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Realizing the Promise of Value-based Purchasing

Lessons Learned from the States

Case Studies


Paul Justice, Esq., General Counsel, Georgia Department of Community Health, Atlanta, GA.

Frank Johnson, Executive Director, Office of Employee Health Benefits, Augusta, ME.

Cathy Meckes, Executive Director, Tri-State Healthcare Coalition, Quincy, IL.

A range of approaches has been used to implement value-based purchasing strategies in both the public and private sector. This session examines how purchasers at the State and local levels have acted individually or in concert to incorporate value-based purchasing principles in their health care programs. The session also highlights key design decisions, implementation issues, and lessons learned.


The State of Georgia sought to consolidate its purchasing power and better coordinate its multiple health care purchasing and planning agencies (Medicaid, State health benefit plans, etc.) by bringing them together under the umbrella of one State organization. The Georgia Department of Community Health was created in June 1999 with an aim to:

  • Minimize the duplication and maximize the efficiency in the State's health care systems by removing overlapping functions and streamlining uncoordinated programs.
  • Enable the State to develop a better health care infrastructure more responsive to the consumers it serves while improving access and coverage for health care.
  • Focus more attention and departmental procedures on the issue of wellness, including diet, exercise, and personal responsibility.

Paul Justice highlighted two of the Department's most successful procurement initiatives, one for the largest statewide preferred provider organization (PPO) network in Georgia, and another to contract for Pharmacy Benefit Manager (PBM) services for all of its purchasing programs. The PBM procurement arose out of the need to control escalating pharmaceutical expenditures in the State, and had two key goals:

  1. Ensure that members of the three major State health benefit plans (Medicaid, State Health Benefit Plan, and Board of Regents Health Plan) receive timely, appropriate medications through a single PBM vendor.
  2. Obtain market competitive pricing based on the total membership of the State's health plans by using methods such as drug use review, a preferred drug list (i.e., formulary), drug rebate programs, and pharmacy pricing.

The success of this initiative was due in part to the Department's willingness to educate its stakeholders and to engage them in the procurement and implementation process. The State of Georgia learned several lessons from its endeavors:

  • Identify and understand your key stakeholders—i.e., both constituents and adversaries.
  • Engage these stakeholders in the procurement and implementation process.
  • Do not underestimate the "learning curve" for both sides, and realize an extended implementation period may be necessary.
  • Build a strong foundation (e.g., accurate processing of pharmacy claims, excellent customer service) to ensure the effectiveness of the PBM strategy and other quality initiatives.


Frank Johnson from the State of Maine provided an example of how a partnership between public and private sector purchasers can improve the value of health care services delivered in the State. The Maine Health Management Coalition (MHMC) is made up of the State Medicaid agency and 30 major employers committed to maintaining value-based purchasing in this rural State where managed care competition has diminished.

The MHMC has been involved in several quality improvement initiatives, in particular a project that attempted to improve the diagnosis and treatment of depression. Depression was selected because it is a prevalent condition handled primarily through primary care physicians, and because its costs exceed many other diseases. A steering committee made up of employers, clinicians, health plans, research organizations, and consumer advocates was charged with:

  • Inventorying depression initiatives.
  • Evaluating potential data sources.
  • Identifying stakeholders, collaborators, and potential funding sources.

The committee used this information to propose several interventions to improve diagnosis and treatment of depression:

  • A telephone employee-screening program.
  • A depression awareness and education program.
  • Patient call-back in selected practices.
  • A medication quality indicator study.
  • A model benefits design for mental health coverage.
  • Comprehensive practice profiles.

Several of these interventions have been tested and were successful in detecting more cases of depression in persons who were not previously diagnosed (telephone screening), and increasing employers' awareness about depression's prevalence and effects (education program).

Mr. Johnson noted that the MHMC also learned many lessons from its success with this and other initiatives, including:

  • Purchasers must make the "business case" to senior management and health plans about the need for better diagnosis and treatment of conditions like depression.
  • Stakeholder buy-in is crucial, though it requires time and patience.
  • The current system of paying for services and procedures rather than outcomes impedes value-based strategies.
  • While engaged patients and activated physicians can improve quality, patients still often do not recognize variations in quality, and are not aware that clinical guidelines exist.
  • Providers are still reluctant to measure and report quality indicators.


Cathy Meckes of the Tri-State Healthcare Coalition (TSHCC) provided an example of how collaboration between purchasers and providers can be successful on the local level. TSHCC was formed in rural Illinois when a group of employers decided to organize themselves to address rising health care costs and increase accountability of care. The coalition recognized that employers can help consumers make positive health care choices and sought to:

  • Organize employers to establish market leverage.
  • Introduce managed care to their rural marketplace.
  • Establish a data collection system.
  • Control costs.
  • Establish the basis for quality improvement.

The TSHCC recognized that an effective managed care arrangement must:

  • Promote access to primary care.
  • Use a local network of physicians and involve them in plan oversight.
  • Facilitate data collection.
  • Achieve best pricing.

The underlying quality improvement philosophy of the coalition has had a major role in its success in these areas. The TSHCC has:

  • Enrolled 10,000 members with primary care physicians.
  • Increased physician involvement and the use of local providers (as opposed to referring patients to providers outside the community).
  • Gathered data from eight major employers in the area to assess where health care dollars are going.

The TSHCC learned several lessons despite encountering obstacles such as provider resistance, lack of data, employer differences, and consumer perceptions:

  • Employers can act in concert to achieve mutual goals.
  • Providers do respond to market pressure.
  • Data can act as a surrogate competitor.
  • To achieve quality improvement, a structure must be built for it.

Ms. Meckes also recommended other models that focus on the principles of accountability, incentives, and collaboration, and suggested that these may be applicable to State purchasing initiatives, if State officials consider the following questions:

  • Can States adopt market-specific purchasing arrangements?
  • Can States be active participants with other employers?
  • Can administrative arrangements adapt to local requirements?


Hunkler EM, Meresman JF, Hargreaves WA, et al. Efficacy of Nurse Telehealth Care and Peer Support in Augmenting Treatment of Depression in Primary Care. Archives of Family Medicine 2000; 9:700-8.

Maine Health Management Coalition. Depression Quality Improvement Project. Phase 1 Information Sheet Summary.

Vernarec, E. Depression in the Workforce: Who Will Insist on Good Care? Business and Health 2000, Sep:27-35.

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