The Affordable Care Act (“ACA”) is the most significant piece of legislation in the healthcare industry since Medicare and Medicaid in 1965. Policy changes brought by the ACA requires health systems to shift away from volume to value-based care. It changes the way health professionals are reimbursed for improving the care delivery process, for better population health management, and to lower healthcare costs.
What is value-based care?
Center of Medicare and Medicaid Services (“CMS”) established value-based care models to meet the objectives of better care, smarter spending, and an overall healthier population. Value-based care emphasizes on paying providers based on the quality of care delivered, as opposed to the quantity of the services performed, as in the traditional Fee-for-service (“FFS”) model. These models provide an opportunity for healthcare organizations to find innovative ways to integrate care and gain financial incentives for reducing waste, costs, and improving the quality of care.
Why the change to value-based care?
The Obama administration analyzed that the rising healthcare costs were due to overuse of medical services, as it has been reported that doctor’s tend to order unnecessary services just to get additional reimbursements. It was postulated that if overuse is controlled, costs savings will follow. 1
It is assumed that one of the main reasons for rising healthcare costs is that very few people are proactive regarding their health care and lack attention to minor ailments due to the complex healthcare system. This can convert simple primary care visits to expensive emergency room visits due to neglected care. In order to meet the objectives of better care, smarter spending, and a healthier population, healthcare organizations require to change the way care is delivered by shifting to value-based care.
What are the different categories of healthcare payments currently practiced?
The U.S. Department of Health and Human Services (“HHS”) developed a system for categorizing healthcare payments based on how healthcare professionals get reimbursed. They have segregated reimbursements methods into four different categories:
Category 1: Traditional FFS with no linking to payment for quality of healthcare services delivered.
Category 2: FFS that is linked to the quality of healthcare services delivered.
Category 3: Alternative payment models that are built on the fee for service framework, but the payments are impacted by some quality-based measures and benchmarks.
Category 4: Population-based payment models where providers are reimbursed for the health outcomes of the selected population rather than the number of services provided.
What are the different types of value-based care models?
Pay for Performance
In this model, financial incentives of providers are tied to the measured performance for better clinical outcomes. It rewards individual providers within an organization based on predefined quality metrics relative to other providers to improve performance and lower costs. It gives greater attention to errors and improves efficacy, as it increases physician engagement for delivering better patient care and satisfaction.2
Bundled Payment/Episode of Care
Organizations enter arrangements with third-party payers to provide financial and performance accountability for specific episodes of care. Under this model, providers are given a chance to generate savings from improved efficiency and preventing unnecessary episodes of care. Bundled payment gives a fixed payment to providers based on clinical standards of care, risk stratification, and a balanced scorecard performance. However, the downside to this model is that providers have to bear the excess expenses for the episodes of care that exceed the agreed upon reimbursement rate.
Patient-Centered Medical Home
The Patient-Centered Medical Home model is based on redesigning the existing organizational structure into patient aligned teams of physicians, nurses, and case managers who will be responsible for coordinating complete care of a patient to improve their health outcomes. It encourages using information technology for better coordination of patient care across different providers. The main objective of this model is to prevent expensive hospital readmissions and emergency department visits through focusing on primary and preventative care.2
Shared Savings Program
Shared Savings Program rewards providers to reduce healthcare spending below an expected level set by the payer. This model encourages providers to spend less on patients’ treatment than they otherwise would have as it makes them entitled to part of those savings. The major advantage of this program is that it does not put any financial burden on healthcare organizations as they don’t have to make huge investments in technologies.
Providers receive performance-based incentives to share cost savings with insurers, but they might also have to pay penalties to compensate for the excess cost of healthcare services if saving targets are not met. The providers can limit the risk by paying a fixed fee to a third-party insurer who accepts the financial risk if healthcare costs exceed a certain level. Another way to limit risk is to have an in-house provider sponsored plan so that the provider can accept risk for only those patients where they have the ability to control costs and influence outcomes.
Full Risk: Capitation Models
A per patient monthly capitated fee is determined by the insurer after analyzing the patient population covered by the healthcare organization. In this model, the provider is at the full risk of providing services, which means that providers can keep the savings if healthcare costs are below the capitated rate, but might suffer from losses if the cost of care exceeds capitated fees. Another complication of this model is that it could be difficult to divide the savings among the different providers in the health system who took care of that individual patient.
Accountable Care Organizations
The Accountable Care Organizations model is a common term used for volunteer-based programs like value-based purchasing, shared savings program, and pay-for-performance, where health plans pay physicians and hospitals incentives for meeting certain quality metrics and improving patient outcomes. Providers will be accountable for the overall health management across all levels of care for the enrolled patients. They will be entitled to bonuses for demonstrating slower spending growth relative to their peers in the region.
Provider Sponsored Health Plans
In this model, providers collect the insurance premium directly from the patients for providing healthcare services. Provider network assumes 100% of the financial risk for insuring the patient population by having their own insurance plan and they benefit from the flexibility to decide how care is delivered.
How to choose the model that works for your organization
Healthcare executives need to explore the following areas to decide an appropriate value-based model for their organization:
- Organizations capacity to change2
- Financial limitations2
- Mission and objectives2
- Effect on stakeholders2
- Patient demographics
- Long-term impact of the model
What are the challenges of the transition to value-based care?
Transitioning to value-based care from the traditional FFS reimbursement model can be challenging. Federal government has launched a plan that could help in easy transition to value-based care, but a new report shows that organizations have been finding the shift rather daunting due to lack of specificity. 3 The challenges faced by providers can be categorized into four broad challenges:
- Understanding the true costs of delivering healthcare services 4
- Transitioning to value-based systems can be a challenge as it requires health systems to have sophisticated accounting capabilities as organizations can exercise different payment models for different groups of patients served.5
- Organizations need to have the capacity to sustain the decrease in revenue during transition, as the number of procedures performed will drop.5
- It could be challenging to manage the various aspects of revenue cycle such as claims processing, billing, and collections.
- Providers need to make huge investments in data analytics to measure financial and quality performance for the patient population served.5
- Designing and implementing a model that is targeting the organization’s objectives4
- Understanding and choosing the appropriate alternative payment model might be challenging due to the various options available.6
- There are no standard protocols that organizations can follow for adopting value-based care and there is little evidence-based research available as organizations are still in their initial stages of transitioning into the new models.5
- The major risk that the organizations face are penalties if they don’t meet performance metrics, especially when they are at a full-risk of delivering care.6
- Collaborating with partners4
- Value-based care solutions will require both health plans and providers to make considerable investments in infrastructure and technology. 7 Sharing the costs through collaboration might reduce financial burden on both sides.
- Provider consolidation can delay value-based care adoption, as big organizations can secure pricing power and can refuse to participate.7
- Bringing clinical integration among providers4
- In value-based models, organizations have to track each patient based on all the services they are getting and the costs. So, it could be challenging to divide savings and expenses between various providers5
- The value-based models require providers to prove that they are meeting quality standards and benefitting patients.5 If providers are working in a consortium it could be difficult to track which provider is saving costs and who is exceeding the reimbursement limits.
What are the strategies to transition into value-based care?
As healthcare systems navigate their way through the transition from FFS payment model to value-based models, healthcare executives need to find ways to manage their margins to succeed in the long-term.
Because there is no one-size-fits-all value-based model, being aware of the market and the culture of the organization will help hospitals achieve this balance. The healthcare organizations must evaluate their own strengths and weaknesses, have a deeper understanding of actual costs, and identify the long-term priorities of the organization. The key strategies for successful transitioning to value based models are listed below:
- Driving out waste
Physicians will be able to qualify for bonuses by increasing efficiency through streamlining operations and eliminating waste.5 Organizations should work towards establishing a successful business model by analyzing their strengths and weaknesses. They should determine the service lines they can focus for becoming the center of excellence in their geographic service area. They should also be able to deliver services at a lower cost than their competitors to improve patient volume.4
- Adopting value-based payment models
It is important to analyze the range of value-based options available for choosing the suitable payment model that will meet the organizational goals through proper evaluation of the market and demographics of the patient population they serve.8 Evidence-based research on pioneer models can provide strategies on the processes that need to be established for selecting a payment model that supports quality and cost goals.4
- Collaborating with other healthcare providers
The main strategy for transitioning from FFS to value-based models is collaborating with other healthcare providers and providing proper tools for consumers to make effective and affordable healthcare decisions. 7 Reaching out to other healthcare providers will be crucial for hospitals as they will be responsible for the patient’s continuum of care, not just the patient’s hospital care. 9 This means that the providers must develop partnerships that are collaborative and transparent.4
- Focusing on primary care
Primary care serves as the cornerstone for a strong healthcare system and it has been demonstrated that focus on primary care is associated with enhanced access to healthcare
services and better health outcomes. This will prevent patients from seeking expensive emergency department visits due to negligence.
- Advanced Practice Providers (APPs)
Increasing the use of APPs should become an essential part for of delivering comprehensive cost-effective care that will allow lowering operating costs.
- Investing in data analytics
Healthcare data analytics play a significant role in delivering care to determine value and measure costs for treating a condition and use the data to drive new strategies and decision-making. The major drawback is that health integrated technology requires a significant investment, but it could be crucial to determine if the hospital meets the organizational goals.9
- Automatically tracking quality measures
Value-based care models rely on quality measures to ensure that evidence-based guidelines are followed for treating their patients. Establishing systems that streamline workflow for making sure quality measures are met is critical. 10 Systems should be designed to track changes over time and should be able to evaluate potential quality concerns that need further investigation.
- Evaluating strategy periodically
Healthcare organizations need to evaluate their strategy periodically to keep up with the constantly changing healthcare landscape to better meet the organizational goals.9
- Increasing patient volume
By increasing the patient volume served, organizations will be able to help in risk distribution and counterbalance the loss of volume in the number of procedures carried out. 5
- Bringing clinical integration
Data sharing is a critical part of alternative payment model as providers will have faster access to patient’s information through integrating electronic medical records for streamlining data among network providers.4
- Standardizing patient care processes
It is important to align hospital’s goals and objectives with that of the providers as physicians can have the biggest impact on organizational costs, quality, and overall results. Hospital executives need to ensure that providers have sufficient resources to redesign care for the organizations effectiveness and efficacy in delivering care at lower cost. 8
- Focusing on wellness instead of single episodes of care
For building a successful value-based model, the hospital should focus on the complete wellness of the patient instead of single episodes of care.9 Clinicians should focus on preventative health by engaging patients periodically for regular check-ups in order to prevent costly emergency department cases through better population health management.10
What are the future implications of value-based care?
A record of positive experience of transitioning into value-based care from pioneer organizations will encourage more organizations to join the force for delivering better health outcomes. Partnering with primary care physicians who are excellent in delivering preventative, effective, and efficient care will enable organizations to sustain success in the long-term. Organizations might have some financial losses in the beginning phase due to the initial investments in technology and reduction in revenue due to the shift from traditional FFS model. However, moving to value-based care is the most effective method for hospital systems, even if achieving success might take some time. To minimize losses, continuous planning and reviewing is important throughout the period of transition.8
By improving health outcomes through a patient-centered approach, we can eliminate health disparities and deliver exceptional healthcare services to achieve improved patient experience, reduced cost, and improved population health. There is no one-size-fits-all value-based model. Healthcare organizations must evaluate their own strengths and weaknesses to select the value-based model that meets organizational goals. A value-based care model can be considered as a core business strategy of healthcare executives for future sustainability of their organization in the changing healthcare landscape.7