THE LEARNING HEALTHCARE SYSTEM SERIES


ROUNDTABLE ON VALUE & SCIENCE-DRIVEN HEALTH CARE

VALUE IN HEALTH CARE

Accounting for Cost, Quality, Safety, Outcomes, and Innovation

Workshop Summary

Pierre L. Yong, LeighAnne Olsen, and J. Michael McGinnis

INSTITUTE OF MEDICINE
OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
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THE LEARNING HEALTHCARE SYSTEM SERIES ROUNDTABLE ON VALUE & SCIENCE-DRIVEN HEALTH CARE VALUE IN HEALTH CARE Accounting for Cost, Quality, Safety, Outcomes, and Innovation Workshop Summary Pierre L. Yong, LeighAnne Olsen, and J. Michael McGinnis

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Govern- ing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineer- ing, and the Institute of Medicine. This project was supported by the Agency for Healthcare Research and Quality, America’s Health Insurance Plans, AstraZeneca, Blue Shield of California Founda- tion, Burroughs Wellcome Fund, California Health Care Foundation, Centers for Medicare and Medicaid Services, Department of Veterans Affairs, Food and Drug Administration, Johnson & Johnson, the Moore Foundation, the National Institutes of Health, sanofi-aventis, and Stryker. Any opinions, findings, conclusions, or rec- ommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the organizations or agencies that provided support for this project. International Standard Book Number 13: 978-0-309-12182-8 International Standard Book Number 10: 0-309-12182-5 Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at: www.iom.edu. Copyright 2010 by the National Academy of Sciences. All rights reserved. Printed in the United States of America The serpent has been a symbol of long life, healing, and knowledge among almost all cultures and religions since the beginning of recorded history. The serpent adopted as a logotype by the Institute of Medicine is a relief carving from ancient Greece, now held by the Staatliche Museen in Berlin. Suggested citation: IOM (Institute of Medicine). 2010. Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes and Innovation: Workshop Summary. Washington, DC: The National Academies Press.

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“Knowing is not enough; we must apply. Willing is not enough; we must do.” — Goethe Advising the Nation. Improving Health.

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Acad- emy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineer- ing programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is presi- dent of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Insti- tute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sci- ences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Coun- cil is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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ROUNDTABLE ON VALUE & SCIENCE-DRIVEN HEALTH CARE1 Denis A. Cortese (Chair), Emeritus President and Chief Executive Officer, Mayo Clinic; Foundation Professor, ASU David Blumenthal, National Coordinator, Office of the National Coordinator for Health IT (ex officio) Bruce G. Bodaken, Chairman, President, and Chief Executive Officer, Blue Shield of California David R. Brennan, Chief Executive Officer, AstraZeneca PLC Paul Chew, Chief Science Officer and CMO, sanofi-aventis U.S., Inc. Carolyn M. Clancy, Director, Agency for Healthcare Research and Quality (ex officio) Francis Collins, Director, National Institutes of Health (designee: Susan Shurin) (ex officio) Michael J. Critelli, Former Executive Chairman, Pitney Bowes, Inc. Helen Darling, President, National Business Group on Health Thomas R. Frieden, Director, Centers for Disease Control and Prevention (ex officio) Gary L. Gottlieb, President and CEO, Partners HealthCare System James A. Guest, President, Consumers Union George C. Halvorson, Chairman and Chief Executive Officer, Kaiser Permanente Margaret A. Hamburg, Commissioner, Food and Drug Administration (ex officio) Carmen Hooker Odom, President, Milbank Memorial Fund Ardis Hoven, Professor of Medicine, University of Kentucky; Chair-elect, American Medical Association Brent James, Chief Quality Officer and Executive Director, Institute for Health Care Delivery Research, Intermountain Healthcare Michael M. E. Johns, Chancellor, Emory University Craig Jones, Director, Vermont Blueprint for Health Cato T. Laurencin, Vice President for Health Affairs, Dean of the School of Medicine, U. of Connecticut Stephen P. MacMillan, President and Chief Executive Officer, Stryker Mark B. McClellan, Director, Engelberg Center for Healthcare Reform, The Brookings Institution Sheri S. McCoy, Worldwide Chairman, Johnson & Johnson Pharmaceuticals Group 1 Formerly the Roundtable on Evidence-Based Medicine. IOM forums and roundtables do not issue, review, or approve individual documents. The responsibility for the published workshop summary rests with the workshop rapporteur and the institution. v

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Mary D. Naylor, Professor and Director of Center for Transitions in Health, University of Pennsylvania Peter Neupert, Corporate Vice President, Health Solutions Group, Microsoft Corporation Nancy H. Nielsen, Past President, American Medical Association William D. Novelli, Former CEO, AARP; Professor, Georgetown University Jonathan B. Perlin, Chief Medical Officer and President, Clinical Services, HCA, Inc. Robert A. Petzel, Under Secretary, Veterans Health Administration (designee: Joel Kupersmith) (ex officio) Richard Platt, Professor and Chair, Harvard Medical School and Harvard Pilgrim Health Care John C. Rother, Group Executive Officer, AARP John W. Rowe, Professor, Mailman School of Public Health, Columbia University Mark D. Smith, President and CEO, California HealthCare Foundation Reed D. Tuckson, Executive VP and Chief of Medical Affairs, UnitedHealth Group Frances M. Visco, President, National Breast Cancer Coalition Administrator, Centers for Medicare and Medicaid Services (ex officio) Assistant Secretary for Health Affairs, Department of Defense (ex officio) Planning Committee Michael E. Chernew, Harvard Medical School Ezekiel J. Emanuel, National Institutes of Health Arthur Garson, Jr., University of Virginia School of Medicine Samuel R. Nussbaum, Wellpoint John C. Rother, AARP Karen L. Smith, AstraZeneca Roundtable Staff Christie Bell, Financial Associate Patrick Burke, Financial Associate (through December 2009) Andrea Cohen, Financial Associate (through December 2008) Kiran Gupta, Research Assistant J. Michael McGinnis, Senior Scholar and Executive Director LeighAnne Olsen, Program Officer Daniel O’Neill, Research Associate (through January 2009) Kate Sharaf, Fellow (through November 2008) vi

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Ruth Strommen, Intern Kate Vasconi, Program Assistant Pierre L. Yong, Program Officer Allen Zheng, Intern Catherine Zweig, Senior Program Assistant vii

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Reviewers This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: Michael Chernew, Harvard Medical School Mary Kay Henry, SEIU Ronald A. Paulus, Geisinger Health System Vincenza Snow, American College of Physicians Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the final draft of the report before its release. The review of this report was overseen by Robert Graham, University of Cincinnati College of Medicine. Appointed by the National Research Council and the Institute of Medicine, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the editors and the institution. ix

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Institute of Medicine Roundtable on Value & Science-Driven Health Care Charter and Vision Statement The Institute of Medicine’s Roundtable on Value & Science-Driven Health Care has been convened to help transform the way evidence on clinical effec- tiveness is generated and used to improve health and health care. Participants have set a goal that, by the year 2020, 90 percent of clinical decisions will be supported by accurate, timely, and up-to-date clinical information, and will reflect the best available evidence. Roundtable members will work with their colleagues to identify the issues not being adequately addressed, the nature of the barriers and possible solutions, and the priorities for action, and will marshal the resources of the sectors represented on the Roundtable to work for sustained public-private cooperation for change. ****************************************** The Institute of Medicine’s Roundtable on Value & Science-Driven Health Care has been convened to help transform the way evidence on clinical effective- ness is generated and used to improve health and health care. We seek the devel- opment of a learning healthcare system that is designed to generate and apply the best evidence for the collaborative healthcare choices of each patient and provider; to drive the process of discovery as a natural outgrowth of patient care; and to ensure innovation, quality, safety, and value in health care. Vision: Our vision is for a healthcare system that draws on the best evidence to provide the care most appropriate to each patient, emphasizes prevention and health promotion, delivers the most value, adds to learning throughout the delivery of care, and leads to improvements in the nation’s health. Goal: By the year 2020, 90 percent of clinical decisions will be supported by accurate, timely, and up-to-date clinical information, and will reflect the best available evidence. We feel that this presents a tangible focus for progress toward our vision, that Americans ought to expect at least this level of perfor- mance, that it should be feasible with existing resources and emerging tools, and that measures can be developed to track and stimulate progress. Context: As unprecedented developments in the diagnosis, treatment, and long-term management of disease bring Americans closer than ever to the promise of personalized health care, we are faced with similarly unprecedented challenges to identify and deliver the care most appropriate for individual needs and conditions. Care that is important is often not delivered. Care that is delivered is often not important. In part, this is due to our failure to apply the evidence we have about the medical care that is most effective—a failure related to shortfalls in provider knowledge and accountability, inadequate care coordination and support, lack of insurance, poorly aligned payment incen- xi

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tives, and misplaced patient expectations. Increasingly, it is also a result of our limited capacity for timely generation of evidence on the relative effectiveness, efficiency, and safety of available and emerging interventions. Improving the value of the return on our healthcare investment is a vital imperative that will require much greater capacity to evaluate high-priority clinical interventions, stronger links between clinical research and practice, and reorientation of the incentives to apply new insights. We must quicken our efforts to position evi- dence development and application as natural outgrowths of clinical care—to foster health care that learns. Approach: The IOM Roundtable on Value & Science-Driven Health Care serves as a forum to facilitate the collaborative assessment and action around issues central to achieving the vision and goal stated. The challenges are myriad and include issues that must be addressed to improve evidence development, evidence application, and the capacity to advance progress on both dimensions. To address these challenges, as leaders in their fields, Roundtable members will work with their colleagues to identify the issues not being adequately addressed, the nature of the barriers and possible solutions, and the priorities for action, and will marshal the resources of the sectors represented on the Roundtable to work for sustained public-private cooperation for change. Activities include collaborative exploration of new and expedited approaches to assessing the effectiveness of diagnostic and treatment interven- tions, better use of the patient care experience to generate evidence on effec- tiveness, identification of assessment priorities, and communication strategies to enhance provider and patient understanding and support for interventions proven to work best and deliver value in health care. Core concepts and principles: For the purpose of the Roundtable activi- ties, we define evidence-based medicine broadly to mean that, to the great- est extent possible, the decisions that shape the health and health care of Americans—by patients, providers, payers, and policy makers alike—will be grounded on a reliable evidence base, will account appropriately for individual variation in patient needs, and will support the generation of new insights on clinical effectiveness. Evidence is generally considered to be information from clinical experience that has met some established test of validity, and the appro- priate standard is determined according to the requirements of the intervention and clinical circumstance. Processes that involve the development and use of evidence should be accessible and transparent to all stakeholders. A common commitment to certain principles and priorities guides the activities of the Roundtable and its members, including the commitment to the right health care for each person; putting the best evidence into practice; establishing the effectiveness, efficiency, and safety of medical care delivered; building constant measurement into our healthcare investments; the estab- lishment of healthcare data as a public good; shared responsibility distrib- uted equitably across stakeholders, both public and private; collaborative stakeholder involvement in priority setting; transparency in the execution of activities and reporting of results; and subjugation of individual political or stakeholder perspectives in favor of the common good. xii

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Foreword For decades, the rise in healthcare costs in the United States has out- paced growth in the economy as a whole. The United States spends per capita on health almost double the average of other Organisation for Economic Co-operation and Development countries. Over the years, it has become increasingly clear that Americans are not gaining benefits com- mensurate with these higher expenditures: dozens of countries today boast superior life expectancy and lower infant mortality. Among many efforts to enhance value from health expenditures, the Institute of Medicine in 2006 created a Roundtable on Evidence-Based Medicine, now called the Roundtable on Value & Science-Driven Health Care. Its purpose was to bring together patients and consumers, providers, manufacturers, payers, researchers and policy makers in a neutral venue to discuss ways evidence about how well interventions work could transform delivery of care in this country. The Roundtable developed a vision of a learning healthcare system where evidence is both applied and generated as a natural course of care. Building on this work, the Roundtable convened leaders, researchers, and policy makers from across the healthcare field on November 17-18, 2008, for the workshop Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes, and Innovation. This volume summarizes the presentations and discussions from the workshop. These explore the meaning of value in health care from a variety of perspectives, present methods to measure value, and describe ways to give value-enhancing incentives to the provider, consumer, manufacturer, payer, and other stakeholders in the healthcare system. The insights and ideas shared in this volume are germane to the healthcare reform efforts xiii

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xiv FOREWORD currently ongoing in this country and, specifically, can help achieve the dual goals of controlling healthcare expenditures and improving health outcomes. I would like to offer my thanks to the members of the Roundtable who champion better health for Americans, to the Roundtable staff who coordi- nate and enable Roundtable activities, and to the sponsors who support this vital activity: the Agency for Healthcare Research and Quality, America’s Health Insurance Plans, AstraZeneca, Blue Shield of California Foundation, Burroughs Wellcome Fund, California Health Care Foundation, Centers for Medicare and Medicaid Services, Department of Veterans Affairs, Food and Drug Administration, Johnson & Johnson, the Moore Foundation, the National Institutes of Health, sanofi-aventis, and Stryker. Harvey V. Fineberg, M.D., Ph.D. President, Institute of Medicine

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Preface Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes, and Innovation summarizes a two-day workshop held in November 2008, convened by the Institute of Medicine (IOM) Roundtable on Value & Science-Driven Health Care as part of its Learning Healthcare System workshop series. While the purpose of the workshop was not to yield a single definition of value, and, as a result, no single consistent definition of value was identified by the participants, this meeting did provide a forum for the broad spectrum of stakeholders in health to discuss the range of issues relevant to defining, assessing, and measuring the benefits received from our healthcare investments. This collection of papers and insights reflect the serious, reflective engagement of patients, providers, manufac- turers, economists, payers, and employers—from both public and private sectors—in the central issues of value in health care. Participants discussed issues such as the mandate for improving value given rising expenditures on health care and the turbulent economic climate; the importance of per- spective when defining value; the importance of communication between all involved stakeholders—but especially between patients, consumers, and providers—in order to improve outcomes while reducing costs; the tools available to incentivize value creation, including pay-for-performance, value-based insurance design, and electronic health records; and the oppor- tunities and barriers for implementation and change. The vision of the IOM Roundtable on Value & Science-Driven Health Care is to help foster the development of a learning healthcare system—a system in which the processes and information systems used throughout health care engineer both the natural delivery of best care practices and the xv

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xvi PREFACE real-time generation of new evidence. With the engagement and support of senior leadership from the nation’s key healthcare sectors, the work of the Roundtable has advanced this vision through concerted efforts, including public workshops and published proceedings. The focus of this workshop emerged from prior discussions among Roundtable members and partici- pants which highlighted the nation’s lagging outcomes despite increasing expenditures on health—concerns which have only been underscored as the nation continues to battle economic turmoil. This workshop provided a forum for stakeholders to discuss their perspectives on value, discover areas of difference and commonality, and identify topics for further discussion and collaboration. As described in the Summary, a number of fundamental ideas about the impetus for change as well as the challenges, considerations, and opportunities paramount to achieving value emerged. The workshop discussions made clear the belief in a compelling and urgent mandate to achieve greater value in health care. Yet participants also quickly identified the lack of a uniform definition of value to guide progress while also underscoring the importance of perspective, as value holds different meaning to different stakeholders. Challenges such as the fragmentation of the current service delivery system, a payment system that rewards volume over outcomes, and the lack of communication between patients, consumers, providers, and payers impede progress in targeting ser- vices to those most likely to benefit. Despite these challenges, participants seized the opportunity to explore utilization of existing efforts in the field. Presenters explored measurement tools in a variety of facets and specialties of medicine. Discussions focused on the possibilities of utilizing current tools such as health information technology, payment and reimbursement incentives, and organizational structures such as the medical home model as mechanisms for change. A clear concern was the preservation of incen- tives for innovation and the need to maintain a central focus on the patient as we proceed down the path towards value. The workshop also laid out a number opportunities and challenges requiring the attention and action of stakeholders such as those represented on the Roundtable, including the development of a comprehensive, coordinated system-wide approach to assess and improve the value of health care. The Roundtable will follow this workshop with deeper consideration of many of the highlighted issues through future workshops, commissioned papers, collaborative activities, and public communication efforts. While the challenges are significant, many opportunities exist for the committed members of Roundtable. Multiple individuals and organizations donated their valuable time toward the development of this workshop summary. In particular, we would like to acknowledge the contributors to this volume for the insights they provided at the workshop as well as their efforts to develop their presentations into the manuscripts included in this summary publication.

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xvii PREFACE In this regard, we should emphasize that this summary is an assemblage of individually authored papers and is intended to convey only the views and beliefs of those participating in the workshop, not the express opinions of the Roundtable on Evidence-Based Medicine, its sponsors, or the Insti- tute of Medicine. We would also like to acknowledge the counsel and efforts of the Planning Committee for this workshop, including Michael E. Chernew (Harvard Medical School), Ezekiel J. Emanuel (National Institutes of Health), Arthur Garson, Jr. (University of Virginia School of Medicine), Samuel R. Nussbaum (Wellpoint), John C. Rother (AARP), and Karen Smith (AstraZeneca). A number of IOM staff were instrumental in coordinating the two-day workshop, including Mark Peterson and Adam Schickedanz. Roundtable staff, including Pierre Yong, Kate Sharaf, LeighAnne Olsen, Catherine Zweig, Kate Vasconi, Ruth Strommen, Kiran Gupta, Jane Fredell, and Daniel O’Neill, helped to translate the workshop proceedings and dis- cussion into this summary. Florence Poillon also contributed substantially to publication development. We would also like to thank Jackie Turner, Vilija Teel, Bronwyn Schrecker Jamrok, and Jordan Wyndelts for helping to coordinate the various aspects of review, production, and publication. The issue of value looms only larger as we proceed into the twenty-first century. While progress has been made in recognizing the need to improve the clinical outcomes obtained for dollars spent on health care, further efforts need to be devoted to engender value as reality. We look forward to continuing the conversations started during this workshop, learning from its insights, and further contributing to the vision of The Learning Healthcare System. Denis A. Cortese, M.D. Chair, Roundtable on Value & Science-Driven Health Care J. Michael McGinnis, M.D., M.P.P. Executive Director, Roundtable on Value & Science-Driven Health Care

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Contents SUMMARY 1 1 THE NEED TO IMPROVE VALUE IN HEALTH CARE 23 Introduction, 23 The Need to Improve Value in Health Care, 25 David M. Walker References, 27 2 STAKEHOLDER PERSPECTIVES ON VALUE 29 Introduction, 29 References, 38 3 APPROACHES TO ASSESSING VALUE— ILLUSTRATIVE EXAMPLES 39 Introduction, 39 Measuring Value of Ambulatory Care Services, 40 L. Gregory Pawlson Assessing the Value of Surgical Care, 45 Justin B. Dimick and John D. Birkmeyer Information Flow in Diagnostic Imaging: Consumer, Clinician, Facility, Payer? Why Imaging Value Is Difficult to Measure, 56 Howard P. Forman and Frank Levy Assessing the Value of Prevention, 63 David O. Meltzer xix

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xx CONTENTS Evidence-Based Decision Making or Decision-Based Evidence Making? Evidence and Decisions Along the Life Cycle of Pharmaceutical Products, 73 Newell E. McElwee Approaches to Assessing Value: Personalized Diagnostics, 80 Ronald E. Aubert and Robert S. Epstein Medical Device Value and Innovation, 87 John Hernandez and Parashar B. Patel References, 100 4 APPROACHES TO IMPROVING VALUE— CONSUMER INCENTIVES 111 Introduction, 111 Value-Based Insurance Design: Restoring Health to the Healthcare Cost Debate, 112 A. Mark Fendrick and Michael E. Chernew Consumer-Directed Health Plans: What Are They, What Do We Know About Their Effects, and Can They Enhance Value?, 118 Melinda J. Beeuwkes-Buntin The Role of Tiered Benefit Designs for Improving Value in Health Care, 127 Dennis P. Scanlon and Grant R. Martsolf Policy Perspectives: Health Promotion and Disease Prevention (aka Wellness), 140 Ronald Z. Goetzel References, 148 5 APPROACHES TO IMPROVING VALUE— PROVIDER AND MANUFACTURER PAYMENTS 153 Introduction, 153 Pay for Performance, 154 Carolyn M. Clancy Incentives for Product Innovation—Product Manufacturer Perspective, 157 Donald A. Sawyer Incentives for Product Innovation—Payer Perspective, 162 Reed V. Tuckson Approaches to Improving Value: Coverage and Reimbursement, 165 Steven D. Pearson References, 171

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xxi CONTENTS 6 APPROACHES TO IMPROVING VALUE— ORGANIZATION AND STRUCTURE OF CARE 173 Introduction, 173 The Value of Electronic Health Records, 174 Douglas Johnston, Colene Byrne, Eric Pan, Adam Vincent, and Blackford Middleton Medical Homes and Medical “Home Runs,” 189 Arnold Milstein Disease Management, 192 Tracey A. Moorhead References, 196 7 ALIGNING THE SYSTEM TO PROMOTE VALUE— NOW AND IN THE FUTURE 201 Introduction, 201 Plenary Address: Perspectives on Value from the United Kingdom, 202 Sir Michael Rawlins Value in Health Care: The Path to Value, 206 Christine K. Cassel Opportunities for Change, 211 References, 213 8 COMMON THEMES AND OPPORTUNITIES FOR ACTION 215 Introduction, 215 Common Themes, 215 Looking Ahead Toward Next Steps, 221 APPENDIXES A Workshop Agenda 227 B Biographical Sketches of Workshop Participants 233 C Workshop Attendee List 255

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