4 Trends in Value-based Reimbursement

More Downside Risk & Greater Physician Input Among Developments for 2019

Prodded by new programs and policies instituted by the Centers for Medicare & Medicaid Services (CMS), increasing numbers of healthcare providers are shifting from fee-for-service reimbursement to value-based care.

“Rates aren’t going to get any higher per unit or per service,” says Jordan

Jordan Holland

Holland, director at Optum Advisory Services. “Most hospitals we talk to struggle to break even on Medicare, which is problematic considering demographics shifting more toward that federal program. There’s a difficult future ahead if you’re thinking of medical services as a widget and charging a fee for each service.”

Definite themes are emerging among value-based reimbursement models tying payments to quality care achievements. Among the trends for 2019 and beyond:

1.More Downside Risk for Providers

The CMS has implemented several innovative programs over the past decade to encourage the transition toward value-based care, including the Hospital Value-based Purchasing Program, Hospital Readmission Reduction Program and the Hospital-Acquired Conditions Reduction Program. They all financially reward healthcare providers to improve the care they give Medicare beneficiaries.

Most of the CMS programs offer bonus payments for meeting stated quality goals while delaying the downside risk on providers for years. However, newer value-based models are requiring that providers bear the financial consequences of falling short on their goals more quickly.

One such program is Pathways to Success, the latest version of the Medicare Shared Savings Program, Holland notes. Another is the Bundled Payments for Care Improvement Advanced model, launched in October 2018. It is designed to improve patient outcomes and reduce readmissions by challenging providers to beat cost as well as quality targets over 90-day clinical episodes of care. Similarly, the Comprehensive Primary Care Plus medical home model is giving medical practices advance bonus payments to improve chronic disease management, which is theirs to keep or lose depending on the quality of performance.

Moving forward, the CMS will continue to push more risk to providers, Holland reports. One likely reason is the growing body of evidence showing Medicare will be “closing in on bankruptcy by 2026.”

2. More Collaboration Between Providers & Payers

The CMS value-based care programs are affecting the private payer market, Holland says, prompting providers to get closer to the premium dollar and payers to aim for more direct access to patients.

Greater collaboration among providers and payers is the prediction of

Laurie Norman, MSN, APRN

Laurie Norman, MSN, APRN, senior director at Optum Advisory Services. “In some cases, we may see provider-sponsored health plans where the payer organization runs the insurance, but it’s branded by the provider.”

Provider-sponsored health plans (PSHPs) are not a new concept. Since 2010, more than 40 provider organizations have formed new health insurance companies or acquired existing health plans. But a 2017 study from the Robert Wood Johnson Foundation (RWJF) called it a difficult market plagued by heavy financial losses and plan exits. A follow-up analysis by Deloitte was more optimistic, suggesting PSHPs can be at the forefront of the changing healthcare market.

But scale, tenure and choice of markets matter, says Deloitte’s Maulesh Shukla, who authored the paper. His analysis found that the most successful PSHPs can check all three of these boxes—they had weathered various financial cycles, amassed more than 100,000 enrollees, and were serving some of the more challenging patient populations, such as the elderly and the poor. Connection to community was also another indicator of success.

Holland explains, “In some markets, where provider organizations are viewed as high quality and better connected to their patients, the payers and providers may work together to capitalize on that positive perception.”

3. Providers Finding New Ways to Overcome Conflicting Incentives

Healthcare consolidation is already rampant, but Holland sees “horizontal coordination” giving way to more “vertical integration,” where a health system buys or builds non-hospital healthcare facilities in a single region. “More providers are diversifying their asset base in a specific market by investing in surgery centers, urgent care centers and long-term care facilities,” he says.

55%

Roughly 1,550 hospitals (55%) will receive a bonus from Medicare in fiscal 2019 under the Hospital Value-based Purchasing Program, according to the CMS. The results are slightly worse than fiscal year 2018 when just under 1,600 hospitals (57%) earned bonuses.—Modern Healthcare

According to Fitch Ratings, hospitals and health systems owned between 25-30 percent of ambulatory surgery centers in 2017, up from 20 percent in 2011. Meanwhile, 36 percent of respondents to Healthcare Appraisers’ 2018 ASC Valuation Survey indicated they sold a controlling interest in an ASC to a hospital or health system.

Vertical integration incentivizes hospitals to refer more patients to services outside of the acute care setting and, as a result, bends the cost curve, Norman adds. Organizations that offer only acute care are less likely to send patients out of the ER to an urgent care clinic owned by a competitor.

4. Increased Focus on Enabling Physician Input

Improving population health and patient outcomes, while appropriately managing resources, are the central goals of value-based care—and, they require physician input.

According to Deloitte, “Physicians have long focused on quality of care … but now have to pay attention to resource utilization as well, with the goal of reducing the overall cost of care. To succeed, they need data on healthcare costs, tools to analyze costs related to outcomes and aligned financial incentives.”

One of the simplest ways for hospitals to better align with physicians is to make them more aware of administrative priorities. A value-based strategy will most likely be unsuccessful if physicians are caught off guard. Many organizations have hit roadblocks at the implementation phase because they didn’t get physicians on board with all of the proposed changes at the outset. Their “eyes were bigger than their stomach for value-based care,” as Holland puts it. “A smooth transition starts with proper governance,” he adds, “and providing physicians with a seat at the table from the beginning.”

Achieving physician alignment is first launched with conversations between administrators and physicians about what each group finds important and meaningful, Norman says. Administrators need to explain their challenges and what they’re trying to solve, and let physicians know what was done in the past hasn’t worked well enough for the hospital to consistently meet financial targets. They might tell physicians that “ ‘together we need to find common ground to bend the cost curve and figure out the most cost-effective way to provide the appropriate level of care.’ ”

Talk to cardiologists about how they are taking care of patients in the cath lab and whether there are other approaches that could accomplish the same results for a lower cost, Norman suggests. Or, discuss the use of bone cement with orthopedic surgeons and whether there are ways to achieve desired outcomes while spending less.

“If you frequently receive pushback from physicians, it can be a nonstarter and a conversation ender,” Holland says. “With the clinically integrated network model, you can dig deeper into those barriers and talk about how to fix or change things to achieve goals.”

Holland’s experience suggests an approach of “nothing about the physicians, without the physicians” tends to be successful. Hospital administrators can help facilitate shared decision-making with their physicians to improve alignment.

Simply giving physicians a voice is not enough, Norman says. The most successful hospitals also share the gains of value-based care with the physicians who help make it happen. “Some organizations do not provide any benefit or savings to physicians, but that’s a flaw,” she notes.

-15.8%

Hospitals that keep operating business as usual will have a -15.8 percent margin by 2021. 
—Health Catalyst

To reduce the cost of care over time, hospital administrators must build long-term, intentional relationships with physicians grounded in ongoing communication and shared rewards.

“Often when we help health systems develop physician alignment strategies, physicians 
are very weary of being asked to do additional work without additional compensation,” Holland notes.

“All programs need to run through the fair market, and facilities need to appropriately pay for physician time. If you want your partnership to be successful and to last, you have to make sure everything you’re doing is financially transparent.”

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