Heather Thompson, MDO Senior Editor

The Affordable Care Act has received a lot of attention, but there’s a lesser-known and equally monumental bit of legislation called the Medicare Access & CHIP Reauthorization Act (MACRA). It establishes a quality payment program that requires physicians and hospitals to participate in a merit-based incentive payment system (MIPS) and an alternative- payment models (APM), starting this year and continuing through 2020.

The ACA and MACRA have overlapping quality and value mandates designed to cut healthcare costs by reducing complications, increasing patient satisfaction, and replacing the “fee-for-service” business model with a bundled reimbursement model over a “continuum of care.” These quality and value mandates come with a blizzard of acronyms, from ACO to HCAHPS (pronounced “H-Caps”), CJR and MACRA.

Theodore Kucklick, CEO and founder of Cannuflow and author of “The Medical Device R&D Handbook,” says MACRA, unlike Obamacare, was passed with wide bipartisan support and ensures that “value purchasing is here to stay.” The evolution of value-based care and purchasing will be a long process, Kucklick says. “According to Michael Leavitt, former HSS Secretary under George W. Bush, we are only five years into a 30-year process.”

He warns that the model of attacking cost alone is too simple and doesn’t make sense in healthcare. “For the past few years, healthcare systems focused on costs. The easy wins of cost-cutting are gone, and now it will take innovation and imagination to generate value. Excessive focus on cost can actually harm value with worse outcomes.”

“The currently accepted formula for describing value is Michael Porter’s ‘V=O/C,’” he says. What is possible with cutting costs in the denominator with discounts is very limited, says Kucklick. There is a business break-even limit and a point at which healthcare providers are selling at a loss. “You have to learn how to add value on the outcomes numerator. This is 10x more powerful that cost cutting, and requires investment in innovation. This is new territory.”

“Cost cutting alone cannot create value. You cannot drive cost to zero”

However, if you use a different model by calculating a value score that factors in the “avoided costs” and better outcomes, you have a model that offers significant value and works in healthcare. “A $1 product that saves $4 in cost from complications has the same value as buying at an 80% discount. This is powerful.”

Kucklick says that more and more, healthcare providers will be asked to provide transparent pricing along a continuum of care. Fee for service that pays for re-dos and readmissions is going away. The new model is a bundled reimbursement for an episode of care, from pre-operative, to the procedure, and recovery. Providers will be expected to provide this under an Accountable Care Organization (ACO) structure, where the provider is “at risk,” meaning they pro t if they can deliver under budget, but absorb the costs and losses if additional care is needed, and pay penalties for complications.

Because this is a new model of care, new thinking and design will be needed to achieve these goals. The old incremental improvement models won’t work anymore. Examples include the automated sponge counters acquired last year by Stryker and Medtronic. Normally these would never have gotten traction with physician buyers, says Kucklick. But they do with hospital systems striving to drive down overall costs.

This is the kind of new thinking value-based healthcare requires. With hospital consolidation and the ability to collect data, outcomes can be tracked reliably for the first time. Value can be quantified. Successful designs and products will focus on producing these outcomes and real value that reflects both a cost and an outcomes component.