Private payers taking first steps on a path toward value-based purchasing that could eventually include clinical pathology laboratory testing services

Pay-for-performance just took a leap forward with news that one of the nation’s largest health insurers will link hospital reimbursement to specific quality measures. This development could be a precursor to similar payer initiatives that involve how private payers reimburse clinical laboratories and anatomic pathology groups.

Indianapolis-based WellPoint, Inc. (NYSE: WLP) will revamp the way it reimburses about 1,500 hospitals across the country. In a news story published by Bloomberg Businessweek, Rick Wartzman, Executive Director of the Drucker Institute at Claremont Graduate University, explained that, going forward, WellPoint wants to base annual payment increases to hospitals using a formula that incorporates the health insurer’s quality criteria, rather than to the quantity of services delivered.

WellPoint plans to institute this new hospital reimbursement model in 14 states where it offers Blue Cross Blue Shield plans. These health insurance plans cover 34 million members.

WellPoint wants to base annual payment increases to hospitals using a formula that incorporates the health insurer’s quality criteria.

Under this new reimbursement system, WellPoint will pay increased reimbursement only to hospitals that meet quality criteria based on 51 quality indicators. WellPoint will assess individual hospitals using three primary factors, as follows:

• Health outcomes (weighted at 55%)
• Patient-safety measures (weighted at 35%)
• Patient satisfaction (weighted at 10%)

While other health insurers have implemented similar pay-for-performance programs by tying hospital and physician payments to improved medical outcomes for members, WellPoint’s plan will be unique for two reasons. First, it is mandatory. Second, its reach is nationwide, rather than statewide or regional. “[W]e reward hospitals for using programs and technologies that improve medical outcomes, reduce errors, and increase member satisfaction,” declared WellPoint on its website.

Under its former reimbursement system, WellPoint’s hospitals received annual increases, plus special rewards for high-quality care. With this new pay-for-performance plan, providers will receive the annual increase only if they meet the insurer’s quality standards. “In 2009,” noted WellPoint on its website, “[the company’s] affiliated health plans rewarded physicians and hospitals with more than $250 million in incentive payments for a variety of activities associated with higher quality care and efficiency.”

WellPoint’s move came just a few weeks after the Centers for Medicare and Medicaid Services (CMS) finalized its value-based purchasing program that is due to launch in October 2012. Both developments show that government and private payers are determined to evolve provider reimbursement away from pure fee-for-service in favor of reimbursement models that reward hospitals and physicians for measurable improvements in patients’ health outcomes.

Smaller/Rural Hospitals May Have Tough Time Meeting New Standards

Of course, there are critics of these early efforts to pay hospitals based on how they improve quality. Many leaders in the hospital industry are quick to point out that hospital quality measures are far from perfect and less than comprehensive, There are also concerns that smaller hospitals and hospitals in rural areas may not have the resources required to meet the new standards.

Healthcare Economist expressed skepticism that WellPoint’s shift to value-based purchasing is purely altruistic. “High-quality hospitals will get the same annual increase they did before; low-quality hospitals will get less… [E]ven if the selected metrics measured quality inaccurately, certain hospitals would still receive lower payments and WellPoint would benefit either through increased profits or increased market share (by lowering premiums), noted the reporter in the Healthcare Economist article.

If WellPoint’s new policy works, wrote Wartzman, it should also prod doctors, nurses, and other medical personnel to make significant strides toward giving their “customers” what they value. In this broader sense, the company’s actions will be watched closely by other health insurers and providers who similarly also hope to improve the health outcomes of their patients.

The move by WellPoint is a reminder to pathologists and clinical laboratory executives that pay-for-performance—as one variant of value-based purchasing—continues to be an important strategy for government and private health insurance plans. Hospitals are the first class of providers to see these new reimbursement models because of the huge dollars paid for inpatient care.

In downstream years, as payers get more comfortable with these reimbursement models, they will eventually develop specific pay-for-performance reimbursement models for medical laboratory testing and anatomic pathology services. The three primary factors used by WellPoint in its hospital pay-for-performance program—health outcomes, patient-safety measures, and patient satisfaction—offer clues to clinical laboratory administrators as to how they might want to prepare their own lab organizations for these value-based purchasing programs.

—Pamela Scherer McLeod

Related Information:

Does WellPoint care about quality…or reducing cost?

WellPoint Shakes Up Hospital Payments

WellPoint’s New Plan: Pay for Performance and Quality, Not Quantity