Summary

The United States has the highest per capita spending on health care of any industrialized nation—50 percent greater than the second highest and twice as high as the average for Europe (Peterson and Burton, 2009). Current U.S. healthcare costs are projected at nearly $2.5 trillion, about 17 percent of the entire economy (Sisko et al., 2009). The Congressional Budget Office estimated that Medicare and Medicaid alone will account for nearly a quarter of the economy by 2050 if healthcare costs grow at just 2 percent more than GDP per capita each year (Congressional Budget Office, 2007). At these levels of spending, healthcare expenditures have begun to restrict the ability of federal and state governments to fund other priorities such as education (White House, 2009).

Yet despite the unprecedented levels of spending, harmful medical errors abound (IOM, 2000), uncoordinated care continues to frustrate patients and providers, and U.S. healthcare costs continue to increase (Sisko et al., 2009). With the growing ranks of the uninsured, the nation faces significant social costs, with lost productivity and increasing disparities in health outcomes (IOM, 2003). An aging population with a higher prevalence of chronic diseases and many patients with multiple conditions together constitute another complicating factor in the trend to higher costs of care (Martini et al., 2007; Meara et al., 2004; Strunk and Ginsburg, 2002).

The planning committee’s role was limited to planning the workshop, and the workshop summary has been prepared by Roundtable staff as a factual summary of what occurred at the workshop.



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Summary The United States has the highest per capita spending on health care of any industrialized nation—50 percent greater than the second highest and twice as high as the average for Europe (Peterson and Burton, 2009). Current U.S. healthcare costs are projected at nearly $2.5 trillion, about 17 percent of the entire economy (Sisko et al., 2009). The Congressional Budget Office estimated that Medicare and Medicaid alone will account for nearly a quarter of the economy by 2050 if healthcare costs grow at just 2 percent more than GDP per capita each year (Congressional Budget Office, 2007). At these levels of spending, healthcare expenditures have begun to restrict the ability of federal and state governments to fund other priorities such as education (White House, 2009). Yet despite the unprecedented levels of spending, harmful medical errors abound (IOM, 2000), uncoordinated care continues to frustrate patients and providers, and U.S. healthcare costs continue to increase (Sisko et al., 2009). With the growing ranks of the uninsured, the nation faces significant social costs, with lost productivity and increasing disparities in health outcomes (IOM, 2003). An aging population with a higher prevalence of chronic dis- eases and many patients with multiple conditions together constitute another complicating factor in the trend to higher costs of care (Martini et al., 2007; Meara et al., 2004; Strunk and Ginsburg, 2002). The planning committee’s role was limited to planning the workshop, and the workshop summary has been prepared by Roundtable staff as a factual summary of what occurred at the workshop. 

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2 VALUE IN HEALTH CARE It has been estimated that 20-30 percent of expenditures dedicated to health care employ either over-, under-, or misutilization of medical treatments and technologies, relative to the evidence of their effectiveness (Skinner et al., 2005). Despite 60 percent more frequent physician visits, testing, procedures, and use of specialists and hospitals in high-spending areas in the United States, no differences in quality result (Fisher et al., 2003). Perhaps up to two-thirds of spending increases in recent years have been due to the emergence of new medical technologies that may yield marginal enhancement of outcome or may benefit only a small number of patients (Cutler, 1995; Newhouse, 1992; Smith et al., 2000). All of these findings raise basic questions about the orientation and incentives of health- care training, financing, and delivery. A variety of strategies are beginning to be employed throughout the health system to address the central issue of value, with the goal of improv- ing the net ratio of benefits obtained per dollar spent on health care. These approaches, ranging from value-based payment design to improved sys- tems of care delivery, have garnered growing attention in the midst of the national and international economic crisis. However, despite the obvious need, no single agreed-upon measure of value or comprehensive, coordi- nated system-wide approach to assess and improve the value of health care exists. Without this definition and approach, the path to achieving greater value will be characterized by encumbrance rather than progress (Leavitt, 2008; Paulus et al., 2008). ABOUT THE WORKSHOP To address the issues central to defining, measuring, and improving value in health care, the Institute of Medicine (IOM) Roundtable on Value & Science-Driven Health Care convened a workshop entitled “Value in Health Care: Accounting for Cost, Quality, Safety, Outcomes, and Innova- tion” in November 2008 at the National Academies in Washington, DC. This workshop was part of the Learning Healthcare System workshop series and aimed to assemble prominent authorities on healthcare value and leaders of the patient, payer, provider, employer, manufacturer, govern- ment, health policy, economics, technology assessment, informatics, health services research, and health professions communities. In this context, the IOM provided a forum for the discussion of stakeholder perspectives on measuring and improving value in health care, identifying the key barriers, and outlining the opportunities for next steps. The first day of the work- shop focused on illuminating stakeholder perspectives on health care and describing approaches to defining and measuring value. The second day highlighted a number of different approaches to obtaining value in both the present and the future. The workshop agenda is provided in Appen-

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 SUMMARY dix A, speaker biosketches appear in Appendix B, and a listing of workshop participants can be found in Appendix C. The following synopsis briefly highlights the common themes that arose during the workshop as well as summaries of each presentation. COMMON THEMES During the workshop discussions, a number of converging issues emerged. These common themes explored the exigency and facets of the value proposition in health care, the diversity of perspectives on value, and the possibility of implementation and change. Themes touching on the need to improve value and the elements that have to be addressed in achieving this goal included the following: • Urgency: The urgency to achieve greater value from health care is clear and compelling. The persistent growth in healthcare costs at a rate greater than inflation is squeezing out employer healthcare coverage, adding to the uninsured, and doubling out-of-pocket payments—all without producing commensurate health improve- ments. We have heard that perhaps one-third to one-half of health expenditures are unnecessary for targeted health outcomes. The long-term consequences for federal budget obligations driven by the growth in Medicare costs have been described as nearly unfath- omable, amounting to an estimated $34 trillion in unfunded obliga- tions, about two-thirds of the total of $53 trillion as yet unfunded for all mandatory federal entitlements (including Social Security and other civilian and military benefits). • Perceptions: Value means different things to different stakeholders, so clarity of concepts is key. We have heard that for patients, per- ceived value in health care is often described in terms of the quality of their relationship with their physician. It has been highlighted that value improvement means helping them better meet their per- sonal goals or living lives that are as normal as possible. It does not necessarily mean more services or more expensive services, since it was stated patients are more likely driven by sensitivity to the value of time and ensuring that out-of-pocket payments are targeted to their goals. Provider representatives suggest that value improvement means developing diagnostic and treatment tools and approaches that offer them increased confidence in the effective- ness of the services they offer. Employers discuss value improve- ment in terms of keeping workers and their families healthier and more productive at lower costs. Health insurers assert that value improvement means emphasizing interventions that are crisply and

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 VALUE IN HEALTH CARE coherently defined and supported by a high level of evidence as to effectiveness and efficiency. Representatives from health product innovators and manufacturers have spoken of value improvement as products that are better for the individual patient, are more prof- itable, and contribute to product differentiation and innovation. • Elements: Identifying value in health care is more than simply the right care for the right price as it requires determination of the additional elements of the applicability and circumstances of the benefits considered. We have heard that value in any endeavor is a reflection of what we gain relative to what we put in, and in health care, what is gained from any given diagnostic or treat- ment intervention will vary by individual. Participants believe that value determination begins with learning the benefits—what works best, for whom, and under what circumstances—as applied to indi- viduals because value is not inherent to any service but rather spe- cific to the individual. Value determination also means determining the right price, and we heard that, from the demand side, the right price is a function of perspective—societal, payer, and patient. From the supply side, the right price is a function of the cost of production, the cost of delivery, and the incentive to innovation. • Basics: Improving value requires reliable information, sound deci- sion principles, and appropriate incentives. Since the starting point for determining value is reliable information, workshop discus- sants underscored the importance of appropriate investment in the infrastructure and processes for initial determination and continu- ous improvement of insights on the safety, efficacy, effectiveness, and comparative effectiveness of interventions. Action to improve value, then, also requires the fashioning and use of sound decision principles tailored to the circumstances and adequate incentives to promote the desired outcome. • Decisions: Sound decision principles center on the patient, evi- dence, context, transparency, and learning. Currently, decision rules seem to many stakeholders to be vague and poorly tailored to the evidence. Workshop participants contended that the starting point for tailoring decisions to circumstances is with information on costs, outcomes, and strength of the information. They also discussed assessing value at the societal level using best avail- able information and analytics to generate broad perspective and guidance for decision making on availability, use, and pricing. Yet we also heard that value assessment at the individual patient level takes account of context and patient preferences, conditioned on openness of information exchange and formal learning from choices made under uncertainty. We also heard that an informed

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 SUMMARY patient perspective that trumps a societal value determination can still be consistent with sound decision principles. • Information: Information reliability derives from its sources, meth- ods, transparency, interpretation, and clarity. We have heard about the importance of openness on the nature, strengths, and limitations of the evidence and the processes of analysis and interpretation—and of tailoring decision principles according to the features in that respect. Because the quality of evidence varies, as do the methods used to evaluate it, transparency as to source and process, care as to interpretation, and clarity in communication are paramount. • Incentives: Appropriate incentives direct attention and rewards to outcomes, quality, and cost. Often noted in the workshop discus- sions was that the rewards and incentives prevalent in the American healthcare system are poorly aligned—and even oppositional—to effectiveness and efficiency, encouraging care that is procedure- and specialty-intensive and discouraging primary care and prevention. We heard that if emphases are placed on individual services that are often high cost and inadequately justified, rather than on out- comes, quality, and efficiency, the attainment of system-wide value is virtually precluded. • Limits: The ability to attain system value is likely inversely related to the level of system fragmentation. Transforming health care to a more direct focus on value is frequently noted as an effort that requires broad organizational, financial, and cultural changes— changes ultimately not attainable with the level of fragmentation that currently characterizes decision making in the U.S. healthcare system. We have heard that obtaining the value needed will con- tinue to be elusive until better means are available to draw broadly on information as to services’ efficiency and effectiveness, to set priorities and streamline approaches to filling the evidence gaps, to ensure consistency in the ways evidence is interpreted and applied, and to marshal incentives to improve the delivery of high-value services while discouraging those of limited value. • Communication: System-level value improvement requires more seamless communication among components. Related to system frag- mentation, among the primary barriers to achieving better value are the communication gaps noted among virtually all parties involved. Patients and providers do not communicate well with each other about diagnosis and treatment options or cost implications, in part because in complex administrative and rapidly changing knowledge environments, the necessary information is not readily available to either party. Communication, voice or electronic, is often virtually absent between and among multiple providers and provider systems

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 VALUE IN HEALTH CARE for a single patient, increasing the prospect of service gaps, dupli- cations, confusion, and harm, according to discussants. Further, communication between scientific and professional organizations producing and evaluating evidence is often limited, resulting in inefficiencies, missed opportunities, and contradictions in the pro- duction of guidance. Accordingly, communication between the many groups involved in developing evidence and the practitioners apply- ing it is often unstructured and may be conflicting. The diversity of stakeholder perspectives on value was highlighted from multiple vantage points. • Providers: Provider-level value improvement efforts depend on culture and rewards focused on outcomes. Workshop presentations identified several examples of some encouraging results from vari- ous programs in terms of progress to improve provider sensitivity to, and focus on, value from health care. These range from improv- ing the analytic tools to evaluate the effectiveness and efficiency of individual providers, institutions, and interventions, to incen- tive programs such as pay-for-performance, the patient-centered medical home, and employer-based programs for wellness, disease prevention, and disease management. We heard, for example, that certain provider organizations, in effect, specialize in the care of the poorest and sickest patients and can provide services that in fact have better outcomes and lower costs because they are geared to focus on interprovider communication, continuity of care, and links with social welfare organizations. However, they have also negotiated the necessary flexibility with payers. We heard that the clearest barriers to provider-level value improvement appear to lie in the lack of economic incentives for a focus on outcomes (both an analytic and a structural issue) and also in cultural and structural disincentives to tend to the critical interfaces of the care process—the quality of the links in the chain of care elements. • Patients: Patient-level value improvement stems from quality, communication, information, and transparency. It was noted that patients most often think of value in terms of their relationship with their provider—generally a physician—but ultimately the practical results of that relationship, in terms of costs and out- comes, hinge on the success of programs that improve practical, ongoing, and seamless access to information on best practices and costs and of payment structures that reward accordingly. Work- shop discussants offered insights into the use of various financial approaches to sensitize and orient patient decisions on healthcare prices—individual diagnostics and treatments, providers, or health

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 SUMMARY plans—according to the evidence of the value delivered. Successful broad-based application of such approaches will likely hinge on system-wide transformation in the availability of the information necessary and transparency as to its use. • Manufacturers: Manufacturer-level regulatory and purchasing incentives can be better oriented to value added. Health product manufacturers and innovators naturally focus on their profitability— returning value to shareholders—but we are reminded that product demand is embedded in the ability to demonstrate advantage with respect to patient value—better outcomes with greater efficiency. Hence, manufacturers expressed an interest in exploring regulatory and payment approaches that enhance performance on outcomes related to product use. The possibility of change, including the tools and opportunities needed to capitalize on the possibilities, is also a continual theme throughout the report. • Tools: Continually improving value requires better tools to assess both costs and benefits in health care. Despite the broad agree- ment on the need to get better value from all the elements of the healthcare process and the commitment to make this a priority, we heard that the analytical tools and capacity to evaluate both of the basic elements of value—outcomes and costs—in either absolute or comparative terms are substantially underdeveloped and will need greater attention. • Opportunities: Health system reform is essential to improve value returned, but steps can be taken now. Although attaining better value in health care depends on reducing the fragmentation that is its central barrier, we heard a number of examples of measures that might be taken at different levels, both to achieve better value now and to set the stage for future progress. Some are noted below. PRESENTATION SUMMARIES Each presentation at the workshop, including panel discussions, is briefly summarized below. The Need to Improve Value in Health Care David M. Walker of the Peter G. Peterson Foundation opened the workshop with a keynote address. Speaking of the key challenges facing the U.S. healthcare system in terms of costs, performance, and value, he high- lighted the $53 trillion of debt for unfunded promises for Social Security

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 VALUE IN HEALTH CARE and Medicare (Social Security and Medicare Boards of Trustees, 2008). He further discussed the implications of U.S. healthcare costs for the eco- nomic crisis, the nation’s ability to recover, and the welfare of the American people, before concluding by elaborating on four objectives that should be cornerstones of health reform as we look toward the future: (1) universal coverage for basic and essential health care that meets societal needs, not unlimited individual wants; (2) a defined budget for federal healthcare expenditures that sets limits on spending; (3) the establishment of national evidence-based standards for the practice of medicine and the issuance of prescription drugs in order to improve consistency, enhance quality, reduce costs, and dramatically reduce litigation; and (4) enhanced personal respon- sibility and accountability for health and wellness. Perspectives on Value Drawing on stakeholder comments on value in health care presented at the IOM Roundtable on Value & Science-Driven Health Care meeting in September 2008, a panel of representatives from various sectors of the healthcare enterprise further expanded on sectoral perspectives on value in health care. Seeking to understand the meaning of value and the approaches to assessment among different groups, the panel gathered representatives from patient, provider, economic, health product and device manufacturer, payer, and employer perspectives. Identifying priority issues to be resolved in developing and refining approaches to establishing and improving value, the participants emphasized the importance of perspective, underscoring that value has a different meaning depending on the stakeholder. In contrast to the aggregate view of value adopted by the economists on the panel, patient representatives keenly identified with the ability of health care to help them obtain maximal health and productivity. Employer panelists discussed the value of healthy workers as well as healthy communities. Pro- vider discussants considered value in terms of appropriateness of care rather than cost controls, while payer representatives oriented themselves around the delivery of effective, evidence-based interventions that improve patient outcomes. Meanwhile, manufacturing representatives spoke of the value of innovation and the need to preserve incentives that stimulate creativity and the improvement of health. Approaches to Assessing Value—Illustrative Examples Physician Evaluation and Management Services Measurement of value in health care has become an increasingly impor- tant goal given assessments of both questionable benefit and high cost in the United States. However, value can be very difficult to define in a way

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9 SUMMARY that can be measured practically, especially in a field such as health care where neither the benefits nor the resources used to create them are easily defined, stated L. Gregory Pawlson of the National Committee on Qual- ity Assurance. The concept of “measurable clinical efficiency” examines the relationship of composite quality measures as a proxy for benefit and resource use measures, employing standardized prices as the cost function. Quality measures include clinical structure, process and outcome measures of overuse, underuse, and misuse, and patient experiences of care—each with barriers and problems to implementation and use, he asserted. Pawl- son said that resource use could be measured either by using episodes delin- eated by “clean claims periods” and sorting costs into those episodes or by looking at total costs for all services for a defined group of patients for a defined period of time, each approach with its pros and cons. Transparency and problems with reliability of measurement hinder resource use measure- ment, he continued. Measurable clinical efficiency can then be defined by combining composites of quality with resource use-cost measures in the same population of patients displayed in various combinations (ratios, scatter plots, etc.). The choice of what level (individual clinicians, sites, groups, integrated delivery systems, health plans) of the healthcare system to attribute measures of quality and resource use is also a major challenge with important trade-offs. Finally, Pawlson stated that research to explore the relationships between quality and cost and the elements of the system that affect these measures is critical, as is setting reasonable “rules” and standards for fairness and accuracy of measurement. Surgery and Other Procedures Justin B. Dimick of the University of Michigan considered the value of surgical care from two perspectives. The first considered the effectiveness of surgery, relative to other approaches, for treating medical conditions. He stated that value assessment in this context is the domain of evidence-based medicine, where comparative effectiveness is assessed by critical evalua- tion of randomized clinical trials and observational studies. Ensuring that patients receive surgery only when the evidence indicates the benefit out- weighs the risk clearly improves patient value, he said. The second perspec- tive is motivated by the widespread variations in quality and costs across providers. Dimick stated that value assessment in this context—provider profiling—is particularly timely and is the focus of several public reporting and value-based purchasing efforts. Eliminating variations across providers would undoubtedly lead to large gains in patient value, he asserted. How- ever, for these efforts to be successful, good measures of quality and cost are needed. Dimick suggested that good measures of surgical quality are close on the horizon. For some conditions, good measures are already available and are being applied, he continued. Although good measures of cost are

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0 VALUE IN HEALTH CARE not currently available, there is a growing body of evidence showing that quality and costs are related. Thus, ensuring high-quality care will also lead to lower-cost care. Finally, Dimick concluded that despite a growing emphasis on profiling the technical quality of surgery, there is very little focus on the decision to perform surgery in the first place. To fully assess the value of providers, it will be important to incorporate appropriateness criteria into provider profiling. Imaging Technologies Diagnostic imaging spending has exceeded overall healthcare expendi- ture growth, straining public (primarily Medicare) and private (primarily employer-sponsored health benefits) sector contributions to healthcare delivery. Howard P. Forman of Yale University suggested that value to the beneficiary has been measured in terms of cost-effectiveness for a very small proportion of total imaging. Further, “indication creep” results in a broader application of these services than originally tested (resulting in a lower relative cost-effectiveness than supported in the literature), he stated. Even in situations where imaging is proven not cost-effective (or not effec- tive at all), private and public payers have had a difficult time limiting its application (e.g., lumbar spine imaging, knee magnetic resonance imaging). Forman said that value to the referring clinician has only peripherally been explored and never explicitly been measured. Whether due to defensive medicine (e.g., ordering a marginal study in order to increase certainty) or pecuniary motivations (e.g., doing an imaging test in lieu of a more extensive physical examination), the relative contribution of physician (as opposed to patient) derived value represents a confounding variable in efforts to use more consumer-directed solutions. He concluded that further research and demonstration projects may be necessary to better assess the role of gain sharing or global payments for imaging delivery in the inpa- tient, outpatient, and emergency room settings. Preventive Services and Wellness David O. Meltzer of the University of Chicago stated that prevention is an important contributor to improvements in population health. Preven- tion can also sometimes avert the need for costly future medical treatments, causing some to focus on prevention as a potential mechanism to con- trol healthcare costs, he continued. This presentation reviewed the use of medical cost-effectiveness analysis to address these questions. Meltzer sug- gested that although prevention can be, but is not always, a cost-effective approach to improving health, it is infrequently a powerful approach to controlling healthcare costs, either in the short term or in the long term.

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 SUMMARY He concluded that, moreover, the value of prevention can be influenced profoundly by the context in which it is used, with patient preferences and other characteristics often playing a major role in its value. Pharmaceuticals and Biologicals Newell E. McElwee of Pfizer, Inc., suggested that value has been defined as “the benefit relative to the cost.” However clear this definition may seem, value has different meanings to different people. McElwee stated that assessment or appraisal of the value of healthcare technology var- ies greatly depending on what decision is being made, who the decision makers (stakeholders) are, what the stakeholders’ preferences are, whether the focus is on clinical or economic value, and many other factors such as unmet medical need and the strength of the evidence supporting the value proposition. He discussed how one framework views value in the context of specific decisions and their respective stakeholders. Descriptions of several key decisions during the life cycle of a healthcare technology illustrated how value is considered in decision making, including the early-phase investment decision by the technology developer, the marketing approval decision by the regulatory agency, the adoption or diffusion decision by the payer, and the individual treatment decision by the patient and the physician. Personalized Diagnostics As a result of the growth of molecular diagnostics, a tremendous wealth of information has been gained about the molecular characteristics of the human genome, according to Ronald E. Aubert of Medco Health Solutions, Inc. In the past few years, we have also gained a clearer understanding of the functional aspects of the genome. Aubert explained the concept underlying pharmacogenomics (PGx)—that the response to drug therapy varies, in part due to genetic variation. This interaction between genetics and drug therapy allows us to understand how drugs may work more effectively or safely. This presentation reviewed the use of PGx testing and its potential to help physi- cians and patients achieve more predictable and better outcomes. Given the potential benefits and increasing use of PGx testing, Aubert concluded that careful consideration should be given to the evaluation of testing strategies, including the determination of overall value. Devices The clinical and economic evaluation of medical device interventions varies greatly across the spectrum of existing devices. While therapeutic devices achieve many of the same effects as surgical procedures, Parashar B. Patel of

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2 VALUE IN HEALTH CARE Boston Scientific Corp. discussed how the standards used in device evalua- tion appear to be becoming more similar to those used in evaluating phar- maceuticals. Although devices have a faster cycle of innovation than drugs, their rates of adoption and short-term economic impacts are slower, and the evaluation approach should differ accordingly, asserted Patel. New device interventions are typically studied and reserved for use in small, highly refractory patient populations after other treatment options have failed. Early life-cycle device evaluations thus focus on clinical safety and effec- tiveness from societal, payer, and facility perspectives. While many models have been produced to estimate the economic value of device interventions, it is still uncommon to conduct comprehensive economic evaluations for devices, stated Patel. These are typically reserved for a later stage when there is potential for broader adoption and expansion of patient indications, and head-to-head comparisons with alternative treatments are desired and more practical. This presentation discussed measurement of the value of device interventions and its unique challenges, including difficulties with randomiza- tion and blinding, methods of comparing different treatment modalities, and accurately assessing economic value in the face of rapid technological and procedural improvements. Given these challenges, measuring and compar- ing the value of therapies across treatment modalities can be difficult. Patel concluded that a key challenge facing patients, clinicians, payers, and other decision makers in the age of “comparative effectiveness” will be to develop and interpret value measurements in the appropriate contexts without creat- ing longer development time lines with fewer, but more expensive, technolo- gies and fewer choices for patients. Approaches to Improving Value The next set of speakers presented specific examples of current approaches to improve value in health care in three main areas: (1) consumer incentives; (2) provider and manufacturer payments; and (3) the organiza- tion and structure of care, respectively. Each session explored the nature of the efforts, and the best practices and results to date. Speakers focused particularly on the evidence of impact and the future potential to improve value with each approach. Consumer Incentives The first session focused on the use of a variety of consumer-oriented strategies to promote value. Value-based insurance design A. Mark Fendrick of the University of Michigan suggested that healthcare reform discussions increasingly focus on

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 SUMMARY how escalating medical costs impact multiple stakeholders. Unfortunately, value—the clinical benefit achieved for the money spent—is frequently excluded from the dialogue on how to solve the healthcare dilemma, he added. Instead, the dialogue focuses on two trends—quality improvement and cost containment. Fendrick asserted that efforts to lower costs such as increasing premiums or increased copays can create financial barriers that discourage the use of recommended services and the overuse of inter- ventions that are of questionable benefit. Patient copayments for services designated as quality indicators have risen dramatically and at the same rate as less valued services. Fendrick stated that this is a concern because studies show that patients who are required to pay more for their health care buy less—of essential and excessive therapies alike. He described how value-based insurance design (VBID) offers a potential incremental solu- tion to enhance efficiency in healthcare spending. VBID programs adjust patients’ out-of-pocket costs for health services according to an assessment of the clinical benefit to the individual patient, based on population studies. The basic VBID premise is that patient contributions for high-value services remain low, mitigating the concern that higher cost sharing will lead to deleterious clinical outcomes. Higher cost sharing will apply to interven- tions with little or no proven benefit. This presentation reviewed examples of VBID programs that encourage the use of high-quality services and demonstrate significant increases in patient compliance. The net financial impact of copayment relief on healthcare spending and nonmedical expen- ditures remains unclear, stated Fendrick. This presentation concluded that efforts to control costs should not lead to preventable reductions in quality of care. Fendrick suggested that payers desiring to optimize health gains per dollar spent should avoid “across-the-board” cost sharing and instead implement a “value-based” design that removes barriers or provides incen- tives to encourage desired behaviors on the part of patients and providers. By aligning financial incentives, he asserted, this strategy would encour- age the use of high-value care while discouraging the use of low-value or unproven services and ultimately would produce more health at any level of healthcare expenditure. Consumer-directed, high-deductible health plans Melinda Beeuwkes-Buntin of RAND discussed the experience with and the potential for improving value through consumer-directed, high-deductible health plans (CDHPs). Starting with the RAND Health Insurance Experiment and then discussing the newer literature on the effects of evolving “consumer-directed” plan designs on cost, access to care, and ultimate health outcomes, gaps in the literature were identified. Buntin stated that CDHPs should be shaped to increase value by promoting the collection and dissemination of information about the cost and quality of care. Additionally, the value of CDHPs could

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 VALUE IN HEALTH CARE be increased through the dissemination and deployment of “best practices” in CDHP design, as well as increased research about the effects of different CDHP designs on care use and outcomes. Building on this overview, conclu- sions for policy and practice were offered. Tiering One approach to steering consumers and patients toward the use of high-value healthcare services and health providers is “tiering.” Broadly defined, tiering refers to the classification of healthcare providers (e.g., hospitals, physicians), pharmaceuticals, and treatments or therapies based on objective or subjective criteria such as cost, quality, and value. Dennis P. Scanlon of Pennsylvania State University described how tiering systems typically allow the patient or consumer to select a provider, service, or therapy in any tier, with the required out-of-pocket cost to the consumer or patient varying based on the tier selected. Most tiering programs provide some information about the criteria used to define the tiers, though to vary- ing degrees of detail. By providing better coverage (i.e., lower out-of-pocket costs) for better-value providers through the use of financial incentives (e.g., reduced coinsurance, copayments, or deductibles), proponents argue that tiering is an efficient way of using consumer incentives to improve value in the healthcare system. This presentation examined the research evidence for tiering programs in health care, and several examples of tier- ing programs were provided. One example discussed in detail is a hospital tiering program, called the hospital safety incentive (HSI), implemented by a large midwestern employer. Under the HSI, eligible employees and their beneficiaries associated with two union groups were required to pay hospi- tal coinsurance, set at 5 percent of total approved hospital charges, up to an annual out-of-pocket maximum. However, the coinsurance was waived (i.e., no coinsurance was charged) if employees received care at a hospital that met certain patient safety standards. Salaried non-union employees and their beneficiaries were not eligible for the HSI and served as a control group in the analysis. The results indicated that the HSI influenced the selec- tion of hospital for one of the two union groups—beneficiaries admitted to the hospital with a medical diagnosis. Specifically, beneficiaries in this category were 2.92 times more likely to choose a hospital that qualified for the HSI after the incentive took effect (versus before it took effect). These beneficiaries were also significantly more likely to choose a hospital that qualified for the HSI relative to the control group as a result of the incentive. The presentation ended with a discussion of the key policy issues associated with tiering programs in health care. Wellness Ronald Z. Goetzel of Emory University suggested that the sci- entific evidence is mounting that worksite health promotion and chronic disease prevention programs can reduce health risks and produce a posi-

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 SUMMARY tive return on investment (ROI) for employers. However, challenges arise in designing and implementing effective programs that achieve the best results, documenting program achievements so that scientists and lay people can readily understand and accept research findings, and communicating results to the broad healthcare community. This presentation discussed those challenges with particular emphasis on how to disseminate timely information to the business community. Goetzel highlighted examples of large-scale research studies previously conducted and those currently under way that are supported by federal and private sector grants. For example, in a project funded by the National Heart, Lung, and Blood Institute, several research organizations are working with employers to design, implement, and evaluate an environmental and ecological intervention program aimed at preventing and managing overweight and obesity in the workplace. A study at the Dow Chemical Company evaluated program impacts on key outcome measures, including trends in body mass index and other weight-related biometric measures, behavioral health risk factors, weight- related health conditions, healthcare utilization and medical expenditures, employee productivity measured in terms of absenteeism and on-the-job “presenteeism,” and ROI. Other worksite studies funded by the Centers for Disease Control and Prevention (CDC) are looking at the effectiveness of employer-based programs. One specific initiative is testing a private-public partnership between the New York City Department of Health and Mental Hygiene’s Wellness at Work Program and several New York City employers. Another major initiative by the CDC is focused on developing Health and Productivity Management benchmarks and best practices that emphasize the employer’s role in promoting the health and well-being of workers. In addition to discussing how workplace wellness programs can serve as vehicles for health behavior change, recommendations to increase employer engagement in providing evidence-based health promotion programs to their employees were offered. Provider and Manufacturer Payments This session explored examples of approaches to improve value in health care, with a focus on the use of payment design and coverage and reimbursement policy to improve value. Pay-for-performance Although the current healthcare financing system encourages the provision of more care, it does little to ensure that indi- viduals receive appropriate care or that the care they receive is effectively or efficiently provided, asserted Carolyn M. Clancy of the Agency for Healthcare Research and Quality. She discussed how, in recent years, payers have implemented an array of strategies aimed at using financial incentives

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 VALUE IN HEALTH CARE to promote higher-quality care, with the expectation that this will lead to a better return on their spending. She suggested that although some research is being done on the alignment of payment incentives with quality, critical gaps in our collective knowledge exist. These gaps include evidence related to the impact of payment mechanisms that reward healthcare providers for improving quality and evidence on financial incentives aimed at rewarding patients for choosing high-quality providers. This presentation addressed the issues of what we know and do not know about performance-based value and reaching a stage where people are paying for value and collecting data in ways that address the potential benefits for all stakeholders. Incentives for product innovation Donald A. Sawyer of AstraZeneca LP spoke from the industry perspective and addressed incentives for product innovation and the benefits of moving toward a healthcare system that puts patients’ health first and focuses on health outcomes across the full con- tinuum of patient care. He began with an overview of the facts and figures behind pharmaceutical research and development. He stated that innova- tive medicines are an important part of the solution to chronic disease and controlling healthcare costs. However, he added that the value of innovative therapies is often not realized by current incentive structures (e.g., Physi- cian Quality Reporting Initiative). Sawyer also discussed the need to change current budget and contracting processes with payers by the use of specific examples. The presentation concluded with options to recognize the long- term value of a product to patient health while maintaining an environment that rewards and encourages innovation for lifesaving medicines. Reed V. Tuckson from UnitedHealth Group, representing the payer per- spective, stated that the nation has an impressive history of stimulating and translating innovation in health and medical care that has led to demonstra- ble improvements in relief of suffering, enhanced longevity, and reductions in mortality. As new knowledge, pharmaceuticals, and technologies become available, he asserted, it is essential that the science, infrastructures, and pro- cesses that inform their translation into practice be responsive and robust. The context of unsustainable healthcare costs and related rates of uninsured people, unacceptable deviation of care delivery from evidence-based stan- dards, inappropriate use of expensive healthcare assets, and safety concerns exert significant pressure on all stakeholders to make responsible choices regarding the incorporation of new healthcare assets. Health plans, given their responsibility to organize affordable access to healthcare services on behalf of consumers and their desire to work with care providers to improve quality and appropriateness in care delivery, have special opportunities and responsibilities in this regard, continued Tuckson. He additionally explored some of the perspectives, tools, and requirements necessary to advance responsible use of new innovations in service to the American people.

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 SUMMARY Coverage and reimbursement decisions Steven D. Pearson of the Institute for Clinical and Economic Review suggested that coverage and reimburse- ment policies are among the most visible tools by which public and private payers in the United States seek to enhance the value of healthcare delivery. He stated that consideration of payers’ approaches must begin with an understanding of the opportunities and barriers presented by the language of statutes or contracts that set the legal context for medical policy decisions. He stated that another element considers how payers use evidence, both sci- entific and contextual, for distinguishing among healthcare interventions. Pearson added that the final component considers the set of medical policy “tools”—including benefit design, coding, provider contracting, and reim- bursement models—with which payers can modulate the use of healthcare services. Pearson’s presentation analyzed the experience to date with recent innovations in coverage and reimbursement policies by Medicare, state gov- ernments, and private payers. These innovations are extremely diverse and include the “medical home,” bundling of billing codes, new forms of tiering copayments and coinsurance, explicit use of cost-effectiveness information, and various risk-sharing agreements with manufacturers. Several specific examples were discussed in detail, and three overarching goals among these efforts were highlighted: (1) the use of best existing evidence at the time of initial coverage and reimbursement to “sculpt” the use of new medical interventions, targeting only those patients for whom the benefits are best known; (2) the alignment of financial incentives and payments to support appropriate use; and (3) the exploration of new ways to link coverage and reimbursement to the development and evaluation of better evidence on the value of medical interventions for different types of patients. Organization and Structure of Care This final session on approaches to improving value focused on chang- ing the organization and structure of care to improve value. Electronic health records Focusing on the definitions and evidence on the value of electronic health records (EHRs), Douglas Johnston from the Center for IT Leadership discussed the central issues associated with measuring and realizing this value. To help frame the review of evidence on EHR value, he started by defining the types of value that widespread adoption of EHRs might produce, and reviewed basic and advanced EHR functions within the context of healthcare information technology. Johnston examined selected empiri- cal evidence of the quality, safety, and financial impact and costs of EHRs, considering examples from case studies and the peer-reviewed literature. Projections of potential EHR value based on this evidence were reviewed, as were other areas of possible value for which no evidence is currently avail-

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 VALUE IN HEALTH CARE able. The session concluded with an overview of some of the issues associated with EHR value measurement and realization, including the current state of EHR adoption, development of valid measures, definition of best practices, unintended consequences of EHR use, misalignment of incentives, access to capital, and the development of data standards. Patient-centered medical home Arnold Milstein from the Pacific Business Group on Health posited that if medical homes deliver better quality with- out increasing total healthcare spending, they will generate social benefit. Continuing, he argued that social benefit will also increase if medical homes shift physician payment toward primary care. However, for medi- cal homes to profoundly benefit non-affluent adults who do not qualify for Medicaid and persuade most purchasers to pay higher medical home fees, they must also lower total near-term healthcare spending. To achieve such “home run” status, medical homes’ design, certification standards, and criteria for reward from payers must explicitly incorporate features from existing primary care practices that achieve low total cost of care and favorable performance on other domains of quality, Milstein stated. His observation of four such practices suggested that these design features are likely to enhance, rather than conflict with, current principal medi- cal home quality objectives of improved access, patient-centeredness, and effectiveness of care. He suggested that while medical homes cannot alone solve our healthcare affordability challenges, they can substantially reduce total near-term healthcare spending in addition to elevating the quality of care. Milstein stated that roughly 60 million uninsured and underinsured lower-income Americans need physician and health plan leaders to jointly pursue this higher aspiration for medical homes. Otherwise, their numbers and preventable health deterioration will continue to mount. Disease management Tracey A. Moorhead of DMAA: The Care Continuum Alliance discussed how traditionally conceived “disease management” has evolved dramatically in recent years to improve clinical quality and value. Today, “population health improvement” addresses larger populations, places greater emphasis on wellness and health promotion, supports expand- ing healthcare teams and stakeholders, and adheres to new evaluation meth- odologies. The presentation outlined this evolution and highlighted case studies from both public and commercial populations that demonstrate the significant value of population health improvement. Aligning the System—Now and in the Future This concluding session discussed how the health system could be better aligned to promote value in all aspects of health care, both now

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9 SUMMARY and in the future. Sir Michael Rawlins of the United Kingdom’s National Institute for Health and Clinical Excellence highlighted four particular chal- lenges in the consideration of value in health care: (1) the dearth of direct comparative effectiveness studies between interventions; (2) the limitations in applying the results from clinical trials to the real world; (3) the transla- tion of clinical effectiveness into value; and (4) the complexities of drawing conclusions that are based, in part, on considerations of cost-effectiveness. Christine K. Cassel of the American Board of Internal Medicine considered the future in two dimensions: (1) anticipation of likely advances in medi- cine and (2) creation of a framework to understand the additive value of these advances in the important context of resource constraints and value trade-offs. In conclusion, a panel comprised of Ezekiel J. Emanuel from the National Institutes of Health, Samuel R. Nussbaum from Wellpoint, Inc., and John C. Rother from AARP closed the workshop by drawing together themes and conclusions from the meeting on how the health system could be aligned to promote value, in terms of both improvements that can be achieved within the existing system and the longer-term changes that need to be made. The panelists discussed the importance of health information technology in enabling changes in the healthcare system and the pivotal role that reliable, quality data will play in transforming the current system into a value-based system. Focusing on long-term goals, the panelists echoed pre- vious presentations by highlighting the continued need to reorganize both the payment system to reward outcomes over volume and the clinical care delivery system to better facilitate management of chronic illnesses. Next Steps System-Level Efforts Health information technology Since promoting health information technology was the most commonly mentioned priority as a prerequisite for sustained progress toward greater value in health care (improving quality, monitoring outcomes, clinical decision assistance, developing evi- dence, tracking costs, streamlining paperwork, improving coordination, facilitating patient engagement), how might Roundtable members and the Electronic Health Record Innovation Collaborative help accelerate its adop- tion and use? Transparency as to cost, quality, and outcomes What efforts by the various sectors represented by Roundtable members—patients, providers, healthcare delivery organizations, insurers, employers, manufacturers, regu- lators, the information technology sector, and researchers—might help bring about the true transparency necessary to sharpen the focus on the key elements of the value equation?

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20 VALUE IN HEALTH CARE Life-cycle evidence development for interventions How might Round- table professional societies, manufacturers, insurers, and regulators help transform the process of monitoring the value achieved from various interventions from what amounts to a snapshot in time to an ongoing capacity? Payer-Level Efforts Coverage with evidence development If coverage with evidence devel- opment amounts to a beta-test of the learning healthcare system’s con- cept of real-time evidence generation from clinical practice, what vehicle might facilitate development of the decision rules needed to determine the interventions most appropriate for structured introduction, the criteria for expansion, and the approaches to ongoing monitoring? Value-based insurance design How might the conditions be identified that may be best suited to further testing the notion of adjusting payments to the level of evidence in support of the effectiveness and efficiency of a particular approach? Outcome-focused bundled payment approaches What means might best be considered to identify conditions and services most amenable as bundled components in payment-for-outcomes approaches? Value-based payment or reimbursement structures How might better information be developed for tailoring payment for care to the likely value of the outcome, and once available, what strategies will be most effective in developing the information and incentives necessary for its promotion? Provider-Level Efforts Identification of high-value services Might the members of the Round- table’s Best Practices Innovation Collaborative consider criteria for iden- tifying high-value services in their respective arenas, as well as innovative approaches to their delivery? Care organization incentives What issues and incentives are needed to expand the development of a medical home model most conducive to more efficient and better-coordinated care? Clustered care for the very sick If, as was presented, there are demon- strated effectiveness and efficiency advantages from certain organizations specializing in the care of the poor and very sick, how can that model of heroism be taken to scale? Incentives for triage and coordination functions Because the ancillary services of triage, care coordination, and follow-up are so key to improv- ing outcomes and reducing costs, what can be done to introduce them as a routine into the culture of care?

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2 SUMMARY Decision assistance at point of choice With growing awareness of the challenges to providers of keeping up with changes in the knowledge base, what might the Roundtable do to explore expanded decision assistance at the point of choice? Appropriateness score for five important diseases Since five conditions— heart disease, cancer, stroke, diabetes, and chronic lung disease—account for three-fourths of health expenditures, can an appropriateness of care score be developed and applied for their management? Patient-Level Efforts “Push” strategies for patient-provider communication on value Since it is both necessary and inevitable that patients and providers become stronger partners in the care process, what strategies might be most effec- tive in achieving that result? Structured information-sharing on high-value services How might insights and information generated on services identified as high value be disseminated most effectively to help inform and motivate patients? Manufacturer-Level Efforts Purchasing models focused on outcomes Since it was proposed by a representative of the manufacturing sector that consideration be given to the development of product purchase models that focus on actual outcomes (i.e., results achieved), how might such an approach best be developed and tested? Value-engaged regulatory approval processes What approaches might make it easier for manufacturers, payers, and the Food and Drug Adminis- tration to engage earlier in the testing and approval process around value issues relevant to a product’s ultimate approval and use? Research Analytics and Information Mobilization High-value service gaps Because some high-value services—for exam- ple, certain preventive services—are underutilized, what criteria might be used to develop an inventory of the top 10 services for which the gaps between evidence in-hand and delivery patterns are most substantial? High-cost service evidence Similarly how might an inventory be devel- oped of the top 10 high-cost services for which comparative effectiveness studies need to be done? Capacity for comparative effectiveness research What additional issues need to be engaged to improve prospects for the successful development of a deeper national capacity for comparative effectiveness research?

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22 VALUE IN HEALTH CARE Analytics for value assessment What are the most important analytical challenges to assessing value and how might they best be engaged, especially with healthcare costs reaching near crisis levels in the context of a weak economy? REFERENCES Congressional Budget Office. 2007. Projected financial spending in the long run. Washington, DC, July 9. Cutler, D. M. 1995. Technology, health costs, and the NIH. National Institutes of Health Economics Roundtable on Biomedical Research. Bethesda, MD. Fisher, E. S., D. E. Wennberg, T. A. Stukel, D. J. Gottlieb, F. L. Lucas, and E. L. Pinder. 2003. The implications of regional variations in Medicare spending. Part 1: The content, quality, and accessibility of care. Ann Intern Med 138(4):273-287. IOM (Institute of Medicine). 2000. To err is human: Building a safer health system. Washing- ton, DC: National Academy Press. ———. 2003. Hidden costs, value lost: Uninsurance in America. Washington, DC: The National Academies Press. Leavitt, M. O. 2008. Building a value-based health care system. Washington, DC, April 23. Martini, E. M., N. Garrett, T. Lindquist, and G. J. Isham. 2007. The boomers are coming: A total cost of care model of the impact of population aging on health care costs in the United States by major practice category. Health Serv Res 42(1 Pt 1):201-218. Meara, E., C. White, and D. M. Cutler. 2004. Trends in medical spending by age, 1963-2000. Health Aff (Millwood) 23(4):176-183. Newhouse, J. P. 1992. Medical care costs: How much welfare loss? J Econ Perspect 6(3):3-21. Paulus, R. A., K. Davis, and G. D. Steele. 2008. Continuous innovation in health care: Implica- tions of the Geisinger experience. Health Aff (Millwood) 27(5):1235-1245. Peterson, C. L., and R. Burton. 2009. U.S. health care spending: Comparison with other OECD countries. http://digitalcommons.ilr.cornell.edu/key_workplace/311 (accessed March 23, 2009). Sisko, A., C. Truffer, S. Smith, S. Keehan, J. Cylus, J. A. Poisal, M. K. Clemens, and J. Lizonitz. 2009. Health spending projections through 2018: Recession effects add uncertainty to the outlook. Health Aff (Millwood) 28(2):w346-w357. Skinner, J., F. Elliott, and J. E. Wennberg. 2005. The efficiency of Medicare. In Analyses in the economics of aging, edited by D. Wise. Chicago, IL: University of Chicago Press and National Bureau of Economic Research. Pp. 129-157. Smith, S. D., S. K. Heffler, and M. S. Freeland. 2000 (unpublished). The impact of technologi- cal change on health care cost increases: An evaluation of the literature. Social Security and Medicare Boards of Trustees. 2008. Status of the Social Security and Medi- care programs. http://www.ssa.gov/OACT/TR/TR08/tr08.pdf (accessed January 2009). Strunk, B. C., and P. B. Ginsburg. 2002. Aging plays limited role in health care cost trends. Data bulletin No. 23. Washington, DC: Center for Studying Health System Change. White House. 2009. Fiscal responsibility summit. Washington, DC.