Rob Fromberg

Every spring as I grew up, my family drove from Illinois to New York City to visit relatives. The trip was a highlight of my year, except for one problem.

 

As we approached New York, inevitably there came the moment when someone called out, “Look, the Statue of Liberty!”

And everyone in the car—Dad, Mom, two brothers—would point and exclaim. I would look left, right, straight ahead. I would look in the far distance and closer. I would squint and I would open my eyes wide. And still, I could not see the Statue of Liberty.

Year after year, we repeated the ritual. Everyone in the car—everyone except me—could see the Statue of Liberty. It’s true that my eyes were bad, but I always had an up-to-date prescription. There seemed no reason why I couldn’t find the Statue of Liberty on the horizon.

It became a family joke, and it was funny, even to me. But I wished that just once I could see in the distance what everyone else saw so easily.

I imagine that healthcare finance professionals might feel the same way these days. It seems as though every expert in every publication, webcast, conference, and online post is talking about payment models on the horizon—bundled payment, value-based payment, risk-based contracting, capitation.

Despite the intensity of the discourse, however, few providers have extensive experience with these approaches. In particular, few have experienced the effect these models will have on revenue and margin as the nation’s health system makes the transition from volume-based to value-based payment. I suspect that for most, these models are at best a blurry image on the horizon.

This month’s hfm cover story, “The Transition to Emerging Revenue Models” by John M. Harris and Rashi Hemnani, does a good job making tangible the analysis necessary to determine which revenue model makes sense for your organization.

The authors lay out several scenarios (for example, Medicare ACO with 10,000 lives and commercial narrow network with 10,000 lives). They show how to estimate direct contract results and the effect on net revenue of volume changes arising from likely reductions in utilization. They show how to calculate net income at risk from actions your competitors may take to adopt risk-bearing contracts. And they show how to calculate the net impact on your organization’s margin. “Armed with [this] analytic framework,” the authors write, “a health system can begin to decide at what pace it should move forward with new revenue models.”

In hindsight, I should have brought a pair of binoculars with me on our trips to New York. If value-based purchasing is indeed a rapidly approaching point in the distance, think of this article as your pair of binoculars.

Publication Date: Monday, April 01, 2013

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