Federal policies are now nudging health care providers away from fee-for-service compensation toward a new model that rewards them for keeping people well. Many health care economists believe this new paradigm will serve to improve the physical and fiscal well-being of most Americans.
For the industry, however, this shift may be challenging. Value-based care promises to be the most radical change in US health care reimbursement in the past 50 years, one that will have far-reaching effects on the sector’s drivers of profitability and overall structure.
In this three-part series, we looked first at how reimbursement systems have evolved and why value-based care seems to be the most likely future scenario for health reimbursement. In this section, we will review the nuts and bolts of value-based payment models. On April 17, 2018, we will conduct a distinguished panel of healthcare experts to further explore value-based care in practice and the strategies that can be deployed to ensure success in the new healthcare paradigm.
Part 2: The ABCs of Value-Based Care The general idea behind value-based care is easily understood: encourage healthcare providers to reduce costs and improve patient outcomes via financial incentives and risk sharing arrangements as opposed to paying based on service volumes. Through value-based reimbursement, along with the shared cost savings from more effective care delivery, payors improve alignment with providers, gain a necessary lever to eliminate wasteful spending, and raise care quality all at the same time.
That’s the theory, anyway, and most economists say it’s a good one. But, are the current value-based alternative payment models positioned to permanently replace fee-for-service medicine or a bridge to a broader overhaul of the healthcare system toward population health? The Affordable Care Act delivered CMS the mandate to reduce healthcare costs by shifting from fee-for-volume to fee-for-value. The three value-based models gaining the most traction include accountable care organizations (ACOs), bundled payments, and capitation.
Accountable Care Organizations. ACOs – first arriving on the scene in the mid-2000s before becoming a core element of the ACA – comprise a network of hospitals, physicians, and post-acute care providers that share clinical and financial accountability for better care at a lower cost. At its core, an ACO is designed to improve care coordination (particularly for chronically ill patients), prevent medical errors and unnecessary readmissions, and limit the overutilization of costly services.
These objectives are achieved by realigning incentives and linking provider payments to quality metrics and care costs. The central figure in an ACO is the primary care physician (PCP); the quarterback calling key healthcare plays across their patient population. The PCP proactively manages patient health, discourages unnecessary procedures, and directs patients to the highest quality specialty and ancillary providers as possible.
This is a stark contrast to the fee-for-service system, whereby the patient is unwittingly passed from one specialty provider to the next (often without an assessment of the value of the whole treatment). For instance, before a knee replacement, the PCP will weigh the cost-benefits of restorative physical therapy to invasive surgery and, if surgery is deemed necessary, advise on pre-operative strategies to ensure the patient is of optimal health prior to the procedure.
The PCP will work collaboratively with the orthopedic surgeon to establish an appropriate care plan, including the pre-op identification of the post-acute care pathway best suited for the patient’s rehabilitation. While ACOs have permeated the healthcare system nationally, questions abound as to whether ACOs, alone, sufficiently control costs while improving care, particularly given certain hospitals and physicians remain hesitant (if not resistant) to shift away from fee-for-service reimbursement. Or, perhaps, ACOs are merely a stepping stone to a longer-term goal of shifting full financial risk onto providers for managing patient populations for a fixed payment.
Bundled Payments. In 2013, CMS launched the Bundled Payments for Care Improvement (“BPCI”) initiative, a voluntary test program across ~50 clinical episodes to determine if medical bundling works in practice. Building on the strong success of the initial BPCI program (now known as BPCI Classic), in January 2018, CMS announced the launch of BPCI Advanced, a new voluntary bundled payment model for 32 clinical episodes (a reduction in episodes from BPCI Classic, as certain clinical episodes were discovered to be a poor match for medical bundling). With CMS achieving a base savings rate of 2% and 3% in BPCI Classic and Advanced, respectively, bundled payments have been among the top performing value-based programs.
Indeed, BPCI Classic revealed that bundling certain episodes, such as lower extremity joint replacements, results in superior outcomes at lower cost through (i) better care coordination, (ii) the implementation of data and technology to inform optimal clinical decisions, (iii) the alternating of physician behavior, and (iv) the redesign of clinical pathways (redirecting patients to lower cost care settings as well as reducing the utilization of and length of stay across the post-acute care continuum).
Interestingly, compared to ACOs – the value-based program of the primary care physician – the quarterback of bundled payment models have been specialists such as orthopedic physicians. A prevailing thought across the healthcare landscape positions the PCP at the center of value-based care; however, the BPCI program has demonstrated that specialty physicians are equally, if not better, positioned to eliminate waste and improve outcomes, thereby bending the cost curve.
Capitation. Capitation – or population-based – payments fundamentally shift the management and incentives of care from payor to provider by advancing providers a fixed price per patient to cover all health services related to the specified patient population over a defined period of time. Exceeding targets for lower cost and higher quality results in additional reimbursement to the provider. Underperform and a percentage of the capitation payment may be withheld.
Capitation is an old concept from the HMOs of the 1990s but, in the latest guise, the new capitation models improve upon HMOs unsuccessful strategies by (i) linking quality measures to avoid suboptimal care and (ii) sharing cost savings with providers – who directly reduced the waste – as a financial incentive (rather than to payors retaining the savings, as was the case in the 1990s version of the HMO model).
Which Model Wins Of these three value-based reimbursement programs, which model is best and most likely to prevail in the effort to replace fee-for-service? The answer likely involves the cherry-picking of core elements from all three models: a population-based payment system that (i) is primary care and specialty physician-led, (ii) eases the ability for a narrow network of providers to collaborate and risk-share, and (iii) reimburses via a capitated payment model with retrospective adjustments linked to quality metrics, patient satisfaction, and actual cost.
This value-based reimbursement model will improve care delivery, eliminate wasteful spending, and share the cost savings of more effective healthcare to those providers actually achieving the results so the highest quality, lowest cost healthcare participants remain financially viable and, importantly, prosper. Please join Livingstone’s distinguished healthcare panel on April 17, 2018 to learn more about the aforementioned models and strategies and initiatives used by industry-leading healthcare providers to navigate the shift to value-based reimbursement.