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RAND Corp.

Health Care

Promise of Value-Based Purchasing in Healthcare Remains to be Demonstrated

RAND Corp. reports on 10-year study

Published: Tuesday, March 11, 2014 - 13:12

(RAND: Santa Monica, CA) -- After a decade of experimentation with reforms that give health providers financial incentives to improve performance, relatively little is known about how to best execute such strategies or judge their success, according to a new report from RAND Corp.

A comprehensive report designed to assess the state of knowledge about value-based purchasing programs in healthcare found that evidence thus far is mixed about whether using such payment schemes can help improve quality and lower costs.

Most of the research on value-based purchasing has examined the effects of pay-for-performance programs that reward physicians and other health providers for improving the quality of care or reducing costs. Research is needed to understand the impact of newer value-based payment models (e.g., accountable care organizations and bundled payments) that create stronger financial incentives for change, according to the report.

“The evidence from the past decade is that pay for performance [has] had modest effect on closing the quality gap,” says Cheryl Damberg, the study’s lead author and a senior principal researcher at RAND, a nonprofit research organization. “Newer payment reform models such as accountable care organizations are in their early stage of implementation and little is known at this point about their impact on cost and quality, and how best to design these programs to succeed in achieving desired goals.

“The new models that are being adopted now have sharper teeth putting health providers at financial risk for spending above [the] negotiated targets that may trigger significant changes by providers,” Damberg says.

The RAND report focuses on three broad types of value-based purchasing models:
• Pay-for-performance programs reward healthcare providers with a bonus or higher payments based on their performance on a set of quality and/or cost measures.
• Accountable care organizations are groups of doctors, hospitals, and other providers that agree to coordinate efforts and be responsible for the overall cost and quality of care for a group of patients. Payments are tied to the total cost of the care provided, and providers share financial risk and a portion of any savings.
• Bundled payments provide a group of healthcare providers a fixed payment covering the average cost of a bundle of services.

The pay-for-performance model was the first value-based incentive model to be widely implemented, with accountable care organizations and bundled payment methods just beginning to be adopted.

Studies done to date on value-based purchasing have been inconclusive, with some showing modest cost savings and quality improvements, and others finding no meaningful changes. In addition, many of the studies about value-based purchasing had design flaws that make it hard to determine whether the intervention had an effect beyond other changes that were occurring in healthcare to cut costs and improve quality.

RAND researchers compiled the report by assessing value-based purchasing across three dimensions. First, they reviewed 129 value-based purchasing initiatives—primarily pay-for-performance programs, but also accountable care organizations and bundled payment programs, to describe their design features.

In addition, researchers reviewed published studies that evaluated the impact of pay for performance, accountable care organizations, and bundled payment programs. Finally, researchers organized a technical expert panel of value-based purchasing program sponsors, healthcare providers, and program evaluators to comment on the evidence to date and to recommend strategies to build the evidence needed to inform the use of and design of value-based purchasing programs moving forward.

“The newer value-based purchasing models require health providers to build systems of care and coordinate their actions with providers in different settings to manage the totality of a patient’s care,” says Damberg, who holds the RAND Distinguished Chair in Health Care Payment Policy. “Given the complexities of care redesign, the need to share information across providers, and the ability to absorb financial risk, it remains to be seen which of these approaches can work and under what circumstances.”

The report calls for value-based purchasing program sponsors and evaluators to work together to define the list of priority research questions and data that need to be collected to generate the evidence policymakers require to inform program design and implementation.

This report was completed under a contract to the U.S. Department of Health and Human Services.

The study, “Measuring Success in Health Care Value-Based Purchasing Programs: Findings from an Environmental Scan, Literature Review, and Expert Panel Discussions,” can be found at www.rand.org. Other authors of the report are Melony E. Sorbero, Susan L. Lovejoy, Grant Martsolf, Laura Raaen, and Daniel Mandel.


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RAND Corp.

The RAND Corp. is a nonprofit institution that helps improve policy and decision making through research and analysis. RAND focuses on the issues that matter most such as health, education, national security, international affairs, law and business, the environment, and more. With a research staff consisting of some of the world’s preeminent minds, RAND has been expanding the boundaries of human knowledge for more than 60 years. As a nonpartisan organization, RAND is widely respected for operating independent of political and commercial pressures. RAND remains committed to public service by communicating its findings to a wide audience. This includes announcements to media, testimony by experts at RAND, and publications, many of which are available free at the organization’s web site.