By Rebecca Molesworth, VP, Product Management for Trella Health
The U.S. health care system’s current fee-for-service (FFS) payment model incentivizes providers to increase the volume of services they furnish. A patient visits, an insurer pays. Another visit, another bill. Although providers all share the professional goal of improving health outcomes, the payment model does not reward them for their results. It rewards them for the volume of patients they see.
As such, and amidst rising costs and sinking performance on quality indicators, employers, health plans, and government purchasers of health care are today pushing for the transition to value-based care (VBC).
Nowhere is the gravitational pull of VBC stronger than at the Centers for Medicare & Medicaid Services (CMS), the nation’s largest payer. CMS has signaled, rewarded, and legislated toward VBC repeatedly in recent years. One recent CMS Innovation Center strategy outlined the goal of having every Medicare beneficiary in an accountable (or value-based) care arrangement by 2030.
For payers like CMS, the premise of value-based payments is to align physician and hospital bonuses (and penalties) with cost, quality, and outcome measures. Value-based payment models reward better results instead of rewarding volume as FFS does.
At its heart, VBC has the potential to upend the traditional healthcare business model in the U.S. The level of dollar investment in various tests and trials of VBC models is both substantial and increasing. While some health care organizations are hesitant to leave existing and profitable models, others are actively preparing for what they see as an inevitable transition to VBC.
For the savvy, the market shift toward VBC presents an unprecedented opportunity: a generational compensation rearrangement in one of the world’s largest industries.
Which VBC Model works best? Data will soon tell the story.
Any provider making the leap into value-based compensation should understand that many different payment models fall under the VBC umbrella in the current landscape.
For example, in addition to the permanent Medicare Shared Savings Program that CMS runs, which offers various compensation models at varying levels of risk, the CMS Innovation Center has introduced more than 50 payment models since its creation in 2010. While it has taught CMS a lot about compensation and risk, it has also been overwhelming to providers. The number of models, overlap among models, complexity of benchmarks, and administrative burden are all cited as reasons for provider participation being lower than what CMS and advocacy groups in favor of VBC would like to see.
What’s more, those VBC models haven’t yet been applied consistently across all populations (i.e., Medicare, Medicaid, and dual eligible benefits). They’re also looking at the impact models have on underserved communities and want to increase participation among safety net providers.
In total, VBC providers will need to settle on a model that works for them. While the many value-based care models will each indeed be tested, combined, refined, and clarified in the years ahead, VBC works well for the providers who make the leap based on extensive analysis.
Early adopters suggest that the key to achieving better healthcare outcomes is through better data. By leveraging robust data, healthcare organizations can identify payment models that work well for their specific populations.
VBC thrives on real-world healthcare data
Importantly, this outcomes-based focus reframes what is working and what isn’t in practice. By tying performance to outcomes, healthcare providers become risk-bearing entities. To address those risks, the organizations must evaluate the markets they operate in to identify where they have coverage gaps or where they’re underperforming.
What types of partners do they need to add? Which partners should be cut from the network? Would it be wise to create tiered networks like “preferred,” “affiliated,” and “refer with caution” partners? Which patient flows and pathways are optimal for specific patient cohorts? Which pathways optimize transitions of care?
The answers to all of these questions are lurking in the healthcare data, but the U.S. healthcare models have never prioritized such outcomes before, and so hospitals, health systems, and practices around the country will soon have to begin basing care and post-care decisions around expected outcomes, for the first time.
Which datasets should providers begin to target?
The most obvious place a provider could start to track outcomes would be across risk-adjusted metrics. In particular, hospitalization rates and readmission rates offer straightforward “working/not working” care intelligence to providers.
Providers can also look to the financial metrics in their practices, from average Medicare reimbursement to total patient cost. Organizations that jump into VBC often value per-member-per-month and per-member-per-year costs, which they can track across different time frames and compare against other organizations.
In short, VBC works because it reframes success in a healthcare practice around data that matters – healthier patients, fewer readmissions, lower costs. Those practices who find ways to achieve all three will be financially compensated for their effectiveness.
It’s new terminology and a new worldview for providers, and every health care stakeholder in the U.S. should begin to understand how the various models work. Providers should begin to unpack the models and their associated incentives, risks, and potential financial impacts.
One thing is clear about the decade ahead, the pressure to reduce costs and improve quality and outcomes will continue unabated, and those health care providers that start to develop VBC models now may gain early advantages that will enable them to compete more effectively in the future.