With the preservation of the Affordable Care Act (ACA), providers are seeing new payment models move from concept to reality and gain significant momentum. The Medicare Shared Savings Program overseen by the Centers for Medicare & Medicaid Services announced 106 new ACOs in January, nearly doubling the size of its program. Taking into account the Pioneer ACO program through the Center for Medicare and Medicaid Innovation (CMMI), the total number of Medicare ACOs is over 250. CMMI also recently published its list of over 450 participants in the Bundled Payments for Care Improvement program launching in July 2013.

Health insurance exchanges created by the ACA are also a market dynamic driving this transition, as a large number of individuals and small employers will be seeking affordable health insurance coverage that offers high quality benefits.

As these new payment models are gaining speed and visibility in the marketplace, providers are quickly recognizing that their competitors are piloting new arrangements, building partnerships, and pursuing new opportunities. Integrated provider-payer systems will be lower-cost models available to purchasers, and the risks of inaction or waiting may be severe. Competitors will steer patients away, winning market share with purchasers. Physician entities may also disrupt the market as they compete to take a central role to manage population health, driving down hospital and health system utilization and revenue.

Support of Mission

Hospitals and health systems are accountable to their individual patients and those paying for care. As payment pressures increase, new payment models allow organizations to provide cost-effective care in the community. Organizations that are not intently exploring or pursing these arrangements will most likely receive pressure from board members and other stakeholders to consider and move toward new revenue models. In these challenging times, it is necessary to be prepared for the transition from a fee-for-service payment model to a value-based model.

Market Share

New revenue models can drive market share. Payers may use new revenue models to steer patients to providers that either have lower unit costs or that cooperate in managing overall population health costs. Similarly, competing hospitals may attract physicians through incentives to physicians. And physicians who enter these arrangements directly may play one hospital off of another to choose the hospital that best supports physician contracting success.

All of this market share shifting will occur in an environment that is likely to drive avoidable utilization (admissions, testing, emergency department care) out of the system. Given hospitals’ high fixed costs, the resulting reduced volume can be particularly harmful to the bottom line. A reasonable goal may be to maintain volume by offsetting utilization reductions with market share gains.

Alignment with Physicians

Many of the new revenue models offer an opportunity to partner more effectively with physicians. In addition, some of these arrangements provide regulatory protections to cooperate in ways that were not previously possible. Failure to participate in these models may alienate physicians, prompting the to look for other partners that are more willing to share the upside opportunity with them.

To the extent that these arrangements yield higher revenue for physicians, they can potentially help offset losses that many hospitals experience on their physician networks.

Improving Operations

Engaging physicians in efforts to reduce hospital operating costs has always been challenging. Some new revenue models, like bundled payments, support efforts to manage operating costs through gain-sharing with physicians.

Implementing new revenue models requires implementing operational changes. Typically, physicians and operating staff will seek to follow the same revised process for all patients. Therefore, improved operational performance for one condition or population may carry over to other patients as well.


John Harris is a principal, DGA Partners, Bala Cynwyd, Pa., and a member of HFMA’s Metropolitan Philadelphia Chapter (jharris@dgapartners.com).

Rashi Hemnani is a senior associate, DGA Partners, Bala Cynwyd, Pa. (rhemnani@dgapartners.com).


For more information see John Harris's & Rashi Hemnani's "The Transition to Emerging Revenue Models," hfm, April 2013




Publication Date: Tuesday, April 16, 2013

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