• Building Meaningful Incentives in Value-Based Contracts

    Laura Ramos Hegwer Feb 10, 2016

    As value-based contracts become more prevalent in health care, many organizations are experimenting with innovative strategies to ensure quality and financial incentives align properly.

    Years ago, contracting primarily was left to the contracting department. Yet since the advent of value-based payment contracts, healthcare organizations increasingly have relied on multidisciplinary teams to help shape the design of these programs, including how quality and financial incentives are aligned.

    One reason is that providers are wary of repeating the same mistakes they made in the past. “In the early 1990s, many provider organizations that negotiated capitated agreements with payers failed because they didn’t understand population management agreements,” says S. Patrick Hammond, CEO, Emory Healthcare Network, and chief market services officer, Emory Healthcare, Decatur, Ga. “Although a contract may have sounded reasonable because it was based on averages, the reality is that no population is based on averages.”

    Bringing Together the Right Team

    To help vet population-based contracts, Emory’s contracting team has expanded to include an outside actuary, who helps leaders understand actuarial trends, how data are risk-adjusted to reflect patient severity, and the financial ramifications of the agreement. Emory’s CMO/chief quality officer also is on the negotiating team. “He can tell us if a metric will be meaningful to the doctors,” Hammond says.

    S. Patrick Hammond, CEO, Emory Healthcare Network, and chief market services officer, Emory Healthcare.

    S. Patrick Hammond, CEO, Emory Healthcare Network, and chief market services officer, Emory Healthcare, has added an outside actuary to his negotiating team. (Photo: Emory Healthcare)

    Find the right structure. Emory Healthcare Network, which includes 1,800 physicians and six hospitals, moved from contracting via a clinically integrated network (CIN) to a commercial accountable care organization (ACO) model in 2014. “When we looked at how much we were going to earn under a CIN agreement, it really wasn’t sufficient to justify the investments in infrastructure and the dollars that would be moving out of fee-for-service,” Hammond says. “So we jumped in sooner with an ACO to take more upside and downside so we could negotiate to retain a higher percentage of what we saved.”

    Today, Emory’s ACO is piloting population health management agreements with Blue Cross and Blue Shield of Georgia to manage 35,000 members. The ACO demonstrated a 25 percent improvement on 37 quality metrics collectively and cut medical costs by 3 percent in CY14. The health system is piloting a similar program with Aetna that includes 17,000 members.

    Commercial Shared Savings Payment Model Results
    Results from Emory Healthcare Network’s commercial ACO include improvement on 37 quality metrics.

    Create a tiered approach to align incentives. To cascade the goals of its population-based contracts down to its physician practices, Emory Healthcare Network has created a tiered incentive plan. Ten percent of the bonus for primary care physicians hinges on overall ACO performance. Approximately 20 percent is based on how the physicians’ local health network performs against quality and cost targets (the ACO is comprised of six local health networks). The remaining 70 percent reflects individual performance based on approximately 25 metrics that are used to calculate an individual score.

    Pursue a solution for specialists. “With primary care, you can basically attribute membership back to the primary care physicians, and they have a lot of direct impact on the measures,” Hammond says. “Assigning a patient to specialists is a much bigger challenge because the number of attributed patients they treat is much smaller.” Another issue is that most quality metrics in payer arrangements are claims-based, but metrics for specialties should be based on medical record data because such data offer a deeper level of clinical information, Hammond says. Although the incentives are still somewhat broad for specialists, leaders at Emory Healthcare Network are in discussions with payers regarding how they can structure their metrics more accurately using electronic health record (EHR) data.

    Making Contracts Actionable

    Northwell Health (formerly known as North Shore- Long Island Jewish Health System), a 21-hospital, $8 billion health system based in Great Neck, N.Y., currently manages 200,000 lives in value-based contracts with government and commercial payers. The organization also has shared savings arrangements with many managed care companies, including Humana, Aetna, and Empire Blue Cross and Blue Shield.

    Rich Miller, senior vice president, payer relations and contract development, and his team have developed an extensive template for evaluating every proposed population health arrangement. When reviewing a contract, some of the questions they consider include:

    • What is the proposed member attribution model?
    • What are the opportunities to mitigate risk? For example, is there an outlier provision or a risk-adjustment provision?
    • Are there minimum savings thresholds?
    • What are the measurement periods?
    • How are baselines and targets determined?

    Involve physician leaders. Once the template is complete, Miller’s team shares it with the health system’s value-based payment model work group, which includes physicians and leaders from finance, care management, managed care, legal, and IT who review value-based arrangements in the contracting phase. “We thought it was imperative to get clinical input up front before any of these value-based contracts were executed,” Miller says, adding that it is not always a nimble process: “It typically takes months to vet a contract, but we feel very strongly that we shouldn’t enter into an arrangement unless we are comfortable that the provisions serve all the parties involved, including patients.” The work group also meets biweekly to review how current value-based programs are performing and to suggest clinical and operational changes that may be needed.

    Two years ago, Northwell Health also formed a multidisciplinary pay-for-performance task force at the health system level to provide feedback on quality performance measures included in value-based contracts. Most members are physicians, although some are leaders from finance, IT, and provider network operations. “The physicians are so passionate about this that in some cases, they have asked us to set up conference calls with payers to make the case with the clinical leadership of a health plan regarding how a measure was being used,” Miller says.

    Develop a preferred list of measures. Getting convergence on the measures used by different payers in these contracts is a challenge for many organizations. “We’ve accumulated more than 200 different measures, and some are similar measures just calculated differently,” says Joseph Schulman, executive director of Care Solutions, Northwell Health’s new care management organization, which is responsible for the performance, management, and implementation of risk-based contracts and population health management programs. To that end, Northwell’s pay-for-performance task force developed a list of approximately 10 inpatient and 15 outpatient measures that clinicians felt were aligned with the organization’s quality agenda. Whenever possible, the contracting team incorporates the preferred list of measures in the organization’s value-based contracts.

    Joseph Schulman, executive director, Care Solutions, and Rich Miller, senior vice president, Northwell Health.

    Joseph Schulman (left), executive director, Care Solutions, and Rich Miller, senior vice president, payer relations and contract development, Northwell Health, suggest that providers incorporate a preferred list of metrics in their contracts. (Photo: Northwell Health)

    Appeal to providers. To ensure provider engagement, Northwell Health has developed a provider incentive program that recognizes performance on quality metrics as well as care coordination. “These endeavors lend themselves to alignment because exceptional outcomes for patients is the measurement of success in these programs, and that is what is most appealing to our providers,” Schulman says.

    Creating Alignment from the Top Down

    The success of population health programs depends on having incentives that reflect organizational goals at every level, says Cathy Jacobson, CPA, president and CEO, Froedtert Health. “You have to make sure that all of your incentives are aligned through your corporate goals, your system goals, and ultimately your contracts.”

    Froedtert Health and the Medical College of Wisconsin (MCW), both based in Milwaukee, have created an affiliation in which they set system goals together (Ramos Hegwer, L., “How Healthcare Organi­zations Can Strengthen an Affiliation Without Merging,” hfm, April 2015). Froedtert Health and MCW also belong to the eight-member Integrated Health Network (IHN) of Wisconsin, an accountable care network that is exploring risk-sharing and population management strategies with employers and payers. The network includes 53 hospitals and more than 8,100 physicians. Each member of IHN develops its own physician compensation model to create incentives that can drive change. At Froedtert Health, 10 percent of community-based physician compensation is at risk for a variety of clinical and financial measures.

    Create a value council. As part of their affiliation, Froedtert Health and MCW have formed a joint healthcare value council, which is led by the enterprise CMO and includes physician leaders from the community physician practice and the academic physician practice. The CMO, who also sits on the IHN clinical integration committee, is responsible for making sure that the physician practices’ goals align with IHN’s goals and for offering feedback on contracts. “Through IHN, we’ve had some great conversations with commercial payers on how certain diabetes metrics they are using are being replaced in the medical literature, and we have suggested newer metrics instead,” Jacobson says. “That speaks to the power of a network. They might not have listened to us if it was just Froedtert and MCW.”

    Cathy Jacobsen, president and CEO, Froedtert Health.

    Cathy Jacobsen, CPA, president and CEO, Froedtert Health, Milwaukee, says physician leaders should help vet population-based contracts.

    Focus on quality performance. IHN is finishing its second year of participation in a shared savings contract covering United Healthcare’s commercial population in the region. Froedtert’s finance team worked with IHN’s finance council to determine how shared savings would be distributed to members after IHN meets its network- wide goals. “The debate centered on how much of the reward should be based on financial performance versus quality,” Jacobson says. “We decided to increase the shared savings that a member would earn back based on quality metrics. Because we are a member of the Wisconsin Collaborative for Healthcare Quality, which publicly reports quality metrics, we thought our focus on quality performance should be increased.”

    Focusing on Population Health

    At Dartmouth-Hitchcock, an academic health system with more than 1,200 physicians based in Lebanon, N.H., the system’s physicians are salaried, although their compensation is still based on relative value units (RVUs) to measure productivity. This approach means clinicians, particularly specialists, may see value-based care as the “flavor of the month,” says Lynn M. Guillette, FHFMA, CPA, vice president of finance, payment innovations. “Right now, some specialists don’t see how these value-based payment models really affect them,” she says. “The challenge is to help them understand that this is not a gatekeeper model, but rather primary care and specialists working together to make sure patients’ needs are met in the most cost-effective manner possible.”

    Build on early success. From 2005 to 2010, Dartmouth-Hitchcock was one of 10 providers that participated in the Medicare Physician Group Practice (PGP) Demon­stration, which created physician incentives to improve quality and reduce the total cost of care for a set of Medicare patients. The model is considered a forerunner to the ongoing Medicare ACO models. During its participation in the PGP demonstration, Dartmouth-Hitchcock began the difficult but necessary work of reorienting how it delivered primary care to better manage this set of patients. Dartmouth-Hitchcock did not set out to create patient-centered medical homes (PCMHs) through the transition process, as that model had yet to be widely adopted, but the practice transformations resulted in PCMH-type practices nonetheless, Guillette says.

    Tammy Benoit, contract manager, and Lynn M. Guillette, vice president, Dartmouth-Hitchcok.

    Tammy Benoit (left), contract manager, and Lynn M. Guillette, FHFMA, CPA, vice president of finance, payment innovations, Dartmouth-Hitchcock, are leveraging their health system’s early success with population health pilot programs. (Photo: Dartmouth-Hitchcock)

    In 2008, Cigna approached Dartmouth-Hitchcock about piloting a PCMH program for its commercial members. Today, the program has evolved into the Cigna Collaborative Accountable Care program, an upside-only model that involves more than 100 health systems across the country. Dartmouth-Hitchcock in 2010 entered into a two-sided risk contract with Anthem based on quality measures, and inked a similar agreement with Harvard Pilgrim Health Care in 2011. In 2012, Dartmouth-Hitchcock became one of 32 Pioneer ACOs. Today, 65 percent of the health system’s unique primary care patients are attributed to an ACO or risk-based model.

    Create a new division. To support these contracts, Dartmouth-Hitchcock has launched a population health management division, headed by a chief population health officer who is also a physician. Dartmouth-Hitchcock’s contracting department works closely with the chief population health officer and the clinical operations, quality, and analytics teams to vet contracts and determine whether the metrics included are realistic. “Typically, these metrics are still not negotiable with payers, so if there is one metric that we don’t collect or buy into, we want to make sure there are enough other measures to offset it,” Guillette says. For example, Dartmouth-Hitchcock is an early adopter of new mammography screening guidelines from the U.S. Preventive Services Task Force that do not recommend yearly mammograms for women ages 40 to 50 without a family or medical history of breast cancer. Most payers have not adopted these guidelines. “We are not always able to get agreement with payers because we may have adopted a different approach based on more current science,” Guillette says. In such cases, the organization will move forward with a contract only if there are other metrics that are actionable.

    A Payer’s Point of View

    Back in 2008, Blue Shield of California, San Francisco, laid the foundation for one of the country’s longest- running ACOs, serving members of the California Public Employees’ Retirement System (CalPERS). Blue Shield of California’s partners in the ACO, which is active today, are Dignity Health, the largest hospital provider in the state, and Hill Physicians, a practice with 3,800 providers.

    Create a global budget. To create financial alignment across all partners, ACO leaders established a global budget and risk-sharing elements tied to mutually agreed-upon metrics (Markovich, P., “A Global Budget Pilot Project Among Provider Partners and Blue Shield of California,” Health Affairs, September 2012). The three ACO partners provided CalPERS with an immediate premium credit that totaled $15.5 million, and the partners shared both upside and downside risk for total healthcare expenditures. Each partner’s level of risk—that is, the portion that a partner must cover if the ACO misses the savings target—was based on its ability to influence per member per month costs in areas such as ancillary services, pharmacy, and professional services.

    Offer and solicit input. “Initially, we took the lead in designing how the financial arrangement would work and how the clinical engagement would work,” says Kristen Miranda, senior vice president, strategic partnerships and innovation, Blue Shield of California. “But since then, we have had considerable input from our ACO partners that has led us to refine our model over time.” At the start, the model was focused on improving care coordination, as well as reducing readmissions and avoidable bed days. The partners since have expanded their focus to include ambulatory programs, such as home care and palliative care.

    Blue Shield of California today has 26 ACOs across the state, managing care for more than 325,000 members, each involving a physician practice and most involving at least one hospital or health system. “Because the populations are so different and the systems’ initial levels of performance and sophistication are so different, we’ve had to tailor the programs to meet our partners’ needs,” Miranda says.

    Establish a forum for clinical leaders. To help design meaningful incentives, Blue Shield of California has established an ACO quality council comprised of clinical leaders from most of its ACOs. “We’ve let a lot of our provider partners drive the discussion on which metrics matter,” Miranda says. “We recognize that we can’t have ACO leaders across the state managing to a completely different set of metrics for Blue Shield than they are for other insurers.”

    The health plan also shares unblinded quality data across all of its ACOs to encourage providers to share best practices.

    Lessons Learned

    Aligning incentives is likely to become a more widespread concern as efforts to improve value and achieve the Triple Aim become more prevalent. Healthcare leaders who are on the front line of negotiating value-based contracts and developing population health management programs suggest the following strategies.

    Build a better contract. “Value-based care starts with a culture that supports innovation, and it requires collaboration, and contracts can help move people toward that transformation,” says Jeff Micklos, executive director, Health Care Transformation Task Force, Washington, D.C. The task force represents provider, payer, patient, and purchasing organizations dedicated to shifting 75 percent of their business into value-based agreements by 2020.

    The task force recently published an action memo on key elements to consider in ACO agreements (available at www.hctff.org). The memo includes some of the financial issues that should be covered in ACO agreements:

    • A statistically sound, financially transparent model designed so all providers can participate
    • A clear division of financial responsibility between all parties involved
    • Access to raw patient claims data and prescription drug claims data, if included in contracts
    • Periodic contract reviews that allow for midcourse corrections to make sure everyone is properly incentivized
    • A performance period that spans several years, allowing the ACO enough time to build the programs and tools it needs to succeed
    Jeff Micklos, executive director, Health Care Transformation Task Force.

    Jeff Micklos, executive director, Health Care Transformation Task Force, Washington, D.C., leads a collaborative that aims to create a more uniform set of value-based metrics.

    “Whatever the financial structure of a contract is, it should have two options available,” Micklos says. “One model should be based on historical claims, which is more effective for moving high-cost providers into structures that decrease costs. The other model should be based on regional cost trends so providers can continue to become more efficient.” Ideally, an ACO that starts in the first model would shift to the second model over time, he adds.

    Work toward a consistent set of measures. One of the task force’s goals is to bring together members so they can whittle down the number of measures that have emerged from private-payer, Medicare, and Medicaid population health management programs.

    “We need a more streamlined, consistent set of metrics across all payers and health systems, recognizing that there will need to be some variability depending on the patient population,” Micklos says. He believes the right measures should be based on quality outcomes, rather than process measures, which are less likely to drive improvements in care.

    Focus on cost targets. “The initial development of the cost target or benchmark is critical,” Dartmouth-Hitchcock’s Guillette says. “What you think is true about the initial benchmark may not be true if your ACO changes in size or composition.” Dartmouth-Hitchcock left the Pioneer ACO program in 2015, having entered in 2012 and lost more than $3 million in 2013-14. Guillette says the Pioneer ACO model was not flexible enough to accommodate changes in participating providers, including one year in which Dartmouth-Hitchcock doubled the size of its ACO by adding three nonaffiliated health systems. “In essence, we had three different ACOs year after year,” Guillette says.

    Charge an executive team with governance over the agreement. “The team can provide clear accountability and a process for escalating issues,” says Miranda of Blue Shield of California. “There will be issues that come up, and you have to have the kind of provider- payer relationship where you can determine what adjustments need to be made when things don’t go as planned,” she says.

    Include specific data-sharing terms in the agreement. The agreement should include the frequency and timeliness of data transfer, as well as the content that will be transferred, Northwell Health’s Miller says. “In our contracts, we have started to include the specific field level that should be included in the claims data that are transmitted to us,” Miller says.

    Emory Healthcare Network requires that all payers in its shared savings agreements provide a monthly download of claims data on all patients attributed to the network’s primary care physicians. “It may take more than a year into the contract to get consistent, accurate data feeds from payers,” says Hammond of Emory Healthcare Network. “It’s one of the biggest challenges we have as providers.”

    Build an IT infrastructure for sustainability. “Sharing performance data only gets you half of the way there,” says Froedtert’s Jacobson. “You need to support practices to help them do the work.” Such support includes hardwiring inpatient protocols that reduce variation in physician practice, as well as building the right IT infrastructure.

    Emory Healthcare Network requires physicians to have one of a select list of certified EHRs that can connect to the network’s health information exchange. This cohesion allows providers to connect to Emory’s cloud-based support tools, which include disease registries that help physicians see care gaps in real time during the patient visit.

    Create a population health management university. Recognizing that the skills needed to manage populations are different from managing acute episodes, Emory Health Network has created a yearlong program that prepares practices to apply for certification as Level III PCMHs from the National Committee for Quality Assurance. Ten practices are enrolled in the program, including a neuroscience practice that aims to become a medical home for Alzheimer’s patients.

    Understand payers’ perspectives. “The biggest challenge for us is engaging with provider partners who understand that our customers are demanding not just a lower trend, but a lower absolute price point— and without sacrificing continuous improvements in clinical quality, patient safety, and service,” says H. Scott Sarran, MD, senior vice president and CMO, government programs, Health Care Service Corporation (HCSC), Chicago.

    When choosing partners to carry out population-based contracts, HCSC looks for strong physician leadership at the practice level. Among hospital-based partners, HCSC also values executive leaders who have invested in clinical and programmatic changes to better manage populations. “If they have not started to make changes in how their executives and physicians are compensated—for example, if physicians are still compensated on a pure RVU basis—it is hard to see how they are going to succeed out of the gate.”

    Preparing for the Future

    Despite the challenges of aligning quality and financial incentives in value-based contracts, Guillette of Dartmouth-Hitchcock believes providers should feel encouraged.

    “Although there is no perfect model yet, these models are heading in the right direction,” Guillette says. “If you look at the quality outcomes from these models, you can tell we are making a difference for patients.”


    Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.

    Interviewed for this article: S. Patrick Hammond, CEO, Emory Healthcare Network, and chief market services officer, Emory Healthcare, Decatur, Ga.

    Rich Miller, senior vice president, payer relations and contract development, Northwell Health, Great Neck, N.Y.

    Joseph Schulman, executive director, Care Solutions, Northwell Health, Great Neck, N.Y.

    Cathy Jacobson, CPA, president and CEO, Froedtert Health, Milwaukee.

    Lynn M. Guillette, FHFMA, CPA, vice president of finance, payment innovations, Dartmouth-Hitchcock, Lebanon, N.H.

    Kristen Miranda, senior vice president, strategic partnerships and innovation, Blue Shield of California, San Francisco.

    Jeff Micklos, executive director, Health Care Transformation Task Force, Washington, D.C.

    H. Scott Sarran, MD, senior vice president and CMO, government programs, Health Care Service Corporation, Chicago.

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