Value Based Payment

Value-Based Payment Readiness

March 22, 2018 11:58 am

The path to value-based care is often long and winding, requiring a depth and breadth of commitment and resources that many healthcare organizations find challenging. Although hospitals, health systems, and medical groups see the wisdom in pursuing these models, progress toward fully realizing them seems to vary.

To learn more about organizations’ perspectives on and advancement toward value-based care, the Healthcare Financial Management Association (HFMA) surveyed a group of members about their organizations’ value-based payment readiness and how it has changed in recent years. The survey took place in September 2017 and involved 117 senior financial executives, including CFOs, vice presidents of finance, and finance directors. The following HFMA Research Highlight, sponsored by Humana, discusses key takeaways from the survey.

The current state

According to the study, nearly one-quarter (24 percent) of respondent organizations participate in value-based payment arrangements through commercial payers—up from 12 percent in a similar survey conducted in 2015. Almost three-quarters of executives (74 percent) report their organizations have achieved positive financial results from value-based payment programs. This is notably higher than the 51 percent of executives reporting positive financial results in 2015.

Of those involved in risk-based compensation models from commercial payers, more than 80 percent are compensated using either a bonus-only arrangement or a combination of bonus and value-based reimbursement. With the former, providers are rewarded for meeting certain quality standards, but the payment does not negatively influence regular reimbursement. In the latter, reimbursement is exclusively based on quality standards and practices, with exposure to upside potential and downside risk.

The speed of adoption

Although market penetration has doubled in the past two years, the pace of change is somewhat slower than healthcare leaders anticipated. The 2015 survey projected that 50 percent of organizations would be involved in value-based arrangements with commercial payers by 2018, an increase of more than 75 percent.

“Looking back, survey respondents may have been a bit too ambitious,” says Caraline Coats, national vice president of the Provider Development Center of Excellence for Humana. “Transitioning to a value-based model takes a lot of time and work. This is true not only for the investments in information technology and infrastructure, but also to change the organization’s culture away from a fee-for-service mindset and toward a value-based care philosophy. As such, the move to these models may be taking more time than the industry originally thought.”

Providers may also be realizing that these programs aren’t appropriate for everyone—at least not right now. “Whether you should participate in a value-based model depends on your market, the size of your organization, the number of covered lives, and the partnership with your health plans,” says Susan Horras, director of healthcare finance policy, health plan, and population health for HFMA. “Even if it is a good idea, it requires a strong, trusting partnership between providers and health plans, and the capability to invest in the necessary infrastructure.”

Even though the overall movement to value-based care may be slower than initially thought, there are certain types of arrangements that seem to be gaining popularity. “At Humana, we have seen substantial movement of our Medicare Advantage members to value-based care payment models,” Coats says. “At the end of 2017, 66 percent of Humana Medicare Advantage members affiliated with physicians in value-based care payment agreements. This is a positive step because these members tend to have more preventive care screenings, better health outcomes, and lower healthcare costs than those treated by physicians in a Humana Medicare Advantage fee-for-service agreement.”

One of the downsides of the relatively sluggish adoption rate is that it is continuing to enable a mixed payment environment that includes both fee-for-service and value-based care. “This is keeping providers in limbo as they juggle multiple payment models with different payers,” Coats says. “When healthcare organizations split their attention between fee-for-service and risk-based arrangements, it can lead to a cumbersome work environment, especially in terms of strategic planning and administrative functions.”

Concerns about value-based care capabilities

The survey further illustrates that, in general, financial executives do not view their organizations as highly capable in the areas that support value-based payment. In fact, the ability to easily verify patient insurance is the only area in which financial executives rate their organizations as highly or extremely capable more than 50 percent of the time. Conversely, external interoperability—being able to aggregate clinical information across networks with payers and health plans—is the area they reported feeling least capable (see Figure 1). This is potentially problematic because financial executives anticipate that in three years, their organizations will need to be extremely capable in most of the areas that support value-based payment—especially interoperability (see Figure 2).

“Pursuing these types of arrangements can definitely be daunting, and organizations may not feel fully ready; however, focusing on organizational alignment and getting everyone on board is a critical first step,” Horras says. “Without the leadership team—especially physicians—embracing these models, all your other investments are going to have limited effectiveness. That said, once your culture commits to these models, the path to success may seem clearer.”

Interoperability tops the list of concerns

External and internal interoperability may be a primary focus for healthcare providers in the coming years due to the increasing demand for meaningful information from across the care continuum and the current shortcomings in accessing this information. Because interoperability on all levels is a weakness for healthcare organizations, and their abilities to seamlessly exchange data can depend on the state of their infrastructure, it is an area that warrants attention.

“Before an organization can start thinking about interoperability and data exchange on a large scale, it must first be able to exchange data efficiently within its own walls and accurately analyze and interpret the information,” Coats says. “For larger medical groups and health systems with multiple locations and disparate systems, this can be a challenge. Not only will it require closely examining and aligning any technical infrastructure, but also onboarding staff who can manage the technology and interpret the data. Despite the difficulty, working through this hurdle is necessary for healthcare organizations to lay the groundwork for population health management and value-based models.”

Even if an organization can smoothly exchange internal data, it will most likely struggle to share data externally, such as with primary care physicians, pharmacies, specialists, and emergency departments outside the network. To fully realize value-based care goals, organizations must be able to share information on this level, and it needs to be in a format that all providers can use to improve patient care, drive efficiencies, and reduce healthcare costs. “Regrettably, in most cases, external interoperability depends on new developments in health information technology and the willingness of electronic health record vendors to advance data exchange across systems,” Coats says. “Much of this progress is out of the hands of providers and health plans. However, by focusing on internal interoperability, organizations can take a step in the right direction and be prepared for when the industry moves forward with external exchange.”

Horras adds, “As long as national data definitions and standards that ensure consistency remain out of reach, the industry will be limited in how much and how effectively it can share information. In the next few years, we’re going to start to see improvements as these walls come down. In the interim, some organizations and even some states have created data exchanges, which can serve as a stopgap measure. By participating in these programs, organizations can test the waters on external information exchange and further prepare themselves for the future.”

Physicians play an essential role

To achieve the shift from volume to value, organizations must get physicians behind the idea. Without their full support, the transition away from fee-for-service will be choppy at best. “Some areas in which physicians may be especially interested include negotiating the terms of any value-based arrangements and weighing in on how dollars are spent for population health programs,” Coats says. “They also want to play a key part in establishing the value-based payment structure.”

Unfortunately, physician engagement is another challenge survey respondents cited. Organizations seem to be wrestling with the most effective ways to get doctors on board and involved.

One potential strategy is to designate a physician champion to ignite the culture behind value. Not only can this person lend credibility and enthusiasm to the work, he or she can ensure that physicians are involved early in the development process. The sooner organizations include physicians, the more likely they are to garner and sustain their support. “Because a physician champion is a peer, the role can often influence physician buy-in more than a financial leader or administrative executive could,” Horras says. “When physicians are aligned, organizations can get a better understanding of the data and analytics needed to proactively manage patient health and whether clinical redesign is necessary to improve quality and reduce costs. If change is required, physicians can take the lead on reimagining processes. The reality is without physician enthusiasm, these programs tend to struggle.”

Weaving in information about social determinants of health

An interesting topic that has grown in importance since the first time the survey was conducted is the concept of social determinants of health—those societal factors that influence an individual’s ability to practice healthy habits. Some possible social determinants include food insecurity, homelessness, lack of transportation, and limited family support. Organizations should be considering these factors when designing value-based programs because they directly affect patients’ likelihood to access care and follow treatment plans.

The survey shows that more than 60 percent of respondents do not consider social determinants of health in their overall value-based care strategies and cost planning. This may be something that organizations want to reevaluate going forward. “To incorporate social determinants of health, organizations are going to have to rethink typical care models that solely emphasize clinical interventions,” Horras says. “They must understand the community they serve and the populations within those communities. That’s not always easy information to access, and organizations may need to get creative by partnering with community resources to learn about the area, where people seek care, and what kinds of struggles they’re having.”

In addition to partnering with outside organizations, providers can learn more about social determinants of health by asking patients directly. “Humana has conducted pilots where practices incorporate brief, validated questionnaires into their electronic health records, so screening for social determinants becomes seamless,” Coats says. “Then, we connect practices and their patients to resources and tools that address the relevant barriers. After a detailed analysis, we found food insecurity and loneliness/social isolation to be particularly critical areas on which to focus. As such, we are now working with practices to pilot screening and referral interventions, and are leveraging several assessment tools, including the Hunger Vital Sign and the UCLA Loneliness Scale.”

Moving forward

One of the things that makes value-based care programs so challenging is there is not necessarily a clear roadmap of how to transition from fee-for-service to value-based care, and many organizations struggle with where to begin. Constantly changing external dynamics along with internal constraints make the process overwhelming. However, there are a few key strategies that organizations can follow to launch their value-based care efforts and move the needle on performance.

Take stock of the current state. Before proceeding too far, organizations should evaluate their existing infrastructure and patient population. Knowing what systems and resources are in place and understanding population needs will drive strategy, enable better planning, and point to the right care models. This exercise should also look for gaps in cultural alignment and physician engagement.

Build partnerships with health plans. “Health plans can provide a lot of data and offer critical insights about patients, and they can also help an organization maximize opportunities to improve patient health outcomes while managing costs,” Coats says. “Before an organization jumps into an arrangement with a payer, it should work with the health plan to evaluate the provider’s readiness for value-based payment and discuss which models are the best fit. From there, an organization can further develop its culture with engagement from physicians and obtain necessary IT or staffing resources.”

If an organization has already started down the value-based care road and is performing well, then it may be time to migrate other contracts to value-based arrangements. This may help ease the administrative burden of managing operations in both the fee-for-service and value-based worlds.

Continuously evaluate and respond. Developing a value-based care program requires constant assessment and tweaking to respond to changing dynamics. “This will entail identifying roadblocks and working to overcome them,” Coats says. “Some common hurdles include determining the right infrastructure, managing costs, and juggling both fee-for-service and value-based care. Addressing infrastructure can be tough because it’s not as easy as just going out and purchasing population health solutions. Instead, you have to figure out what solutions are going to make the most substantial impact for the price, keeping the rest of your organization’s priorities in mind. If cost becomes a barrier, which it usually will at some point, organizations should look outside their walls and explore partnership opportunities that can help fill some of the needs or gaps they have.”

As for managing multiple contracts with diverse payers, this will not improve until the industry progresses out of its current state—and this will take time. “There isn’t a switch that can be flipped to make all reimbursement contracts consistent with the same payment models and rates,” Coats says. “As the industry continues to move toward value-based care and learns along the way, a larger proportion of contracts will start to exhibit similar terms and a structure that focuses more on patient health outcomes, preventive care, and financial upside opportunities versus transactional payments by claims.

About HFMA’s Executive Survey: Value-Based Payment Readiness

Respondent Demographics

HFMA researchers surveyed 117 senior financial executives

  • Executive (CFO, VP Finance, etc.) — 74%
  • Director (Director of Finance) — 26%


  • Up to 99 beds — 43%
  • 100-299 beds — 41%
  • 300 or more beds — 16%

About Humana

Humana Inc. (NYSE: HUM) is committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large.


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