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Realizing the Promise of Value-based Purchasing
Applying Value-based Purchasing
Vernon K. Smith, Ph.D., Principal, Health Management Associates, Lansing, MI.
The health care marketplace in which value-based purchasing initiatives are
being carried out is in constant flux. Over the past few years, many health plans have
consolidated and exited the Medicare and Medicaid markets. Consumers have begun to
demand greater flexibility and, as a result, are turning away from capitated care arrangements
and seeking out "looser," less integrated forms of managed care.
Vernon Smith explored how value-based purchasing principles could be applied to some of
these non-capitated, managed care models. He stressed that while current market conditions
increase the need to get the most value for the health care dollar, purchasers must adapt earlier
value-based purchasing strategies (i.e., selective contracting, performance standards, and
incentives) to reflect today's more fluid delivery structures.
A study conducted by Dr. Smith examined one of these more flexible models, Medicaid
primary care case management (PCCM) arrangements. Under Medicaid PCCM
models, the Medicaid program contracts with primary care physicians (PCPs) to provide
primary care services for enrolled Medicaid recipients, and to coordinate (but not assume
financial responsibility for) other specialty care.
Many States that operate Medicaid PCCM programs seek to administer these programs as if
they were well-managed health plans. This has led some Medicaid administrators to explore
the potential of adapting program designs, policies, and procedures found in private sector
health plans. Some of these States are now looking to value-based purchasing principles to
assist them with meeting the needs of their specific populations.
Dr. Smith highlighted the ways several States have incorporated value-based
purchasing principles within their Medicaid PCCM programs:
- Choices: Beneficiaries are able to choose from among qualified and participating
primary care physicians (PCPs), specialists, and hospitals in rural and urban areas.
- Value-based contracting: Medicaid chooses to contract only with providers who agree
to a PCCM contract beyond the Medicaid provider enrollment agreement. This contract
contains stringent provider qualifications and requirements for access and specialty
- Performance standards: Medicaid monitors performance on quality and patient
satisfaction measures. Report cards, surveys, and published reports generate
- Incentives: Enhanced payment for priority services and recognition in published reports
can be given as incentives for good performance, while penalties such as freezing
enrollment and forcing disenrollment of PCPs are sometimes imposed on those who do
not comply with access requirements.
Incorporating these elements has resulted in better access to care, measurable improvements in
quality, and cost savings. Though States should individually determine how to best achieve
their purchasing objectives, Dr. Smith stressed that alternative delivery systems such as
Medicaid PCCM can successfully integrate value-based purchasing principles.
Smith VK, DesJardins T, Peterson KA. Exemplary Practices in Primary Case Management: A
Review of State Medicaid PCCM Programs. Center for Health Care Strategies, Inc., 2000, Jun.
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