Insurers in the survey saved an average of 5.6 percent in medical costs in the value-based payment programs—and none lost money in them.

June 18—The prevalence of prospective bundled payment and downside risk among payment models offered by private health insurers surprised a sponsor of a new national survey.

Findings of a national study of 120 insurance companies conducted by ORC International and commissioned by Change Healthcare included a tie among prospective bundled payments and “pay-for-coordination” as the fastest-growing value-based payment (VBP) tactics. Among surveyed insurers, 33 percent identified prospective bundled payments as growing. Another 35 percent of insurance plans—including commercial plans, Medicare Advantage (MA) plans, and Medicaid managed care plans—already had established such payment models.

Andrei Gonzales, MD, an assistant vice president for Change Healthcare, said the share of prospective bundled payments—lump-sum, upfront payment for an episode of care—was surprising to him “because there is inherently more risk involved in that for the provider because … they have to manage within that budget and if it goes over [budget], they are [paying] out of pocket.”

Such a structure creates a stronger incentive for providers to control the cost of care within an episode, but they can face challenges in finding ways to cover costs that exceed the original funding.

“There are a lot of administrative tasks that a provider needs to take on in that setting that are not realistic for most providers to engage in,” Gonzales said in an interview. Most likely to be involved in prospective payment models are larger health systems, as well as organizations with more “thought-leading physicians who are really invested in this model and take it on themselves to build the capacity and the ability to do that.”

Both private health plans and the Centers for Medicare & Medicaid Services (CMS) are looking to implement more prospective models to reward providers that are able to operate in them, he said.

In contrast, retrospective models likewise incentivize providers to coordinate care, but without many of the administrative tasks required by prospective models. Christina Ritter, PhD, director of the patient care models group at the Center for Medicare and Medicaid Innovation, recently announced that CMS had decided to add prospective payment to models but was not yet ready to say to which ones.

One challenge to retrospective payment as identified by the survey was that 15 percent of insurers using it found the payment approach ineffective, while 31 percent found it effective. Another 44 percent were still assessing it.

“It wasn’t terribly surprising,” Gonzales said about the poor numbers.

The downside of retrospective models includes the long payment lag from the time care is provided to the time of payment—which commonly ranges from 90 days to one year.

“Sometimes that delay can create the perception, if not the reality, that providers don’t pay attention to” the retrospective model, Gonzales said. “But there are a lot of retrospective programs out there that are making a difference.”

Despite the lower perception of effectiveness, a retrospective bundled payment model still may be the best fit for some payers and providers because of specific market conditions, he said.

A related finding was that 48 percent of respondents with prospective payment bundles incorporated downside risk in them. The largest share of models with downside risk was in population-based payment (57 percent), while smaller shares had downside risk in retrospective bundled payment (44 percent), capitation or global payment (43 percent), and pay-for-performance (43 percent). In contrast, the area of VBP with the highest upside-only risk was capitation or global budget models, of which 51 percent used that approach.

“That is a little more aggressive than what we’re seeing being reported overall from the industry and what you get a sense for from across the industry,” Gonzales said.

‘Very Significant’ Overall Savings

The growing desire among private insurance companies to expand VBP models was indicated by the fact that all of the respondents are deriving at least some savings from the spectrum of those models, Gonzales said.

Insurers reported that their VBP models provided medical cost savings ranging from 0.1 percent to 7.5 percent. The average savings was 5.6 percent, and no respondent reported losing money from them. Such findings come in contrast to overall annual increases in the medical cost index of 4 to 5 percent in recent years.

Gonzales said such savings are “very significant.”

The findings also indirectly counter the perception that providers won’t change their care delivery for non-fee-for-service (FFS) Medicare plans because they lack sufficient scale, Gonzales said. Specifically, the shrinking share of private health insurance companies’ business that is tied to FFS (37.2 percent) indicated progress.

“In a way it shows that the industry has moved past that and found a way to overcome that challenge,” Gonzales said.

However, he noted that much of the VBP business of insurance companies still relies on “the FFS infrastructure and claims that would be submitted for FFS payments.”

On a related note, challenges identified by insurance companies included a continuing struggle to engage providers in episode-of-care programs. Specifically, insurance companies said it was either very or extremely difficult to: generate interest among providers to participate (48 percent); agree on episode definitions (43 percent); and gain consensus on budgets and risk- or gainsharing (58 percent).

Other Findings

The survey—a third in a series, following 2014 and 2016 studies—found the VBP model that consumed the largest share of insurers’ business was capitated or global budget models, at 17 percent, with the share projected to grow to 19.8 percent by 2021.

In comparison, the share of insurers’ business composed of pay-for-performance models was 15.2 percent, prospective bundled payment was 10.4 percent, population-based payment was 10.2 percent, and retrospective bundled payment was 9.4 percent.

The dominant VBP model among commercial insurance plans was the 63 percent using narrow or “high-performance” provider networks. The most common model among Medicaid managed care plans was patient-centered medical homes (45 percent), while among MA plans the leading model was accountable care organizations (49 percent).

The dominant strategy to implement VPMs was via pay-for-performance among commercial plans (62 percent) and MA plans (48 percent), and capitation or global payment among Medicaid managed care plans (38 percent).

Almost 80 percent of payers reported improvements in care quality, while 64 percent found improvements in provider relationships and 73 percent tracked upgrades in patient engagement.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, June 18, 2018