Quality of Home Health Care, Financial Incentives and Value Based Purchasing

By Dana B. Mukamel, M.S., PhD.

Home health care is a fast-growing sector of the health care system, as a more attractive alternative to nursing home care, to both community-based patients and patients requiring care after a hospital stay. This trend has accelerated recently, due to the Covid-19 pandemic.

The quality of care that patients receive from their home health agency depends on many factors, including the costs to the agency of providing high-quality care on the one hand and the higher revenues that better-quality leads to on the other. The higher revenues are typically due to the increased demand that better quality generates and the ability to charge higher prices because “patients vote with their feet”. The Centers for Medicare and Medicaid Services (CMS) “vote” on behalf of the Medicare patients by instituting a “Value Based Purchasing (VBP)” system. Under this system, agencies that have better patient outcomes (such as fewer hospitalizations) receive higher payments. CMS has been testing a VBP system integrated into the base payment system of home health agencies in 9 states as a demonstration program beginning in 2016. The financial incentives to home health agencies under this program could reach up to 8% of their base revenues. Recently, CMS announced that by 2022 it plans to implement such a VBP program nationally.

Mukamel, Ladd, Nuccio, Zinn, Sorkin and Ettner have shown that the success of such financial incentives in promoting quality improvement depends not only on the financial incentives in the VBP program itself but also in the investment required of the agencies to improve the quality of care they provide. This study analyzed the costs of quality improvement and found that these costs offset the VBP incentives, suggesting that in many cases, the VBP program may not be sufficient to offer a positive incentive above the cost of improvement. Incentive programs may need to be more nuanced to be effective for all types of patient outcomes and all types of agencies because the costs of improvement vary along these dimensions.

Figure 1. Net marginal cost for a 1 unit increase as the SQM increases from baseline for agencies at the 25th, 50th and 75th percentiles of the total cost distribution.Note. SQM = Super Quality Meaure.Source. Author’s contribution. — **Figure 1.** Net marginal cost for a 1 unit increase as the SQM increases from baseline for agencies at the 25th, 50th and 75th percentiles of the total cost distribution.
*Note*. SQM = Super Quality Meaure.
*Source*. Author’s contribution.

We found that the costs of improvement depended on the specific quality measure, the size of the agency and its baseline quality. As can be seen in figure 1 for most quality measures, agencies with low quality levels can actually save money by improving quality. Such evidence, that quality improvement can be cost-saving, has been found in other health care sectors, such as nursing homes, and is consistent with the philosophy of Total Quality Management (TQM). The idea is that if you redesign your processes of care in such a way as to avoid future complications, the better process results in overall savings by avoiding the need to “fix” the complications. It is also interesting to note that for agencies that already perform at high quality levels further quality improvement is costly, suggesting that home health agencies choose quality improvement actions by following the strategy of “picking the low hanging fruit first.”

Due to all of these differences in the relationships between costs and quality improvement, the agency’s starting points with respect to quality, differences in agencies’ sizes, and of course the differences in costs vis a vis the quality measures, a one-size-fits-all approach in the VBP incentives might miss the mark and may need to be evaluated as the program moves towards nationwide implementation.

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Article details
Home Health Care Quality, Its Costs and Implications for Home Health Value-Based Purchasing
Dana B. Mukamel, Heather Ladd, Eugene Nuccio, Jacqueline S. Zinn, Dara H. Sorkin, Susan L. Ettner
First Published November 24, 2020, Research Article
DOI: 10.1177/1077558720974528
From Medical Care Research and Review

About the author

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Dana B. Mukamel, M.S., PhD. is Professor at the Department of Medicine with joint appointments in Public Health and Nursing at the University of California, Irvine. She is also the Director of the iTEQC Research Program (Translational Technology Enhancing High-Quality Care). Her research focuses on quality of care, development of quality measures, quality report cards, and studies of market incentives and government policies and regulations leading to high quality of care. She is an expert in quality measurement using big data and quality report cards. Much of her work focuses on long-term-care settings and care for the elderly. She also develops mHealth apps to improve care in general, and patient decision making in particular. Her work emphasizes the importance of personal choice, and aims to offer decision-makers tools that facilitate the discovery of preferences and incorporation of those references in the decision-making process. Dr. Mukamel’s extensive research, with over 200 peer-reviewed publications, is funded by NIH, AHRQ, PCORI and private foundations. She serves on many national advisory and review boards, including CMS, AHRQ and MedPAC expert panels as well as journals’ editorial boards. Her work has been recognized by a large number of awards, including a Life Time Achievement Award from the APHA.

Professor Mukamel holds a B.S. degree in Chemistry from Tel-Aviv University, Israel, an M.S. degree in Technology & Policy from MIT, and a PhD in economics from the University of Rochester.

Email address - dmukamel@uci.edu