zealand?

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Picture: Hamish Franklin

NZHIT guest column by Hamish Franklin

Value-based healthcare drives accountability for outcomes and creates incentives for improving patient outcomes at lower costs. What would it take to move to this focus on quality, outcome and performance in our healthcare funding?

It is over simplistic to compare other industries to health, but at a high level we can all observe that consumer goods’ prices have fallen over the past decade, and entire industries have thrived by taking margin on products and sharing it with consumers, bringing prices down while increasing convenience.

In turn, the businesses sharing these savings with consumers have thrived. The speed by which this change has occurred has been accelerated by the ready access to review and pricing information any time, any place, allowing consumers the choice of where, when and how to get the products and services they want.

Yet in health, prices increase, capacity is constrained, and demand is increasing, and there is no transparency whatsoever about the quality, outcomes or performance of service, meaning there is little accountability for providers to compete around the axes of quality, outcomes and performance.

Value-based healthcare has been advocated worldwide as a means to reduce cost, increase capacity and improve outcomes for patients, while benefiting health providers as well.

What is value-based healthcare?

Value-based healthcare is a way of the payer contracting with the provider, such that the provider is incentivised by the payer to improve performance, quality and patient outcomes, while lowering or maintaining costs, with a significant portion at risk.

Value-based healthcare was developed by none other than American academic Michael Porter to bring efficiencies to the healthcare sector, recognising that fee-for-service contracting creates perverse outcomes, for instance, over-servicing the well.

Health economies that are progressing towards value-based care have the following characteristics in place:

• systems to measure service cost and health outcomes
• development of patient-focused care systems, as opposed to supply-driven systems
• facilitation of value-based payments to healthcare providers
• transparency of outcomes, performance and service quality by provider (star quality ratings in the US, quality and outcomes framework in the UK).

The Economist’s Intelligence Unithas further reading for those interested.

Put simply, a country that has the means to measure the cost of a service, as well as measure outcomes, can then start contracting with providers based on value – where either the savings or risk are shared with the provider.

In New Zealand, ACC is a leader in this space. Equipped with world-leading actuarial services, based firmly in the ability to measure costs for an individual, they can then contract with shared risk and upside, for instance, to help people to return to work sooner.

While there are examples of bulk funding in New Zealand, which is a good way to share risk, this can be taken further, to the point where a portion of shared savings can be redistributed back to providers as an incentive to change care, where it lowers cost and improves outcomes.

If we could stop a person progressing from pre-diabetes → diabetes → kidney failure → renal replacement, would that benefit the health economy? Of course.

It’s not just about keeping people out of hospital, it’s about changing their illness course to health journey. But first you would need to know the costs of each state, so that you could value interventions that reduced the incidence of the worst state.

Furthermore, if the costs, and therefore interventions, included not just medical needs but considered the social determinants of health, then New Zealand would be in the position to drive and fund integration and collaboration between medical and social care providers. Interestingly, much of the costing and actuarial infrastructure is in place with the Social Investment Agency, albeit that little of the health costs are captured.

Professor Des Gorman of Health Workforce NZ recently wrote a review on optimal primary care funding and singled out areas where funding could be further optimised for the New Zealand context. He noted that capitation falls short in New Zealand because:

• outcomes aren’t contracted for
• there is no transparency for the consumer on outcomes or on performance, such as availability of appointments, or on average wait time, for instance, or even reviews of these
• the funding applied to address inequity is not accountable; providers aren’t held to account on delivering care, and as we are well aware, the funding is very poorly targeted, being applied at a practice level, not a patient level.

What works overseas?

If we look at the US or UK, where there are risk sharing in contracts, we can see good and bad examples. In the US, up to 20 per cent of Centers for Medicare and Medicaid Services’ contracts, which are government funded for people over 65 or on low incomes, is at risk based on 57 quality and outcome measures. The result of this contracting has been that a whole industry emerged to help providers achieve these outcomes, while delivering accountability to the payer and the patient.

In the UK, the QoF system cannot be categorised as a success, as the compensated-risk measures were activity based rather than outcome based. This meant that care was given to the people that were easily serviced, and those in need, but difficult to service, missed out.

This commentator isn’t suggesting either of these health systems are perfect. Rather I’m suggesting that they are on a vector that drives accountability for outcomes and creates incentives for improving patient outcomes at lower costs.

In the US, Accountable Care Organisations are incentivised on the basis of shared savings – if the ACO can deliver improved outcomes at lower cost, then both parties win. ACOs are voluntarily assembled groups of providers that provide end-to-end cover for patients, typically in a geographic area. Not really dissimilar to locally based commissioning here, but with much more accountability for alignment on the outcomes of better integrated care.

A way forward

So, what could be done in New Zealand? We have a Ministry of Health strategy that is aligned around integrated care, and that has the support of providers. We have providers, and certainly corporates, that are willing to practice funded-integrated care.

We have an entire primary sector that is small business, and therefore on the face of it, a portion of them will be motivated to consider innovating their care provision to deliver improved outcomes, where there is additional funding. We have an entire IT sector that would support such an arrangement, as it has ambitions to providers in their innovation. We even have the data on which to measure outcomes.

So, what do we need to move forward?

• An outcomes framework that is co-developed between payers and providers. Others have gone here before, specifically the International Consortium for Health Outcomes Measurement (ICHOM).
• Transparency of outcomes, so that consumers can make informed decisions about their healthcare providers, which would mean consumers can choose to attend those providers that get good outcomes – driving their financial rewards and uplifting those providers who wish to compete for custom.
• Innovative contracting, where the Ministry of Health, and potentially payers that address social needs, collaborate with willing providers to test the impact of such contracting.
• Additional funding, over and above capitation or pharmacy dispensary fees, that is at risk, where a component could be clawed back if outcomes were not met.
• A time window whereby providers and payers collaborate to assess the impact of innovative care models on outcomes on an open-book basis, where clawbacks are theoretical.
• An agreement that it is the outcomes that matter – not how an intervention is executed, sometimes called a tight-loose-tight approach to purchasing.

I would contest that New Zealand is in a reasonable position to adopt this approach. But we need to start. A lot of the thinking has been done, both overseas and here. However, waiting for all the ducks to line up will not help us tackle these challenges. NZ Health Inc. needs to be nimble and practice new models, where the willing can work together to pave the way for a well-informed rollout.

To make this happen in New Zealand, the next steps would be the following:

• The political would need to be secured to adopt a future-facing approach such as this.
• The Ministry of Health would need the discretionary funds to support it.
• The team leading such an approach would need to be mandated to scale it, if successful; there is no point in starting otherwise.
• Any approach should be built on the learnings overseas and take into account New Zealand-actuarial skills developed by the SIA.
• The DHBs and providers that participate in such an undertaking should do so purely voluntarily.
• The focus of the exercise should be early intervention, as the real costs to the New Zealand heath economy are now, and in future, firmly associated with the growing prevalence and morbidity of non-communicable diseases. 

Hamish Franklin heads up Innovation and Integrated Care across Green Cross Health’s Pharmacy, Medical and Home Health businesses.

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