How states are taking back their health care purchasing power to drive innovation

For the past decade or more, discussion around alternative payment models, value-based health plan benefits, and high costs of care has tended to focus on federal policy solutions and private negotiations between private health plans and providers. However, often overlooked in these conversations is the role states play in driving innovation.

The fee-for-service chassis is not designed to accommodate states’ fiscal restraints and has only served to escalate costs and exacerbate price variation. In response, states have begun moving toward value-based payments.

States manage a substantial tranche of health care purchasing power: approximately 10 percent of people with employer-sponsored health insurance are employed by state and local governments, while 21 percent of the United States population is covered by Medicaid and the Children’s Health Insurance Program. While most states partition the management of these two populations between two or more agencies, several are aligning purchasing strategies across formerly disparate departments and divisions.

By aligning the purchasing power of both their Medicaid and public employee health plans, states have begun seizing the opportunity to design standardized approaches to value-based care and value-based benefit design implementation.

These innovations have the potential to make significant transformations to the healthcare delivery system. Just this year, we’ve seen Oregon, Nevada, Washington, Pennsylvania and New Jersey all issue RFPs (request for proposal) or RFIs (request for information) for innovative alternative benefit options. These states are pulling out all the stops—not necessarily replacing the value-based strategies they’ve already had in place but driving innovation to further improve quality and reduce costs.

How states can leverage their purchasing power to drive value-based care through value-based payments 

No matter where they are on the path toward value, there are three critical steps states should take to begin leveraging their purchasing power to continue driving innovation in health care.

1.Own your data

Most states contract with third-party administrators and other vendors to perform a range of functions. Of the 44 states that self-fund their health plans, 26 rely exclusively on a third-party administrator (TPA) to negotiate provider contracts. The ability to access claims data—and the capacity to analyze them—without relying on a TPA is a critical step toward implementing and evaluating value-based strategies.

State agencies will need to own their data to understand how to engage providers, direct patients toward high-value care and address inequities by learning about social determinants of health. In Connecticut, the Office of the Comptroller contractually incentivizes TPAs to implement cost containment initiatives by including financial penalties upon failure to meet a savings target. When states own their data, they begin to gain visibility into where their cost centers are concentrated.

2. Focus where providers can have the most impact

State agencies that are successfully implementing value-based payment and value-based benefits are homing in on the highest-cost procedures and conditions. In states like Connecticut and Washington, purchasers are focusing on primary care, maternity and chronic conditions—episodes where value-based programs are most likely to produce better outcomes, reduced costs and an improved patient experience.

For these programs to be successful, states will need to empower providers to be quality-first by empowering them with the tools and data they need to provide the best care. Once they are in control of their own data, purchasers can reinforce informed decision-making by providing meaningful and timely information about the cost, quality and impact of care.

3. Build a road map

Leveraging purchasing power to drive value requires a long-term plan to ensure implementation is aligned with key priorities and goals. Washington’s Health Care Authority, for example, is working toward a 2025 road map guided by several foundational principles ensuring purchasing alignment and rooted in data-driven policymaking. This road map clearly lays out the Authority’s expectations and milestones for driving progressively more of the state’s health care payments through value-based payment arrangements as well as its role in enabling all stakeholders to succeed with access to timely and relevant information and lower administrative burden.

Building a road map requires state agencies to set a floor and an expectation of where to begin and where to push boundaries. This requires working closely with plans and providers to align incentives and mitigate risk. Like Washington, The Oregon Health Authority (OHA) has developed a roadmap for its Medicaid program that aims to ensure at least 70 percent of provider payments are value-based by 2024. In its roadmap, OHA has focused on several key areas to focus the transition to value-based care, including maternity and behavioral health.

With a road map and benchmarks in place, states can begin to build their enablement strategy into contractual requirements with third-party administrators across their purchasing agencies.

François de Brantes serves as senior vice president of Episodes of Care at Signify Health. He leads customer development of the Medicare Advantage, Self-Insured Employer and Commercial Payer markets. He has spent close to two decades working to transform the U.S. health care system by improving incentives for providers and consumers in order to encourage value-based decisions.