Gregg: Reform Medicare with a Value-Based Withhold

In an op-ed in The Hill, former Senator Judd Gregg (R-NH) makes the case for one approach towards reforming Medicare which he believes could bring lawmakers on both sides of the aisle together. The idea Senator Gregg calls "a way out of the Medicare maze" is known as a value-based withhold, which has been proposed by Jonathan Skinner, James Weinstein, and Elliot Fisher at the Dartmouth Institute for Health Policy and Clinical Practice. We've discussed this idea before when the National Coalition on Health Care included it in their health savings package last fall.

The way a value-based withhold would work is that a percentage of provider payments would be withheld and rewarded to providers only if certain savings and quality targets are met. If the targets are not achieved, Medicare would keep the withheld amount as savings. Senator Gregg explains:

To state it another way, this is a carrot, rather than a stick, approach based on definable standards that assure higher quality outcomes at lower costs. It is based around the retention of a certain percentage of the Medicare payments by HHS, the department of Health and Human Services. The money is only released as these standards and outcomes are met.

The appeal of this policy is that it provides a scorable mechanism to ensure savings, whereas other alternative payment models may not achieve savings in the eyes of CBO. Depending on the quality targets and whether it is paired with other payment or delivery system reforms, it also has the potential to drive efficiency and improve health outcomes. Instead of cutting payments across-the-board for all providers, it targets withheld payments to high-cost providers and allows low-cost providers to share in the savings. Not only does this mechanism get scorable savings from delivery system reforms that are intended to reduce costs by providing for more efficient care but that CBO otherwise scores with little or no savings, it could also help achieve the policy goal of making those reforms more likely to succeed by giving providers an incentive to change their behavior.

Additionally, this approach has a great deal of flexibility as it can be designed and scaled in a number ways according to savings goals and policy priorities. The Dartmouth proposal Senator Gregg points to would withhold 6 percent of payments, yielding what they estimate would be roughly $400 billion of savings over the next decade. On the other hand, the NCHC proposal set a much lower savings target of $64 billion. Deciding the amount to be withheld and the savings that can realistically be achieved could be problematic. Setting the savings target too high could be perceived as a provider cut by another name and generate opposition from provider groups. More importantly, from a fiscal policy perspective, setting a savings target that exceeds the amount that can realistically be achieved by more efficient delivery of care could create another Sustainable Growth Rate-like situation in which the automatic reductions in payments under the withhold are considered draconian and are regularly overridden by Congress.

Another issue when designing a value-based withhold is how to define and quantify the quality targets. There is still much debate over how to best measure quality, while accurately taking into account various factors that affect cost and quality such as a patient's health, geographic variation, or socioeconomic status. Also, Dartmouth proposes applying the targets on a provider-specific basis, but it could be designed to apply more broadly to a whole health system.

Senator Gregg’s piece is a good reminder of the need for lawmakers to come together on reforming the way we pay Medicare providers and repeal the broken SGR formula. Overall, the value-based withhold policy is an interesting approach that should certainly be on the table as lawmakers explore options to reform federal health spending and put it on a more sustainable path.