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Realizing the Promise of Value-based Purchasing

A Workshop for State Health Policymakers

The goal of this workshop was to provide research findings and information on the experience of other States and purchasers to participating State officials. This information can help to design, implement, support, and evaluate value-based purchasing strategies. The workshop was held December 11-13, 2000, in San Antonio, Texas.

About the Workshop Sponsor.


State governments expend billions of dollars each year purchasing health care coverage and services through their Medicaid, State employee health benefit, and other health care programs. These State programs, like large employers and other private health care purchasers, have shifted to buying coverage through contracts with managed care plans and other managed care arrangements. Many State programs have sought to capitalize on the increased accountability of managed care arrangements to expand their focus from simply asking, "How much are we spending on health care?" to include the question, "Are we getting the best care possible for what we are paying?"

At the completion of this workshop, participants were expected to:

  • Understand value-based purchasing on both an operational and a policy basis.
  • Understand how value-based purchasing strategies can be tailored to fit different market conditions.
  • Recognize the value of partnerships in this endeavor—between sister agencies that have opportunities to do value-based purchasing; between public and private sector purchasers; and between purchasers, plans, and health care providers.
  • Gather valuable insights and lessons learned from the experiences of other purchasers about the design and implementation of value-based purchasing strategies.
  • Begin to formulate a purchasing strategy based on their own States' specific needs.
  • Offer guidance to the Agency for Healthcare Research and Quality (AHRQ) as to the work the Agency can do to help inform value-based purchasing efforts.

To carry out proper stewardship of public expenditures many State officials have recognized that they must focus on the quality of health care services that they are purchasing as well as spending levels. The variety of activities that both public and private purchasers have pursued to achieve these expanded objectives are referred to as "value-based" purchasing strategies.

Early implementation of these strategies has not been as widespread nor as effective in achieving intended objectives as some States had hoped. Some of the reasons for this are the challenges related to:

  • Shifting from a "dollars only" mindset to a more accountability-oriented focus that includes quality of care.
  • Developing valid and appropriate "actionable" measures of health plan performance.
  • Getting multiple purchasers to recognize the benefits of cooperative and collaborative efforts in pursuing value-based purchasing.
  • Finding leadership and support for value-based purchasing at the highest levels of the legislative and executive branches of government.

The sessions included:

The Current Status of Value-based Purchasing

Any value-based purchasing strategy should contain several essential elements, including choices, value-based contracting, and performance standards. A number of barriers related to data collection and costs may inhibit successful implementation of value-based purchasing. Employers are one group of purchasers that can influence quality of care, yet more needs to be done to ensure their success in this endeavor.

The Application of Value-based Purchasing Principles in a Changing Market Environment

In the context of changing market conditions, many purchasers must now examine how value-based purchasing principles can be applied to non-capitated, managed care models. Medicaid primary care case management (PCCM) arrangements demonstrate how some States have successfully incorporated value-based purchasing principles into their programs to meet the needs of their specific populations.

Analysis of Participating States' Current Purchasing Activities

State purchasers must realize that while each State may have different strengths underlying its purchasing arrangement, common weaknesses and environmental obstacles can impede the effectiveness of any purchasing initiative. Purchasers should consider what opportunities exist that may allow them to focus more on quality of care, and should look to how other States have infused value-based principles into their purchasing efforts.

Lessons Learned from State Experiences

Purchasers can act individually or in concert, at the State and local level, to incorporate value-based purchasing principles in their health care programs. The Georgia Department of Community Health consolidated its purchasing power and better coordinated the State's multiple health care purchasing and planning agencies by bringing them together under one State organization. The Maine Health Management Coalition partnered public and private sector purchasers to develop quality improvement initiatives, including a program to treat depression, while the Tri-State Healthcare Coalition increased accountability of care through a collaboration between local level purchasers and providers. Purchasers should examine the lessons learned by these groups and consider several questions to determine whether these strategies are applicable to their own initiatives.

The Role of the Consumer in Value-based Purchasing

The consumer is a potentially valuable resource in value-based purchasing, and more efforts must be made to keep them informed. Report cards have not had a significant impact on consumer decisionmaking, and many questions exist about why this has occurred. State health policymakers considering using report cards in their value-based purchasing efforts must consider several implications.

Using Data Effectively as a Key to Successful Value-based Purchasing

Appropriately collecting data is a key to successful value-based purchasing. Several steps are necessary to maximize data usability, and many common mistakes can occur if these steps are not followed. State purchasers may look to two examples for using data successfully in quality improvement strategies:

  • MassHealth, the Massachusetts Medicaid program, which collects a range of data used to examine and improve health plan performance.
  • Wisconsin Medicaid program, which replaced its inaccurate and untimely survey data system with a more verifiable and uniform encounter data system.

The Importance of Selling the Strategy Back Home

To move a value-based purchasing strategy forward, State health care agencies must learn how to talk effectively to legislators, and must identify the challenges (e.g., data issues, partnerships) that might impede their progress. States should identify mechanisms to address these challenges, and should pursue any purchasing strategy in incremental stages.


The target audience of this workshop was teams of senior State legislative and executive branch officials. These officials included: legislators and staff responsible for one or more State health care financing programs, State Medicaid directors, directors of State employee health benefit programs, Governors' office staff, and others.

AHRQ's User Liaison Program (ULP) disseminates health services research findings in easily understandable and usable formats through interactive workshops. Workshops and other support are planned to meet the needs of Federal, State, and local policymakers, and other health services research users, such as purchasers, administrators, and health plans.

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