By Sara Rosenbaum

Background

Bringing down the overall cost of health care while improving its quality for all Americans represents one of the central goals of health reform. Although reducing the number of people without health insurance will provide relief by curtailing much of the estimated $50 billion in annual cost-shifting onto the insured,^[1] the longer term challenges are more complex, because they involve structural change in how health care is organized, delivered, and paid for. Specifically, improving health care quality while reducing costs means doing two things simultaneously: moving away from a fragmented system^[2] oriented toward what has been termed a “piecework” approach to health care;^[3] and introducing new approaches that reward greater clinical integration and efficiencies aimed at creating equally effective but lower-cost care.

To achieve these results, the concept of “value-based purchasing” has received increased attention. Value-based purchasing can be defined as purchasing by consumers and health care payers that considers and rewards health care value (i.e., health care quality as measured by objective benchmarks) as part of paying for care. As described by experts, value-based purchasing incorporates several components:^[4]

(1) Health insurance coverage design that incentivizes appropriate patient behavior and rewards patient choices that hold down costs while improving health: Emphasize insurance products that incentivize the use of preventive services and treatments and promote effective management of chronic conditions.

(2) Payment reforms that move away from traditional volume-based payment while emphasizing quality and efficiency: Use payment strategies that encourage providers to affiliate with one another rather than working in isolation, while emphasizing the coordination of care, the efficient use of resources, strong patient communication, and the exchange of health information.

(3) Information: Emphasize consumer and patient information and the use of health information technology, and apply information on performance to provider networks in order to reward providers, through tiering, who achieve desired outcomes.

An earlier Implementation Brief outlined the basic elements of state health insurance Exchanges. This Implementation Brief focuses on how the Affordable Care Act (ACA) promotes value-based purchasing through state health insurance Exchanges.

Changes Made by the Health Reform Law (P.L. 111-148)

The Affordable Care Act envisions Exchanges that are a robust presence in both the individual and group health insurance markets, as well as qualified health plan products that incorporate value based purchasing principles.

• The role of health insurance Exchanges in the state health insurance market: Under the ACA, health insurance Exchanges can exercise a considerable impact on the overall health insurance market. States that elect to operate exchanges will be expected to open their exchanges to all individuals and small employers (under 100 employees).^[5] Beginning in 2017, states also may allow health insurers to sell qualified health plans (the term used to describe plans sold in exchanges) to large employer groups (101 employees or greater).^[6] States can elect to limit their individual and group markets to their individual and SHOP Exchanges, thereby extending and strengthening the quality performance requirements applicable to qualified health plan products sold in Exchanges.
• Exchanges as active purchasers of high performing health plans. The ACA allows state Exchanges to select from among qualified health plans by providing that an Exchange “may” certify health plans as qualified if “the Exchange determines that making available such health plan…is in the interests of qualified individuals and qualified employers.”^[7]
• Value-based purchasing principles applied to preventive benefits. The ACA requires coverage of preventive benefits with no cost-sharing. A December 2010 IRS Request for Information on preventive services illustrates the Administration’s interest in the use of “value-based insurance design” approach to preventive benefits and defines such design as “the provision of information and incentives for consumers that promote access to and use of higher value providers, treatments, and services.”^[8]
• The application of value-based purchasing principles to the essential health benefits requirement applicable to the individual and small group markets. The ACA establishes essential health benefit standards that must be met by insurance sold in the individual and small-group markets.^[9] These standards reflect value-based purchasing principles in their emphasis on prevention without cost-sharing, chronic disease management, and coverage (with cost-sharing assistance for lower income individuals and sharing) for a broad array of treatment and health promotion activities that better enable appropriate management of serious illness.^[10] Specifically, the essential health benefit standard^[11] encompasses ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive and wellness services and chronic disease management, and pediatric services including vision and oral care.^[12] In defining essential health benefits, the ACA further emphasizes value-based purchasing by requiring that the Secretary take into consideration diverse population needs.^[13]
• The application of value-based purchasing principles to qualified health plans sold in state health insurance Exchanges. In addition to meeting essential health benefit requirements, qualified health plans sold in state health insurance Exchanges must satisfy a range of requirements linked to value-based purchasing, including performance measurement and quality improvement, the use of standardized reporting measures in order to promote quality comparison, the use of marketing and enrollment standards that do not discourage enrollment by individuals with significant health care needs, provider network standards that emphasize quality and performance, provision of enrollee satisfaction information, and participation in plan rating systems that allow comparison of qualified health plans based on price and quality.^[14]
• Reporting on qualified health plan activities that reward quality: The ACA requires the Secretary of Health and Human Services to develop mechanisms for rewarding quality through market-based payment incentives.^[15] The law further provides that qualified health plans will be expected to report to state health insurance Exchanges on their use of such strategies. These mechanisms and strategies, which focus on market incentives, would provide increased payment for improving health outcomes through activities that include quality reporting, effective case management, care coordination, chronic disease management, medication and care compliance initiatives, medical homes for covered treatments and services, activities aimed at preventing hospital readmissions through comprehensive hospital discharge programs including education, discharge planning, and discharge reinforcement, patient safety and error reduction initiatives, wellness and health promotion activities, and disparity reduction initiatives using language services, cultural competency and community outreach.^[16]
• Patient safety as an express exchange requirement. Beginning January 1, 2015, the ACA bars qualified health plans from contracting with any hospital with more than 50 beds unless the hospital uses patient safety evaluation systems and a comprehensive discharge planning system. In addition, the ACA bars qualified health plans from contracting unless the providers use quality improvement mechanisms developed by the Secretary.^[17]
• Consumer and patient supports: The ACA requires qualified health plans that seek certification from exchanges to use plain language with respect to, among other matters, rating information, information on cost-sharing, and information on enrollee and participant rights.^[18] Nothing in the law bars an exchange from extending plain language requirements to all information furnished to enrollees by health plans.
• Premium increase justification: Health plans that seek to do business in an exchange as qualified health plans must justify their rate increases, and state health insurance Exchanges are required to consider rate increase justifications when determining whether to permit a plan to be sold in the exchange.^[19]

Implementation

Agencies

The Departments of Labor, Treasury, and Health and Human Services are charged with implementation of the essential health benefits provisions of the Act, while the CMS Center for Consumer Information and Health Insurance Oversight is charged with developing state health insurance Exchange regulations.

Key Dates

Health insurance exchange regulations are anticipated in Spring, 2011, in order to assure enough time for planning and implementation by January 1, 2014. Essential health benefit regulations are also anticipated in 2011.

Process

Because of the significance of policies related to essential health benefits and health insurance exchanges, federal agencies are expected to use a rulemaking process supplemented by informal policies that explain and further interpret the rules.

Key Issues

Several key issues can be expected to arise in promoting value-based purchasing principles in relation to the essential health benefit and exchange statutes.

• Positioning Exchanges to support value-based health care purchasing: What options will HHS provide to exchanges to incorporate value-based purchasing techniques into their activities? Specifically, what standards will be established for health plan certification strategies that select among certified qualified health plans? What requirements will Exchanges be expected to satisfy, insofar as provision of consumer information is concerned?
• Essential benefits, qualified health plans, and value-based purchasing. What standards will be set for qualified health plans in the area of value-based purchasing? What options will be given to health plans operating in the individual and small group market, as well as qualified health plans sold in state health insurance exchanges, to vary benefits, coverage, cost-sharing, and provider networks to emphasize value-based purchasing? How will tiered network strategies that emphasize provider performance be aligned with the requirement that essential community providers be included in qualified health plan networks? How will value-based cost-sharing strategies be aligned with the cost-sharing protections for low-income individuals and families plans that enroll in qualified health plans? What will be the minimum standards for coverage of preventive benefits and chronic disease management coverage under the essential health benefit statute, and to what extent will health plans governed by the essential benefits statute be permitted to introduce financial incentives designed to promote use of preventive services?
• Value-based purchasing techniques and vulnerable populations. How, if at all, might rules applicable to Exchanges, qualified health plans sold in Exchanges, and the essential benefit statute address the application of value-based purchasing strategies to populations that historically have faced particular challenges in gaining access to and using effective health information, such as populations whose primary language is not English, individuals with serious and chronic health conditions including serious mental illness or addiction disorders, and individuals, families and communities who live in medically underserved communities and/or experience cultural and social isolation?
• Carrying over value-based purchasing strategies into the Medicaid market. The essential health benefit statute applies to newly eligible Medicaid beneficiaries entitled to benchmark coverage, and in the case of traditional beneficiaries, states have numerous options related to benefit and cost sharing design, performance standards for participating managed care entities, and provision of health information and consumer tools. How might value-based purchasing strategies reflected in regulations implementing the Exchange, qualified health plan, and essential benefit provisions of the ACA be carried over into the Medicaid market through implementing guidelines and regulations from the Centers for Medicare and Medicaid Services?

Agency Action

In August 2010, OCIIO published a Request for Comments that, while not specifically focused on value-based purchasing, sought input on how to implement the quality improvement and performance measurement aspects of the health reform law. In December 2010, the Internal Revenue Service sought comments on the use of value-based purchasing benefit design techniques.

Authorized Funding Levels

The provisions of the ACA directly applicable to value-based purchasing are primarily regulatory in nature relate to the regulation of the health insurance industry. State planning grants for Exchange development were awarded in 2010.