Value Based Payment

Preparing for Value-Based Payment: Fundamental Change That Encompasses the Revenue Cycle

April 28, 2017 12:15 pm

The transition to value-based care calls for enormous changes from providers, including assuming increased risk under new payment models, making requisite investments in data analytics, and ultimately, redesigning revenue cycle processes.

As healthcare organizations prepare to transition from volume-based to value-based payment, they should understand the connection between clinical systems and management processes. It is no longer sufficient to focus just on financial or revenue cycle systems. Clinical performance is now inextricably linked with the concept of value.

Contracting for value requires a commitment to three fundamental objectives:

  • Managing risks and avoiding adverse events in episodes of care
  • Managing costs, making efficient use of time, materials, and processes
  • Achieving contracted outcomes, taking into account patient severity and stage of illness

Finance leaders must accomplish the first two objectives, understanding how to stratify risk and manage risk and costs, to ensure their organizations meet the third objective of achieving required outcomes.

Being able to predict and quickly identify patient cohorts susceptible to certain conditions and complications will aid the delivery of cost-effective prevention and treatment. Such capabilities are imperative for effective coordination of care, which is vital for organizations that are responsible for managing the health of populations, such as accountable care organizations (ACOs).

The managed population’s level of wellness and health is a factor in determining the risk curve. It is important to ensure the membership for which the organization is assuming risk is not skewed towards a sicker population. Senior executives require a keen knowledge of the patient population that will be managed. Only with such knowledge can they weigh population characteristics against the organization’s unique strengths and determine how best to structure value-based programs to deliver better care for individuals, better health for populations, lower cost, and enhanced patient and physician satisfaction.

Because each organization starts the journey to value-based care from a unique point, individual road maps and end points will differ. It is up to each organization to write its own value-based playbook by gleaning knowledge from its historical performance data. Following are key considerations organizations should address as they seek to transition their revenue cycles to value-based care. We begin with a review of preliminary considerations regarding payment design and data requirements under value-based care before entering a more-detailed discussion of key considerations in transitioning to a value-focused revenue cycle.

Payment Design Considerations

Value-based programs reward organizations through incentive payments, offered through a variety of payment models that differ according to the unique characteristics of each organization’s environments and local markets. When designing a payment model that is suitable for its own circumstances, and organization should consider six fundamental organizational characteristics:

  • Geographic location including urban/rural status
  • Ownership structure
  • Predisposition to risk
  • Patient/membership mix and distribution
  • Ability to manage to quality targets
  • Current care team operations and infrastructure

An objective assessment of the organization’s strengths and weaknesses also is imperative to establish achievable goals within value-based programs. The requisite insights can be gained only through data analysis across entire episodes of care, by patient cohort. For each patient population, revenue cycle executives should understand the costs and risks involved, know the extent to which the outcomes are achievable, and be able to determine the best margins and highest ROI.

One of the biggest challenges is understanding the data well enough to structure future services, partnerships, and business models effectively. An underlying question that must be addressed when tackling this challenge is whether the organization’s IT systems can cope with both fee-for-service and fee-for-value models, given that there will continue to be a transitional period where organizations will need to manage payment under both models. Information systems may be unable support this dual managment challenge, and providers will need interim processes to accomplish the transition to systems aligned with a value model.

For example, many electronic health records (EHRs) lack the capability to support the data structure and quality reporting required by CMS to demonstrate quality. Revenue cycle systems and organizational processes may need to be adjusted to provide cleared visibility into cost and population risks.

One option is to implement software and information systems that can piggyback onto current EHRs—balancing fee-for-service and value-based billing. Organizations that take a proactive approach to prepare EHRs for value-based payment will be ahead of the curve.

Use of Data to Define Population Risk

Under value-based payment, organizations across the care continuum must function essentially as one—clinically, administratively, and financially. It therefore is imperative that the organizations be able to view and access patient data across the care continuum to monitor costs and identify financial, clinical, and population risk. For both clinical and financial stakeholders, data constitute a critical asset for ensuring program success.

Consider, for example, the following applications of data:

  • Using episodic performance data to quantify total cost of care for each patient population
  • Assessing data on health-defining attributes of members (e.g., wellness, sickness, family history, comorbidities, and severity and stage of illness) to understand the risk each member presents
  • Analyzing historical cost and quality data as a basis for projecting outcomes of unique patient populations

For example, finance executives should know costs and outcomes data for patients undergoing total-knee replacement within the Comprehensive Care for Joint Replacement bundled payment model administered by the Centers for Medicare & Medicaid Services (CMS) and for patients with chronic diabetes within CMS’s Medicare Shared Savings Program. By knowing which patient populations the organization already manages well (delivering optimal outcomes at acceptable cost), finance executives can help guide strategic service-line decisions. Analytics provide the means to ensure these decisions are well informed and financially sound.

Unfortunately, many organizations are hampered in their decision making by a lack of complete data in their EHRs and financial systems—one of the common deficiencies of EHRs designed for a fee-for-service environment alluded to previously. With incomplete data, an organization cannot effectively analyze costs, outcomes, and margins, which is a recipe for lackluster performance in emerging quality programs. Progress also can be hindered by a lack of data analytics expertise.

The emergence of value-based payment has made it imperative for healthcare organizations to make technology and IT resource investments to overcome these limitations. An organization needs to be able to answer questions such as the following:

  • What is our population, and what are its defining characteristics?
  • What are the critical indicators that demand intervention?
  • What patients do we need to screen?
  • What should our targeted outcomes be for patients?
  • Do we provide the best care setting for delivering the care necessary to achieve the best outcome?

The process of analyzing raw data to guide actions is easier for organizations whose patient populations are set, such as a large health networks with a high percentage of employee participation. With a healthy population, an organization has time to screen and educate the many members who are well and intervene early as necessary to lower cost and improve outcomes.

Case Example: A Large Medical Group Transitions to Value

The Revenue Cycle Operations Assessment

When organizations make the transition to value-based care, an essential part of this process will be to assess existing revenue cycle operations. The strategic question for such an assessment is, “Can our systems, people, and processes support and sustain this shift in payment focus?”

All organizations should review this question internally and with other key stakeholders, including other providers and external organizations engaged in an episode of care, to determine what actions are needed to minimize the potential impact of falling revenues, increasing risk burden, and rising costs of care. For example, surgeons, anesthetists, specialists, and rehab centers would all be involved in a complete joint replacement episode.

The staff training, processes, and technology required under fee for service cannot support a fee-for-value approach and therefore must be carefully evaluated and redesigned accordingly. This assessment should look at the entire revenue cycle process, from first referral to final discharge, with close scrutiny at each step of the quality of information being captured, processed, and reported to support a value-based model. Here are the four key revenue cycle operations to assess.

Patient access/referrals. Under a fee-for-value model, a greater amount of information is needed for the patient referral process than is needed under fee for service. Organizations must check eligibility, obtain prior authorization, and verify medical necessity. The information is used for steps such as:

  • Assigning the patient to a risk category and appropriate contract
  • Ascertaining whether the patient falls into a carveout or exemption
  • Assessing the extent to which the organization is capable of producing a favorable outcome for the patient
  • Determining whether a medical manager is needed to oversee the entire care episode

At the patient-access level, eligibility determinations and prior authorizations should be evaluated based not only on each patient’s primary reason for seeking care but also on all preexisting complications or comorbidities to ensure the patient is correctly assigned to a risk category and contract. Consideration also should be given to how well the patient was assigned to a particular protocol (e.g., inpatient, outpatient). Further analysis may result in a change in the care process. Up-front diagnostic work also is critical to ensure data are complete and accurate and to avoid medical necessity denials or auditor recoupments.

Charge (activity) capture and billing. The billing system should be evaluated to ensure it is correctly capturing and accounting for all activity and billing the right amount for all interventions. Unlike fee for service, the focus under fee for value should be less on billing and more on accounting for all activity within a fixed-fee environment. The primary objective should be to deliver the right care at the right cost using a more effective process and more cost-effective materials and medical devices, while avoiding readmissions and additional interventions not defined in the protocol of care.

Although CMS is allowing an interim window where fee-for-service billing is still acceptable, organizations are expected to know and track the fee-for-value gaps. As organizations evaluate their charge-capture and billing processes, they should address the following key questions:

  • Is the chargemaster up to date, and capable of supporting value-based care?
  • Can the chargemaster simultaneously support fee-for-service and fee-for-value billing?
  • Is it possible to identify the cost of care across the entire episode?
  • Is a cost accounting system in place that can help assess organization’s ability to deliver cost-effective episodic care?
  • When charges are converted to bills, do the bills show the final agreed-upon cost, price for the procedure, and price for the episode with all components?
  • Can the process be completed in a timely manner? Is it necessary to wait until the patient has achieved the proposed outcome, and if so, what is the effect on cash flow, billing? Is it possible to send interim bills?

Clinical documentation. Clinical documentation improvement (CDI) is both a strength and weakness in the value-based process. CDI becomes a means of tracking performance, particularly regarding quality, and ensuring clinicians understand the impact of wrong or incomplete documentation on value. Key metrics can include the level of denials resulting from incomplete documentation, inaccurate coding, or underbilling for services.

EHRs don’t always capture all the data necessary to monitor episodic care, and new information demands may require text mining at every level of care—emergency, outpatient, inpatient, and post-acute. In a value-based model, organizations should address four considerations for CDI programs:

  • Expanding programs to capture all comorbid conditions throughout the entire care process, even starting in the emergency department
  • Improving EHR clinical documentation templates to reduce physician friction and expedite documentation processes
  • Preparing all bills with correctly coded information based on proper documentation
  • Ensuring there is ongoing collaboration among physicians, health information management, and CDI teams

Denial management and prevention. New checkpoints are essential throughout the entire revenue cycle process to prevent claims denials under value-based payment. Greater collaboration and communication across all teams will help prevent denials early in the care episode.

A key focus here should be to determine where and why denials have occurred in the past, with the shift to value in mind. Just as in a fee-for-service world, effective denial management under fee for value requires resolving root problems on both the front end and back end of the revenue cycle. Operational assessment in this area includes a compilation of all steps mentioned above to:

  • Verify that referrals and prior authorization were correct
  • Identify carve outs and exemptions as quickly as possible
  • Capture and document all comorbidities
  • Ensure correct ICD-10 coding and DRG assignment

Building a Value-Based Playbook

Every organization that is transitioning to value is still writing its unique new value-based playbook, based on its historical strengths, current patient population, and strongest provider partnerships. Value-based care is a team sport. Managing the health of populations—a fundamental goal of value-focused contracts—will require new collaborations across the care continuum.

In the future, the focus will be increasingly on behavioral change across entire episodes of care as guided by data and analytics. Organizations should be prepared to answer a key question for each patient cohort:

Did we use the most effective clinical protocols, drugs, devices, provider network, and follow-up care to meet quality outcomes for each patient and across this entire patient population?

Ensuring the best allocation of responsibilities to deliver high-quality care in the most cost-effective manner and to the right patient populations is the Holy Grail of the entire healthcare industry in a value-based economy.

Jon Melling, FHIMSS, 
is a partner at Pivot Point Consulting, a Vaco Company, Brentwood, Tenn., and a member of HFMA’s Arizona Chapter.


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